In Choosing Assets, What’s Safer than U.S. Bonds?

BY Paul Solman  July 2, 2012 at 10:19 AM EDT

Silver coins and bullion bars sit on display in the window of a Bankhaus Schelhammer & Schattera AG bank branch in Vienna, Austria. Photographer: Akos Stiller/Bloomberg via Getty Images

Silver coins and bullion bars sit on display in the window of a bank in Vienna, Austria. Photo by Akos Stiller/Bloomberg/Getty Images

Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Monday’s query:

Name: Nancy

Question: Do you think that owning gold and silver and a home and land might be a better form of security than Savings Bonds? Are all paper assets maybe a more fragile kind of security?

Answer: “Security” is a funny word for something as insecure — as “fragile,” to use your word, Nancy — as market value.

“Subprime mortgage-backed securities”? When I repeat the phrase a few times, with the accent on the last word, it sounds odd, if not downright oxymoronic.

But what, as I so often ask, are the alternatives? Gold? Check out Warren Buffett’s devastating critique from a recent issue of Fortune magazine.

A choice excerpt:

At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

[Note: Gold is down almost 10 percent since then, but still somewhere in shouting distance of $9 trillion.]

Silver? Buffett himself was a buyer years ago, as we pointed out in a history-drenched story on “The Wizard of Oz” here on the NewsHour back in 1998.

But silver was only $5/oz. when Buffett began hoarding it. Today it’s at a much much pricier $27-$28, down from $48 just about a year ago. “I want security,” Otis Redding sang timelessly, years ago. Silver was not, I think, what he had in mind.

Regarding a home and land as security, if they constitute your primary shelter: Sure, what could be a better investment if you have capital to shelter? You get to use them, regardless of the extent to which they appreciate — or fail to appreciate — in value.

If, on the other hand, you’re investing for heirs, or with a view to withdrawing the money in retirement, real estate is no more of a slam dunk investment than anything else — and in the past few years, a dunk that has clanged embarrassingly off the rim.

In the end, my chief investment consultant, professor Zvi Bodie of Boston University and co-author of the new book, “Risk Less and Prosper,” insists that U.S. I-Bonds — inflation-protected U.S. savings bonds — remain the safest way to save. He’s the guy who got me into TIPS in the late ’90s. My third post on the Business Desk, back in November of 2007, was already touting them. Who am I to disagree with Zvi now?

This entry is cross-posted on the Rundown- NewsHour’s blog of news and insight. Follow Paul on Twitter.