Buffett bets against $US, becomes Kerry ec advisor

[Alban]

Billionaire investor Warren Buffett said he increased his bet against the U.S. dollar on concern that the country's trade deficit will weaken the currency.

``We think that over time that the dollar is likely to decline in value against some of the major currencies,'' said Buffett, 73, in an interview before Berkshire Hathaway Inc.'s annual shareholder meeting in Omaha, Nebraska. In the last few months, Berkshire has added ``more than a little bit'' to its foreign currency holdings, he said. They were last disclosed at $12 billion as of yearend.

Foreign currencies represent Buffett's biggest purchase in the last two years. The Berkshire chairman has built a fortune buying undervalued assets and today sees little opportunity in stocks. He bought currencies as the dollar began a 25 percent slump over 24 months and the U.S. current- account deficit ballooned to a record quarterly average of $137.7 billion in the first nine months of 2003.

Buffett, the world's second-wealthiest man, started the meeting, which drew an estimated 15,000 guests, with a video of jokes and skits featuring California Governor Arnold Schwarzenegger and Microsoft Corp. Chairman Bill Gates.

Buffett's Family

Shareholders re-elected the company's board, then Buffett and Vice Chairman Charles Munger fielded questions from the crowd about their investment philosophy, succession plans and reaction to criticism to Buffett's board seat on Coca-Cola Co.

One shareholder questioned the presence of Buffett's wife, Susan, and son, Howard, on the board and suggested that shareholders instead nominate managers of Berkshire's subsidiaries, who may have more business experience and ability to challenge Buffett.

Berkshire Vice Chairman Charles Munger, 79, dismissed the suggestion, which comes as the board studies succession plans.

``I have known for some time the members of Buffett's family who would take over,'' Munger said. ``Don't worry about it. You should be so lucky.''

Succession Plans

Buffett said he has no intention of retiring. His succession strategy is to split his job, with a chief executive officer running the overall company and a chief investment officer managing its portfolio of securities.

``There will be somebody in charge of investments. There will be one CEO of Berkshire,'' he said. ``Actually my son will be chairman if anything happened to me.''

Thousands of shareholders flock to Omaha each year to hear Buffett's views on the economy and investing. The weekend includes ****tail parties, barbecues and shopping trips led by Buffett.

Buffett also said today that the U.S. Federal Reserve may be keeping interest rates too low as the economy expands and inflation picks up.

``They've perhaps been a little slow in terms of moving up because the economy has heated up considerably,'' he said.

Not Buying Google

Buffett said he's not interested in buying shares in Google Inc.'s initial public offering because the price may be too rich for him.

``It's a fabulous business but my guess is that it comes at a fabulous price,'' he said of the company that runs the world's most-used Internet search engine. ``We'd never buy a public offering. The chances of buying something undervalued in a public offering, it's not our game.''

Google filed plans last week to raise as much as $2.72 billion by selling shares through an electronic auction. Company founders Sergey Brin and Larry Page cited Buffett as their inspiration when they announced the offering, quoting Buffett in saying they don't intend to ``smooth'' earnings to satisfy Wall Street analysts. Buffett said he was impressed with the letter.

Buffett, a Coca-Cola board member since 1989, had to defend his own record on corporate governance after 16 percent of Coca-Cola shareholders rejected his re-election on concern about Berkshire's business relationships with the company.

Coca-Cola Controversy

He criticized the California Public Employees' Retirement System, the largest U.S. pension fund, and Institutional Shareholder Services, who

[zyreon]

interesting....

I concur as to shareprices in general perhaps being to high, but you know what they say about fools who buy at high prices... they sell it for a higher price to a bigger fool.

thanks for the info, Buffett is an inspiration.

[Risk]

Im not a big fan of buffet, (although I've read all his books), but I do admire him for strictly sticking to his trading rules.

it takes a lot of discipline to stay out of stocks when others around you are making money from them. (there are many on sharetrader who have had a very succesful past year while buffet has stayed away)

I wonder if he will let us all know in advance when he starts buying shares again. the man has a very large following, and when he starts buying others will follow.

[Risk]

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20040501/bs_nm/financial_buffett_meeting_dc&e=1&ncid=

mentions that he was answering shareholder questions for 6 nearly hours....I cant see anyone in NZ doing that!

that article also has a classic quote from him:
"a checklist is no substitute for thinking."

[Gryffyn]

Risk - I can't see anyone in NZ (business/investment) worth listening to for 6 hours!

[belgarion]

Comments from people like Buffet might just be pre-empting a crash ... I'll never forget the esteemed R. Muldoon's public statement in 1987 that he thought share values were ludicrous. I can't remember his exact words. I remember thinking to myself, "Yes, he right. The greater fool theory is just about exhausted." The following day I sold virtually everything. About a week later, the thump came.

Me? Have been cashing up shares. Anything that doesn't totally and completely justify it's price based on solid financials has gone. Of those that do, I have been selling down anyway. Now I wait.

[GB]

i thought you would be interested to know Belg - that you have Joe Granville on your side - that is a good place to be -

[stephen]

Belg, GB: to what extent do you think NZ shares are overvalued? Don't we have much lower PEs than the US?

If there were an 87-style crash in the US, how bad would it be here? We're not overvalued to the same extent (or even at all) are we?

[Lawso]

No,Stephen, I don't think NZ market is overvalued.

In the 80s our market rose more than just about any other. Post-crash, it fell further than any other. The Dow recovered in a year or so; we've never regained the dizzy 4000 heights of '87, despite the great performance of the last three years. Some degree of slowdown might occur this year, given economic conditions, reduced immigration and what Bollard is doing to int rates. But a crash? I don't think so.

[Capitalist]

Buffett is a chardonnay socialist-- no more, and a hypocrite of the highest order. This is the man who warned last year that derivative securities are a "mega-catastrophe" and "financial weapons of mass destruction" bwahahaha!!! His folksy Berkshire Hathaway annual reports sermonize against the sins of stock options, demonize derivatives, and preach against the perils of pension accounting. He is the leading figure in The Conspiracy to keep you Poor and Stupid, along with the Four (or is it three) Horsemen of the Apocalypse on this site of course, who have been wrong about the US for the last 2 years..

It wouldn't be Sunday without a good helping of STUPID.

[belgarion]

Stephen, NZ share markets, speaking broadly, are seldom overvalued and frequently undervalued. Why? The high divi payers bring a sense on reality to the market but confuse punters. Good thing too IMHO.

Cap, Yes Buffet is a "chardonnay socialist". He believes on the the double/tripple/quartdruple bottom line. That is one of the reasons he is so highly respected. It's not all 'take, take, take'. He is able to develop an army of followers because he 'develop's' companies. Back in Mgt Studies 103 I learned a good manager does 4 things: Controls, Administers, Educates and Leads. Buffet, although you'll seldom hear it from the press, does all 4, and he does it exceedingly well too. Many of your demi-gods do not ... they fail abismally on the Educating and Leading bits.

Cap, with regards Buffet on the deritives markets ... I guess we'll have to wait and see ... crunch time is coming tho ... this year? ... next year ... When? ... F**k knows, but it will happen. It has gotten very silly. This is a market where the 'great fool theory' is just rampant! Many balance sheets are just awash with cards ... the house is gonna crash ... As Buffet says, " ... it's just a question of when."

Cap, Please pass my k.r. to Citi ... If I was in mgt, Id be getting my house in order sooner (like NOW!), rather than later. [}:)] Just a thought on the subject ... how safe are those multi-million dollar mortages on coastal property? As a productive asset, they have near zero value ... [}:)] ... Tulips? Angora Goats? Coastal property soon ... :D

Yes, You're right. It just wouldn't be Sunday without a good dose of Stupid. [}:)]

[GB]

Stephen - i think that the nz market is of fair value but that doesnt mean prices cannot get cheaper in a general downturn -

[Capitalist]

Yeah Belg, I'm about to be taken to da poor house anyday :D You simply cannot lose on coastal land, the market is so small in NZ that you can create your own 'bubble' by word of mouth--I kid you not;) Who said you needed multi-million mortgages anyway?

[Capitalist]

I guess we'll have to wait and see ... crunch time is coming tho ... this year? ... next year ... When? ...

With [:X][:X][:X] to C9 ONE DAY, ROGER FINCH, ONE DAY!!!!

[skinny]

Despite being a US bull I think Buffet is right both about the USD, the sharemarkets and the Fed. But just a little subtelty is required here...

First, Buffet says he believes because of the current a/c the USD will decline against some of the majors. Not all ! Its pretty obvious that the Euro can't handle a higher currency level. OZ and NZDs - well their current a/c positions and trajectories are worse than that of the US [xx(]. So really the adjustment will have to take place against asian currencies where the US is running its deficets anyway. Don't hold your breath for that one though ! Buffet may be waiting quite some time to realise his foreign currency gains ;)

Second, on the US markets whats been really interesting over this year is how badly the broad indexes have done despite very healthy earnings. Whats happened is that the good stocks have been only grudgingly rewarded (much to my consternation !) while the poor ones have been hammered. This action is gradually eroding the excess valuation of the market and its very healthy for longer-term US market prospects IMHO. Buffets judgement is that this has a while to go yet and he is probably right. That said you can now pick up good US blue chips with p/e's around 15-17....

On the Fed, yep, they should just go, raise rates and put the uncertainty in the market to rest. Its a lot like an injection - the thought is often worse than the little jab :D

[willy_wonker]

Market crash.

1987 Market crash in the West
1997 Markets carsh in Asia and Hi Tech Crash

10 year cycle?

When is the next one, 2007?

[Gryffyn]

Hi Tech Crash was more like 2000/01 - still on its way up big time in 97, 98, 99.

Sorry WW but your cycle needs some other basis.

[Alban]

Buffett warns of 'too low' US interest rates

Warren Buffett warned of the dangers of looming inflation in front of nearly 20,000 shareholders who turned for the annual meeting of his Berkshire Hathaway company at the weekend. The world's most famous investor continued his attack on hedge funds and the current "fad" for derivatives, and confirmed he had increased his bet against the US dollar because of concerns over its record trade deficit.

Mr Buffett took questions from shareholders for nearly six hours along with his longtime partner, Charlie Munger, at the event in Omaha, Nebraska. He said he saw evidence of things "heating up".

"Inflation is the enemy of the investor in terms of real returns," he said. The economy was growing and the Federal Reserve might be keeping interest rates too low as inflation picked up. "They've perhaps been a little slow in terms of moving up because the economy has heated up considerably," he said. "Our underlying premise is that this country will do very well and in particular it will do very well for business."

Berkshire owns dozens of businesses including the insurer GEICO, clothes maker Fruit of the Loom and the ice cream chain Dairy Queen. He told shareholders the companies that would be best suited for this environment would be ones that either had unique products and services or were less dependent on purchasing inflation sensitive goods.

On derivatives - an object of much scorn in the past because of the facility with which companies have bent their holdings to massage their quarterly results - Mr Buffett was characteristically scathing, although he did point out that Berkshire had traded in them itself and that there were appropriate ways of using and reporting them. In practice, however, they had often been used to shift figures around from quarter to quarter in a way that was plain "deceptive".

"I would predict that sometime in the next 10 years we will have some very big problems accentuated by people's activities with derivatives," he said.

He used the example of the $6bn accounting scandal at mortgage financier Freddie Mac to demonstrate the risks of derivatives. Despite having intelligent board members, being chartered by Congress, and being followed by dozens of Wall Street analysts, he said Freddie Mac could not get a hold on the complexity of these financial instruments.

There were references to "auditors selling fraudulent tax shelters" and "disgusting" mutual fund managers playing around with their clients' assets to earn higher commissions. "People are getting terrible results from consulting the experts," Mr Munger said.

Mr Buffett, the world's second richest person, responded to shareholder groups who criticised him for a taking a seat on the board of Coca-Cola because Dairy Queen and fellow Berkshire company McLane, a food distributor, did business with the soft drink company.

Mr Buffett said that while their intentions might be proper these shareholder groups, which include California pension fund Calpers, had taken too technical an approach to corporate change, "A checklist is no substitute for thinking," he said.

Mr Buffett said the larger Berkshire became, the more difficult it was to find places to park its money. The company was sitting on a stockpile of $31bn in cash at the end of 2003.

Mr Buffett, whose net worth was estimated by Forbes magazine at $43bn, reflected on some of his mistakes.

He said that by being trigger shy on buying into Wal-Mart he cost Berkshire $10bn. "If every shot was a hole in one it wouldn't make the game very interesting," he said.

"You have to hit balls in the woods a few times."

http://news.independent.co.uk/business/news/story.jsp?story=517568

[skinny]

Just to show my point that value is returning to US markets (particularly outside of tech.) attached is a simple screen of US stocks with the following parameters:

p/e < 20
peg < 1.5
p/sales < 5
beta < 2
profit margin > 10 %
market cap > 1 billion

http://screen.yahoo.com/b?sc=&im=%5ESPC&prmin=&prmax=&avmin=&avmax=&mcmin=500000000&mcmax=&dvymin=&dvymax=&roy=&betamin=&betamax=2&remin=&remax=&pmmin=160&pmmax=&pemin=5&pemax=20&pbmin=&pbmax=&psmin=0&psmax=5&pegmin=&pegmax=1.5&gr=&grfy=&ar=&vw=1&db=stocks

There are 138 stocks that turn up doing this. Now maybe they are not cheap enough yet for Buffett and his billions to be interested !
But IMO its a stretch to extrapolate Buffet's decision not to buy to saying the whole market is wildly overvalued.

[Major von Tempsky]

Unfortunately, given the latest reports, hopefully just a function of inadequate NZ reporting, one has to ask Is Warren Buffett nuts? Has Warren lost it?
I don't mean really badly like Belgarion, but maybe the incipient stages of Alzheimers. Perhaps he hasn't been eating his curry (viz reports that fewer than 1% of old aged Indians get Alzheimers).

First we read he has been taking out positions on the US dollar going down, that he thinks it should go down to correct the horrendous US Balance of Payments deficit on current a/c. Fair enuff. Good stuff.
Then we read that he is advocating raising US interest rates, that US interest rates should and wil go up.

Que? Is he trying to shott himself in the foot? Interest rates go up, so does the US dollar and down the drain go Buffett's foreign exchange bet. And particularly badly as they are probably leveraged as most foreign exchange bets are. Or is he just fibbing, doing some public posturing a la Robert Jones who was telling investors to buy Robt Jones Investments (now TTP) while publicly buying a few but at the same time selling absolute heaps on the side.

I always thought Warren was a straight shooter but now he's either stupid or crooked.

[Major von Tempsky]

Unfortunately, given the latest reports, hopefully just a function of inadequate NZ reporting, one has to ask Is Warren Buffett nuts? Has Warren lost it?
I don't mean really badly like Belgarion, but maybe the incipient stages of Alzheimers. Perhaps he hasn't been eating his curry (viz reports that fewer than 1% of old aged Indians get Alzheimers).

First we read he has been taking out positions on the US dollar going down, that he thinks it should go down to correct the horrendous US Balance of Payments deficit on current a/c. Fair enuff. Good stuff.
Then we read that he is advocating raising US interest rates, that US interest rates should and wil go up.

Que? Is he trying to shott himself in the foot? Interest rates go up, so does the US dollar and down the drain go Buffett's foreign exchange bet. And particularly badly as they are probably leveraged as most foreign exchange bets are. Or is he just fibbing, doing some public posturing a la Robert Jones who was telling investors to buy Robt Jones Investments (now TTP) while publicly buying a few but at the same time selling absolute heaps on the side.

I always thought Warren was a straight shooter but now he's either stupid or crooked.

[skinny]

MVT - IMO Buffet is neither stupid or crooked - he just has a longer time horizon than most. When the Fed increases rates the USD will probably go up in the short-term as capital flows in with the reduced interest rate differentials (though this is not at all a certain effect). But over the medium-term (say 2-3 years) the USD does have to decline against some of the majors IF the US current account position is to significantly improve. Its boring simple macroeconomics.

I suspect Buffet would be quite willing to sit on cash for two to three years to wait for this if need be !

[Major von Tempsky]

C'mon Skinny, nobody is God (except Alan Greenspan).
Warren has admitted a number of mistakes himself over time.
He is very good at analysing stocks and holding for value and I have followed his approach there and profited. That doesn't make him an economist or good at everything.
Nobody takes out currency positions for 2 or 3 years, the instruments just don't exist to do so. Sitting on cash is not the same as going short on the US dollar which means taking out contracts on US futures.
Maybe someone who has read his speech in full can enlighten us that he hasn't really been that dumb but misreported by dumb reporters. I have a friend who holds some BRKB, I'll check it out with him.

[Dimebag]

Major

You are arguing with someone with US$43b in credibility.

Buffett's methods have always been controversial, and in countervailence with conventional wisdom, but time and time again he has been proven to be correct. His fortune reflects this astutueness.

Of course you can take currency positions for 2-3 year plus. You simply buy the overseas currency, and then you can hold it for as long as you want! You certainly don't have to use derivatives.

You go short on the US dollar simply by selling USD and buying some forex. This is 'short' for a person who reports returns in USD. If you missed this elementary point, then I doubt you stand a chance of convincing people you are right and Buffett wrong!

Regarding interest rates:
Having studied Buffett's methods you will be well aware that he is a pure 'fundamentalist' and places no emphasis whatever on what he thinks the near term price is going to do.

He specialises in buying undervalued assets - its that simple. Buffett will have done the same analysis of the US economy and concluded that the USD is overvalued relative to some of the majors. He is no doubt making his investment decisions on this basis. He doesn't care if short-term interest rates cause a short-term rise in the currency.

Dimebag

[skinny]

Exactement mon cher dimebag ! My understanding is that Buffet has simply parked cash or near equivalents in foreign currencies as he isn't particularly fond of derivatives ;)

MVT, I'd really like to know just what majors Buffet has bought in any case. IMHO if there is any weakness to the plan its if he has backed the Euro. I am really bearish about it for a host of reasons - can't get rid of them fast enough as I earn 'em !

Happily, aside from the wares proffered on sharetrader, there is many rather expensive gastronomic delights to help me out here :D

[willy_wonker]

quote:Originally posted by Dimebag


Of course you can take currency positions for 2-3 year plus. You simply buy the overseas currency, and then you can hold it for as long as you want! You certainly don't have to use derivatives.



Thats right.

For example, if you want currency exposure to the Chinese Yuan, just buy some Chinese stock and you have natural exposure.

[K9]

quote:Originally posted by skinny

Exactement mon cher dimebag ! My understanding is that Buffet has simply parked cash or near equivalents in foreign currencies as he isn't particularly fond of derivatives ;)

MVT, I'd really like to know just what majors Buffet has bought in any case. IMHO if there is any weakness to the plan its if he has backed the Euro. I am really bearish about it for a host of reasons - can't get rid of them fast enough as I earn 'em !

Happily, aside from the wares proffered on sharetrader, there is many rather expensive gastronomic delights to help me out here :D



good insight there Skinny...he is taking a hit with the EURO.

[Westie]

For your reading pleasure, a summary written by some university students that recently met with buffett (May 05 i think). Check out number 6 & 8. I've copied number 8 below


quote:What are WB’s views on the U.S. trade deficit?
The U.S. is incurring a $2 billion per day current deficit vs. a $12 trillion economy. At this rate, in 10 years we would have to send 3% of our output abroad to pay for this deficit. Although, WB has been shorting the dollar, 80% of his investments are dollar denominated. Recently, when speaking to his friend Bill Gates, WB learned that
Gates was also shorting the dollar and making similar currency purchases. WB and Gates looked at each other and said: “We own the money supply of New Zealand.”
Currently, WB and Gates own different currencies.

Paste this link in your browser to get the pdf doc.

http://www.vinvesting.com/docs/bg/WarrenBuffett_Meeting_0503.pdf

[Dazza]

“We own the money supply of New Zealand.”


heheh

[skinny]

Holding the money supply of NZ is not too stretching, notes and coins are only $2,638 million :D

http://www.rbnz.govt.nz/statistics/monfin/C1/data.html#P0_0


C9 - on the euro yep the policy of buying US and Canadian dollars with my Euro earnigs when it was over 1.30 is looking good now. But I would still attach some weight to a second round comeback for the bruised and battered euro over the next year or two -- particularly if Merkel wins the upcoming German election and gets a reformist agenda in place...