Posted on 03/06/2005 10:57:13 PM PST by nickcarraway
Warren Buffett has warned that the US trade deficit risks creating a “sharecropper’s society” as his letter to shareholders sounded an increasingly bearish tone about the value of the dollar.
The billionaire fund manager said his own performance as chairman of Berkshire Hathaway was “lacklustre” because he struck out in his quest for new investments. Annual results showed the book value of Berkshire shares underperformed the stock market for the second year in a row while full-year profits fell 10 per cent.
But his sceptical view of current market valuations continued as Berkshire’s holdings of cash rose from $36bn in 2003 to $43bn by the end of December – equivalent to nearly all the “float”, or excess cash, generated by its insurance businesses.
Mr Buffett’s bet against the dollar also grew. Foreign exchange contracts – mostly short positions against the US dollar – nearly doubled over the year to $21.4bn, generating $1.8bn in gains as the greenback fell against other major currencies.
These currency profits were partly responsible for a sharper than expected rise in fourth quarter earnings from $2.39bn to $3.34bn, although Berkshire earnings are notoriously volatile due to the timing of investment gains.
Mr Buffett stepped up his warning about the US trade deficit and the need to finance it with foreign investment, devoting more than two full pages of the annual report to the topic.
“This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8bn daily, an increase of 20 per cent since I wrote you last year,” he said. “Consequently, other countries and their citizens now own a net of about $3,000bn of the US”
In particular, he warned that this meant a sizeable portion of what US citizens earned in future would have to be paid to foreign landlords.
“A country that is now aspiring to an “Ownership Society” will not find happiness in – and I’ll use hyperbole here for emphasis – a “Sharecropper’s Society,” added Mr Buffett. “But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.”
Nevertheless, Berkshire’s chairman and chief executive conceded he did not do his job very well last year in finding ways to profit from the unusual market conditions
“My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out,” he said “Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position.”
Berkshire’s net earnings, which are subject to volatile swings in realised investment gains, fell from $8.15bn to $7.31bn for the year. Total assets rose from $181bn to $189bn and shareholder equity increased from $77.6bn to $85.9bn.
Mr Buffett added little new information about an ongoing investigation into potentially illegal trading practices in the insurance industry.
“Berkshire cannot at this time predict the outcome of these investigations, is unable to estimate a range of possible loss, if any, and cannot predict whether or not that outcome will have a material adverse effect on Berkshire’s results,” said the report.
Okay! :-)
So Buffett was buying dollars while the dollar fell against the Euro and we should believe him about the direction of the dollar??
Sounds like he's trying to talk the dollar down so he can keep buying for the later rally.
I think that those poor shlubs just want an "easy" way up and think that they'll be given some secrets that they can use, by reading Trump's books/watching his show. But there is NO "easy" way and these people aren't "optimists",but rather, naifs.
I'll tell you more in private! :-)
You know, I've lived in New York a long time. I don't have many illusions left about how the world works. Do you really want to pillage the last remaining few?
They are a funny lot.
I am surprised such "talking up" or "talking down" to advance your own contrary financial position is not illegal. Somehow it smacks of insider trading, but I am no securities expert.
I think that in the case of futures, the game is such that things like this are expected, and never are prosecuted unless it is a republican doing the talking up.
That would ease the pressure on China and make him a happy man!
But it would buy China more time to reform and we would pay that price in spades.
This is all about politics and China, with EU overtones.
Not about the dollar or the deficit in my opinion..
It's about Iraq, Iran and Bush preemptive policies, and not about the deficit, the debt, or the Eurodollar.
anytime I see an ad that says comodity X is going to go up, it usually means it is going to go down. Usually heating oil or gold.
There was also that case of a child who was talking up stocks in chat rooms in an effort to boost his margins.
oh well
Caviat Emptor.
Yeah, that was over some penny stocks IIRC.
A market that the big guys ignore and abhor.
But they can freely do the same in the futures markets and in derivatives.
Life just ain't fair!
If you asked any forex trader right now where to place money, a large number would say short the dollar. Why? The fundamentals are terrible.A good time to start thinking contrarion, then.
Here's the paradox for you dollar shorts: if the dollar cannot support U.S. deficits that are driven by strong U.S. growth, then how can weak overseas economies support strong local currencies?
You can't have it both ways.
cc: nopardons
Great reply! :-)
I just don't get how smart people like Buffy can't see outside of themselves. Nobody is disspassionate, especially when they love the deal, as folks here seem to defend Buffy.
Btw, I haven't heard anyone going much long on the dollar beyond $1.19 on the euro or so, where it was last Spring. I'm not that sanguine in the short term, but I damned well know that the euro can't hold it's own. Where's Buffy gonna go when the euro gets all weak in the knees?
Hang tough, Buffster, ya gonna need it.
Life is never fair but there should be a fair disclosure.
The sage of omaha knows if he had to disclose he is sitting on hundreds of millions of euros every time he said something bad about the dollar he might look a tad biased.
He's already said he was buying up euros...
Well..............We know!
What's happening is that the Forex is all a pu**y right now, just scared, and reaching for any little thing, cuz it's got nothing good to grab.
Btw, there are too many dollars out there, but it has to be that way since the U.S. is the only live wire there is. That's why the dollar won't strengthen much. But neither will the other currencies gain. When the dollar reserves tighten, and they will, you'll see it first in gold and oil. The amazing thing is that neither of those has broken further. They can't, for nothing but the dollar can sustain them... which gets us back to my original point...
Buffet reminds of the guy that walks up to a crowded Craps table in Vegas and puts a handful of black chips on the don't-pass line... It's just not right.
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