Thursday, February 3, 2005
Gates, Buffett, China
'run from dollar'
Expert sees development as sharp warning to Americans
Posted: February 3, 2005
1:00 a.m. Eastern
© 2005 WorldNetDaily.com
Decisions by the world's two wealthiest men to bet on a further weakening of the U.S. dollar, coupled with China's lack of confidence in American currency should grab the attention of every working person, says Craig Smith, CEO of Swiss America Trading.
 Warren Buffett (Photo: Honolulu Advertiser) |
Microsoft Chairman Bill Gates is following the example of Berkshire Hathaway Chairman Warren Buffett, who made a pretax gain of $412 million in the fourth quarter of 2004 by buying foreign currencies.
Citing widening U.S. trade and budget deficits and a federal debt of $7.62 trillion, Gates said in a TV interview at the World Economic Forum in Switzerland last weekend he expects the dollar to extend its three-year decline.
"I'm short the dollar," Gates said, according to Bloomberg News. "The ol' dollar, it's gonna go down."
Smith, whose company specializes in tangible assets, told WorldNetDaily he can't believe this news is not the big headline across the nation.
"When I saw this quote, literally I had to catch my breath," Smith said. "This is a clear-cut signal that the people who know money are running -- they are not walking -- in my opinion, they are running from the dollar."
Smith said the actions of Buffett, worth more than $42.9 billion, and Gates, $46.6 billion, are significant in light of the lack of confidence recently expressed by leaders of the world's fastest growing economy, China, which has its currency pegged to the dollar.
Fan Gang, director of the National Economic Research Institute in Beijing, said last week at the World Economic Forum that "the U.S. dollar is no longer -- in our opinion -- a stable currency and is devaluing all the time."
Chinese Central Bank adviser Yu Yongding also has chastised U.S. policy makers, saying, "The U.S. should take the lead in putting its own house in order."
Hedging your bet
Since the beginning of 2002, the dollar has dropped 26 percent against a basket of six major currencies, and the trade deficit grew to a record $609 billion. In addition, the Bush administration expects the budget deficit this year to hit an all-time high of $427 billion.
Smith notes that big investors such as Buffett, Gates and the Bank of China can hedge their portfolios by shorting the dollar -- making a profit off of its decline -- but the average person must turn to tangible assets such as gold.
"That's why this [news] is music to our business," he said.
Dollar-denominated investments such as retirement, 401K, college and savings accounts are in jeopardy with the currency's slide, Smith said.
"An average American has to ask himself this question, 'If the two richest men in the world are abandoning the dollar, why should I stay in it?'"
Stephen Moore, senior fellow in economics at the Cato Institute in Washington, told WorldNetDaily, he still believes it's anybody's guess which way the dollar will head.
"These guys have been famously wrong in the past," Moore said, referring to Gates and Buffett, who are partners in investment deals. "I don't think there are any gurus who know what is going to happen."
Moore says he has faith in the Bush administration and Federal Reserve Chairman Alan Greenspan, whose announcement today of a quarter-percent interest-rate hike led to a rise in the dollar.
"I think the dollar has fallen about as much as it should," Moore said, "and the fact that the White House and Greenspan have made it clear that the dollar's decline is not good for the consumer makes it more likely it will be addressed."
Smith points out, however, that when the dollar began sliding in 2000, then-Treasury Secretary John O'Neill said the Bush administration would maintain a strong dollar policy. When O'Neill was replaced with John Snow, the new secretary said the same thing.
"It still kept falling," Smith said. "We can't depend on the dollar, with the debt, the twin deficits and the trade gap."
Smith points out the silver lining that usually accompanies a drop in the dollar -- an increase in exports because U.S. products become cheaper for foreigners -- has not materialized.
In fact, the November report was predicted to show a trade deficit of some $50 billion, but instead turned out to be $60.3 billion.
Losing our place?
Greenspan has expressed concern that the deficits poses the risk that investors may stop buying U.S. assets, propelling the dollar even lower.
In that situation, Smith said, interest rates will have to rise in order to encourage people to hold on to the dollar. But consequently, he warns, the "stock market goes in the toilet."
Smith said his big concern is that ultimately the U.S. may lose its place as the reserve currency of the world.
He speculates that this possibility may be behind the investment strategies of Gates and Buffet.
"We are first world reserve currency issued by a debtor nation," Smith said. "How long will the rest of the world accept that?"