Skip to comments.Berkshire Loses Currency Bet (Warren Buffett v US Dollar)
Posted on 04/30/2005 6:39:04 PM PDT by nicollo
OMAHA, Neb. (Reuters) - Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK-A - News; NYSE:BRK-B - News) lost $310 million in the first quarter from betting against the U.S. dollar, but has nevertheless maintained its roughly $21 billion stake against the greenback, the billionaire said on Saturday.
... Omaha-based Berkshire's stake in foreign currency contracts total "a little more than $21 billion," compared with $21.4 billion spread among 12 currencies at year end, Buffett said.
That bet backfired in the first quarter, and even now it costs about 5 percent fewer dollars to buy euros than on Dec. 31. Berkshire's currency bets had in the fourth quarter generated a $1.63 billion gain.
Some traders recently speculated that Berkshire cut its bet against the dollar. But Buffett remains worried that U.S. policies are causing trade and budget deficits to spiral higher, and might cause non-U.S. investors to pull money from the country. Last year, the U.S. trade deficit rose 24 percent to a record $617.7 billion.
"The world has demonstrated a diminishing enthusiasm for dollars over the last few years as they get flooded with them," Buffett said. "Does that lead to some tipping point at some point? Who knows? I have a hard time thinking about any outcome from this that involves an appreciating dollar."
Me thinks there's more to lose on the way, even if, as I've been saying, the dollar will variously hover around buck thirty against the euro.
He's getting old.
The likelihood is that if the bet didn't pay off last time, it will pay off this time. However, if it doesn't, I won't feel sorry for Buffett.
For all those currently short against the dollar, you gotta ask yourself...Do you feel lucky?
If short investors try to get out before a "squeeze", the Yankee dollar might see a nice upward climb.
Warren, ol pal, I don't normally give investment advice, but you just might consider going short on the French franc.
I hope he learnes what the Hunts learned in the silver business.
Worse, he's letting his liberal politics interfere with rational business judgment.
The libs are so busy talking the economy down to hurt Bush they are actually beginning to believe their own lies.
He will let it ride. The odds, given US deficit spending, and balance of trade imbalance, are highly in his favor.
Those who are having their chuckles now, can go play their favorite state lottery. Suckers.
According to much of the more recent economic opinion, no the odds aren't highly in his favor. There's no accounting for the ignorance of emotion beating an illogical path, though, and that's exactly what Buffet is fomenting and counting on.
I remember posting a few months ago , Buffy was trying hard to talk the currency market . Oopps ;O
I think you nailed it. Buffett was angry that Bush won, and stupidly put his money where his mouth was.
Some of us expected a rebound for the dollar, which seems to still be in play. I wouldn't bet on the dollar long term though, which is Buffet's time frame. I also wouldn't bet on the euro, which is likely to be at its zenith. There are other currencies which are probably mnuch better bets than either. I'd like to know what Buffet would be in, instead of the dollar.
"Worse, he's letting his liberal politics interfere with rational business judgment.
The libs are so busy talking the economy down to hurt Bush they are actually beginning to believe their own lies."
oil has topped, and dollar has bottomed. JMHO.
Yuse guys got it: Buffy has put politics in front of reason. He bet against American possibility.
Ever a bad bet.
I wouldn't bet on the dollar long term though, which is Buffet's time frameSo what's the time frame? "Long term" in currency could be next week. You talking two months? Two years? Buffy was two years too late in getting in in Dec/04. The real short bet was made several years ago. I'm afraid to say that Soros had a slice of that one.
I could only guess when it comes to currency speculation. I don't think that our fiscal policy of constant deficits is prudent. The National Debt has increased every single year for the last 45 years. I would like to see them balance the budget and stop the bleeding. Ain't gonna happen.
The Euro has it's limits too. Europe has some serious problems in unemployment, high cost social programs, and the European demographic timebomb.
If I was going to speculate maybe I would bet on Chile, Ireland and maybe Iraq once they become stabilized. The Chinese Yuan is undervalued and pegged to the dollar by the government. That would probably be the safest bet. It can only go up in my opinion, and the worst case is that the government continues the peg and you get a return of capital instead of a return on capital.
It would be interesting to see just what currencies that Buffet is invested in.
I think that the problems that Buffet talks about are very real, and at some point we will have to confront deficits and debt.
Non of this has anything to do with long term trends. People are parking money in Euros until the Yaun is unpegged. That is it.
Good observations. Buffett's problem is in his long position on the euro. He may have taken a hit on the Yen this past month, but that won't last long. Nor will it get much better, btw.
As for the Yuan, clearly there is only up to go. I think the market has already accounted for this, so when it actually happens there won't be much surprise. The dollar will actually strengthen elsewhere as result. That may be counter-intuitive, but the way it will be. So even if Buffy is long on the Yuan, it does him no good if it strengthens, for it will only help the dollar elsewhere.
The problem currency traders have is with the euro. While smart money has gone to such places as Korea, for example, the politically-biased moves have led to euro illusion. Won't happen.
He's BEEN successful. Watch for a downward spiral.
If the odds ARE in his favor, it is only because of his special gifts, NOT anything you would know about.
I don't say this to call you ignorant. Far from it. It's just that whatever play you make on currency today, you are buying into a market that is SET BY really smart people who have looked at all the evidence, and priced the market accordingly.
If those people all do their jobs correctly, and assuming the speculators are evenly split, there is a 50/50 chance of the gamble paying off.
So the odds are only better if you are smart enough to know something the market as a whole doesn't.
I wouldn't want to bet against Buffet, but on the other hand a lot of people go broke trying to mimic him.
Buffet is one man. America is hundreds of millions of people. I'll take the people and their faith in this country.
It is one thing to trust the people, and have faith in the country. It's another thing to trust the operators of the central bank and have faith in elected officials who continually demonstrate that they are willing to maintain their positions by buying votes with other people's money, whether by direct taxation or deficit financing (taxing the future). The results of these institutions and their operators can easily be traced with the devaluation of the dollar over the past century.
Confusing the people and nation with Rome-on-the-Potomac and its monetary creature, the Fed, is a costly muddle. As long as most investors suffer from it, people like Buffet, who understand the difference, will gain by betting against such investors' illusions.
It's quite true that, in the short term, nobody including Buffet can predict market movements. It's also true that the Fed and FedGov are only one of several significant central banking and governmental systems in the world, and that those other systems have also "systematically" debased their fiat currencies over time. So bets on currency exchange rates are also bets on the relative speed of inflationary policies.
Lately, Fed and FedGov have been at the "head of the pack" in this respect. It remains to be seen how long they will stay this way. Various purchasers of US Treasury and GSE paper are showing signs of edging towards towards the "egress", and would be moving faster, I suspect, if they weren't already so deeply invested in the stuff. So they disguise their exit strategy as much as they can.
Those who think they can outguess Buffet in such matters are welcome to place their bets with their favorite broker. I will remain an interested "spectator in the stands" (it's more interesting than following the losers who participate in state lotteries) and look elsewhere for capital accumulation opportunities.
Yep. Warren Buffet has been fighting the last war for some time now.
I don't know the details of Mr. Buffet's position, but certainly currency speculation has been a scene where some very savvy people have had some very bad days.
An interesting point. It would be entertaining in a sad kind of way (for non-holders of B-H shares there might be some offsetting schadenfreude) to see the Sage of Omaha fall into a trap similar to the one that the geniuses at the FHLB in Seattle have sprung on themselves - - -ending up with a portfolio that is hedged in such a way that they lose big whether interest rates rise or fall. (This is not all bad; maybe such pratfalls will encourage Congress to provide some more authoritative adult supervision for these players when it addresses GSE supervisory reform later this year.)
I wouldn't bet against him. I also have some hedged positions against the dollar and will keep them.
The dollar is going down further.
This is another example why I will never invest in a fund or corporation that is run by a luntic liberal or a pack of lunatic liberals.
Only God knows where, how, and why they invest your money.
Is it to make more money or was the investment triggered to harm America, President Bush and those of us who are not on the rat side?
If I'm interested in a fund, there is a site which shows the top 25 holdings held by a fund. If that fund's total holdings are more than 5-10% liberal controlled companies, I will not invest in that fund.
Below is the link to find out what holdings your fund owns or a fund you are considering buying holds:
Buffet has another problem with his AIG purhases and stands.
Buffett Parries Questions on AIG By Jonathan Stempel
Sat Apr 30, 6:48 PM ET
Warren Buffett on Saturday again went on the defensive, resisting attempts by shareholders of his Berkshire Hathaway Inc. (NYSE:BRKA - news) (NYSE:BRKB - news) to learn more about regulatory probes involving Berkshire units.
The 74-year-old billionaire has suffered unwanted publicity in recent months as U.S. and Australian regulators examine transactions involving Berkshire's General Re Corp. reinsurance unit.
"To protect the integrity of any investigation like this, investigators do not want one witness talking with other witnesses, because people can tailor their stories," Buffett said in his opening remarks at Berkshire's annual meeting. "To talk in a public forum is a way of signaling people what you said."
Despite this admonition, Buffett fielded a handful of shareholder questions on reinsurance, and at times appeared to sputter as he responded.
In one probe, U.S. regulators are examining a contract that helped giant insurer American International Group Inc. (NYSE:AIG - news) make its results look better. Regulators interviewed Buffett on the matter, and Berkshire has said Buffett was not briefed on the transaction's structure or any improper purpose.
That transaction led to the March departure of AIG Chairman Maurice "Hank" Greenberg, once considered the most powerful U.S. insurance executive. AIG delayed filing its annual report, or 10-K, and said accounting problems dating back 14 years may force it to write down some $1.77 billion of shareholder equity.
'I JUST HAVE NO IDEA'
"I don't really think I should comment on AIG," Buffett said in response a question from a Berkshire shareholder. "There will be more disclosure on the situation at AIG, and I really don't know about anything that will be in that statement (annual report). I will read that statement, and I will read it with interest."
Later, asked about Greenberg, Buffett said: "Hank Greenberg was the number one man in insurance. He developed an extraordinary company in his lifetime. ... But in terms of evaluating where it stands now, what will be revealed in the 10-K when it comes out, I just have no idea."
Greenberg would not answer questions from regulators looking into AIG's accounting, citing his constitutional right against self-incrimination.
Regulators have subpoenaed several companies, including General Re, on whether "nontraditional" or "loss mitigation" products might function as loans to help companies smooth earnings, or camouflage earnings weakness or losses.
Asked at what point a reinsurer might bear responsibility for another company's improper activity, Buffett said, "It really gets down to whether there is knowing participation."
He also said that "reducing volatility is not bad at all. ... But you can also get into abuses of that."
Yes... This was his biggest crime against Spitzer, an inflamed Demonicrat! That and the fact the company's name began with "American!" It just smacked of "American Exceptionalism" and must be brought to it's knees like the rest of America's success stories!!!
HANK GAVE WIFE $2.2B IN AIG SHARES
April 13, 2005
Bloomberg News Service
Maurice "Hank" Greenberg, ousted from American International Group Inc. amid an accounting probe, transferred $2.2 billion of AIG shares to his wife's name four days before he stepped down as chief executive last month.
The gift of 41.4 million shares represents most of Greenberg's stake in the company, according to a filing yesterday with the SEC. Greenberg made the transfer to Corinne P. Greenberg on March 11......
Greenberg, 79, may be seeking to shield his wealth from lawsuits that may come from the accounting investigation, said former federal prosecutor Christopher Bebel. Shares of New York-based AIG, the world's largest insurer, have declined 27 percent since the company disclosed subpoenas from New York Attorney General Eliot Spitzer and the SEC on Feb. 14.
"He's probably trying to shelter those assets from civil litigants," said Bebel.
David Boies, Greenberg's lawyer, didn't immediately return a phone call to his home. Howard Opinsky, a spokesman for Greenberg's attorneys, said he couldn't immediately comment on the share transfer.
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