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.
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