How Buffett tripped over the dollar

MSN Money ^ | 6/15/2005 | Jon D. Markman

[Smogger]

Six months ago, the value of the U.S. dollar was on the firing line as it plunged to a record low vs. the euro. Amid fears that a united Europe would surmount the spendthrift United States as a safe haven for financial assets in a tumultuous world, investors worldwide -- led by noted Nebraska sourpuss Warren Buffett -- heaped scorn on our currency and scolded U.S. lawmakers to get the federal deficit under control.

But a funny thing happened to all those dollar bears. Their contempt for U.S. economic freedoms hasn’t amounted to a hill of bill of beans, and their positions have been smoked. The dollar has rallied massively since the start of the year against all other currencies, reflecting a swift, stunning paradigm shift in the way that global political risks are priced.

Buffet, who reportedly lifted his bet against the buck to a position of $22 billion and counting in the first quarter this year, isn’t sounding quite so smug anymore. Normally an equity investor with liberal social views who rarely made forays into the foreign exchange markets, he has had his head handed to him by more experienced currency players. Although his anti-dollar attack worked from 2002 through 2004, since then he has been forced to pay for attempting to mix politics and money.

[Smogger]

hehehe.. Couldn't have happened to a better guy. Great read.

[ventana]

bump

[Darkwolf377]

"HA-HA!"--Nelson

[ambrose]

Buffett and Soros:

[packrat35]

so true

[Socratic]

"Buffett and Soros"

Yes, B.S.

[Neanderthal]

So how much did Buffett lose?

[Enterprise]

"What Buffett and his cohorts failed to understand as they thumbed their nose at the dollar was that it’s impossible for Europeans to sustain a single currency without a commitment to a single European political and economic policy."

This makes sense. It would be like the various states in the U.S. trying to make deals with foreign nations, but each state having a difference in objectives.

"And the liberal immigration laws demanded by such integration have proven to be social anathema, as northern Europeans have freaked out over the prospect of a flood of cheap Eastern European and Turkish labor stealing their good blue-collar jobs."

They have solid grounds to fear the loss of those jobs.

[LibertarianInExile]

ROFLMAO!

"Turn those machines back on! Turn those machines back on!"

[rreahsito]

These were the exact type of comments about WB when he wouldn't bet on the dot.com bubble stocks. A few years later I still hear about WB and he has done very well for himself, but haven't heard too much from all the people who lost large and small fortunes in 2000. If you are investing for the next 5 minutes or 5 months you may be right. If you are investing for the long haul what's happening lately is just a small blip on the dollars way down.

[oblomov]

Looks like his bet on silver at $8/oz isn't doing too well. Buffett hasn't had a stellar record the past 10 years or so.

[The KG9 Kid]

"... Buffet, who reportedly lifted his bet against the buck to a position of $22 billion and counting in the first quarter this year, isn’t sounding quite so smug anymore. Normally an equity investor with liberal social views who rarely made forays into the foreign exchange markets, he has had his head handed to him by more experienced currency players."

Seriously now, how long will it be before those who lost a mint on betting the Euro against the US Dollar will blame and international Jewish conspiracy for their reversal of fortune?

Now taking bets.

[Allosaurs_r_us]

If you are investing for the long haul what's happening lately is just a small blip on the dollars way down.

 

That statement might have held a little water 6 months ago, but now it is absolute hogwash! The only way this was possible was if the Euro held it's artificially inflated value. Now that the Euro constitution is headed for the dump the dollar will still be the best investment in currency for the foreseeable future.

 

Currency is based on the a country's economy. Europe is headed for the toilet, and in the long term it is downright ignorant to bet against the US dollar. There is a helluva a lot of speculators that are going to lose their butts because they chose to doubt the economy of the strongest country in history and it's economic base. They not only doubted it, they were trying their damndest to make it happen. Unfortunately these traitors were betting the Euro was going to be the currency of the future. This would only work if the European Union could agree on the Euro constitution. We all know now the odds of that are slim to none. The Euro is headed to the toilet, and with it all of these speculators that were wishing for the demise of the US economy. The Euro has been artificialy inflated since day one, as it has always depended on a unified trade and labor agreement between the nations involved. We now know they are no where near agreeing on anything, it was wishful thinking by the socialist elites. Problem is the spoiled have no intention of giving up any of their fringe benefits in order to make it work. Ask the French and the folks from Holland if there is ever going to be a European Constitution.

 

 The Euro is whistling like a WWII, 2 ton bomb headed for Hitler's Bunker. Good riddance! Soros and his cohorts are going to lose their shirts on this one!

[R W Reactionairy]

Over the short term, the currency markets can be compared to roller derby or professional wrestling. All of the participants and almost all of the spectators know or at least should know that the game is rigged. Central banks "intervene" directly buying and selling currencies ... and by boinking around with interest rates to induce others to make what would otherwise be unwise currency transactions.

Buffett should have followed his own advice and only invested in things that he understands. I doubt that Buffett is an expert in abnormal psychology. To play around with the likes of Greenie, your had better have

Note: The same principle got him in trouble in the weird world of reinsurance.

[chilepepper]

the strength of the EURO is backed by French courage and German love of democracy and capitalism...

[durasell]

I always wondered why he went into that. Kicks? Morbid curiosity? It's like a poker player suddenly says, "What's that game with the dice about? That looks like fun!"

[Guillermo]

If he's been buying Euros since 2002, I would think he's still in pretty good shape.

[getsoutalive]

Looks like his bet on silver at $8/oz isn't doing too well. Buffett hasn't had a stellar record the past 10 years or so.

Well, Since silver had not been over $7/oz in more than 10 years, I dont know why you think he paid $8. I seem to remember that he bought in th $4.50-5.50 range and it spiked to near $7 after his position was made known around 97-98.

As to his track record over the past 10 years. Berkshire Hathaway's stock was around $22,500 a decade ago and is now trading for $83,610. Maybe not "stellar", but certainly not too shabby either.

Buffett doesn't take short term positions. He was short the dollar long before it's recent bottom. This 6 month rally has certainly taken back a good chunk of his profits on the trade, but IMO this is nothing more than a counter trend rally that does not signify the end to the dollar's troubles. Fiscal and trade deficits do matter and show no sign of abating, yet. If not for China and Japan spending billions to keep their own currencies week, the buck would in all likelyhood be much lower already.

[Guillermo]

Bad link...any help? I would love to read the rest of the article.

[Tennessean4Bush]

Couldn't have happened to a more deserving skunk than Buffett