In the long run (and we don't know how long that is), Buffet is right.
Pessimist are always right ...either that, or they are dead
| Squanderville versus Thriftville (Warren Buffet) ^ |
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| Posted by dennisw On News/Activism ^ 01/07/2004 11:35:03 PM EST with 15 comments fortune ^ | oct 2003 | Warren Buffet By Warren E. Buffett, FORTUNE I'm about to deliver a warning regarding the U.S. trade deficit and also suggest a remedy for the problem. But first I need to mention two reasons you might want to be skeptical about what I say. To begin, my forecasting record with respect to macroeconomics is far from inspiring. For example, over the past two decades I was excessively fearful of inflation. More to the point at hand, I started way back in 1987 to publicly worry about our mounting trade deficits -- and, as you know, we've not only survived but also thrived.... |
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I mean, would the Buffett of old have bragged about purchasing companies willy-nilly, three days after they fax him a purchase proposal?
There is no direct or necessary tie between a trade "deficit" and a rising or falling dollar.The value of the dollar is directly related only to the number of dollars in circulation as opposed to the market demand for dollars(for stable prices). The value of the dollar as denominated in other currencies depends on changes in that number of dollars relative to the changes in the amount of those other currencies. Buffett's bet against the dollar, if actually made for the reasons stated betrays a basic lack of understanding of economics. Or the move could have been an attempt at a self-fulfilling prophecy- a "talking down" fo the dollar, or was made on a guess that the Fed would be increasing the money supply at a faster rate and/or the euro and yen would be supplied at a decreasing rate.
Well sure. I'll make a prediction: the Dow will go to 13,000. I don't have any idea when but it will.
I'll also predict that the dollar will lose value and then regain it - and then lose it again.
Buffet is only good at one thing: buying good companies at deep discounts and holding on for ten years.
By then Mr. Market has repriced the company correctly.
Of course, you know the familiar JM Keynes response?
On balance, he's $2 billion ahead right now. Following is the entire paragraph from page 17 of Buffett's annual letter to the shareholders of Berkshire Hathaway.
My views on America’s long-term problem in respect to trade imbalances, which I have laid out in previous reports, remain unchanged. My conviction, however, cost Berkshire $955 million pre-tax in 2005. That amount is included in our earnings statement, a fact that illustrates the differing ways in which GAAP treats gains and losses. When we have a long-term position in stocks or bonds, year-to-year changes in value are reflected in our balance sheet but, as long as the asset is not sold, are rarely reflected in earnings. For example, our Coca-Cola holdings went from $1 billion in value early on to $13.4 billion at yearend 1998 and have since declined to $8.1 billion – with none of these moves affecting our earnings statement. Long-term currency positions, however, are daily marked to market and therefore have an effect on earnings in every reporting period. From the date we first entered into currency contracts, we are $2.0 billion in the black.
As you can see, the last sentence in the paragraph that Bowyer excerpted states that Buffett is currently $2 billion ahead on his currency contracts. I'm sure that Bowyer just forgot to mention that. In any case, Buffett says that he is shifting somewhat from direct positions in currencies to foreign equities in the next paragraph:
We reduced our direct position in currencies somewhat during 2005. We partially offset this change, however, by purchasing equities whose prices are denominated in a variety of foreign currencies and that earn a large part of their profits internationally. Charlie and I prefer this method of acquiring nondollar exposure. That’s largely because of changes in interest rates: As U.S. rates have risen relative to those of the rest of the world, holding most foreign currencies now involves a significant negative “carry.” The carry aspect of our direct currency position indeed cost us money in 2005 and is likely to do so again in 2006. In contrast, the ownership of foreign equities is likely, over time, to create a positive carry – perhaps a substantial one.
And in the long run, we are all dead. ;~))
Buffet is a fine business man but every time he tries to play economist, he gets burnt. You would think he would have learned the difference between business and economics by now.