Buffett warns on US trade deficit

[FaGal]

Buffett warns on US trade deficit

Source: BBC News

Billionaire US investor Warren Buffett has warned about the extent of the US trade deficit.
Mr Buffett made the comments in his widely-read annual letter to shareholders of his Berkshire Hathaway holding company.

He warned that the US trade deficit, which totalled $672bn (£484bn) last year, meant a knock-on over-reliance upon foreign investment into the US.

Mr Buffett said this foreign investment could become too dominant.

"Other countries and their citizens now own a net of about $3,000bn of the US," he said.

'Sharecroppers'

Using an analogy from the 1930s, Mr Buffett said this meant the US could be heading towards a "sharecropper's society", meaning that a great many Americans could have to pay a large proportion of their future incomes to absent, and in this case foreign, landlords.

"But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us," said Mr Buffett.

The billionaire also used his letter to attack large shareholders who lose sight of corporate governance issues.

"The moves made by institutions have been less than awe-inspiring," he said.

"Usually, they've focused on minutiae and ignored the three questions that truly count.

"First, does the company have the right chief executive? Second, is he/she over-reaching in terms of compensation? Third, are proposed acquisitions more likely to create or destroy per-share value?"

Mr Buffett also criticised his current performance at Berkshire, describing it as "lacklustre", saying he hadn't made enough fresh investments this year.

However he did add that at present there were very few decent investment opportunities available.


Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/h...ss/4323267.stm
Published: 2005/03/06 12:14:39 GMT

© BBC MMV


~END ITEM~

[FaGal]

Buffett wins on the weak dollar
Source: www.iht.com, an Article by Floyd Norris, International Herald Tribune, March 7, 2005


Currency will face pressure 'for many years,' he asserts

When the stock market was soaring in the late 1990s, Warren Buffett now says, he should have sold stocks rather than just complain about overvaluation. Now, with the dollar still headed down in his view, he says he is acting on his opinions even though it makes him nervous that so many agree with him.

"I can properly be criticized for merely clucking about nose-bleed valuations during the bubble, rather than acting on my views," Buffett wrote in Berkshire Hathaway's 2004 annual report, released over the weekend. "Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talked when I should have walked."

The annual report showed that of the $3.5 billion in pretax gains on investments Berkshire realized in 2004, well over half came from betting against the dollar. Of them, $1.8 billion came from foreign exchange contracts, and a portion of the $730 million in profit on junk bonds also came from foreign exchange gains. The bonds were purchased in 2001 and 2002 when such bonds traded at relatively high interest rates.

Over all, Berkshire reported a decline in 2004 earnings, to $7.31 billion, or $4,753 per share, from $8.15 billion, or $5,309 per share. Buffett said hurricanes cost the company's insurance business $1.25 billion.

Berkshire ended the year with $43.4 billion in cash and short-term investments, up from $36 billion a year earlier and 12.7 billion at the end of 2002. He said he was looking for good investments but having difficulty finding them.

On the dollar, Buffett renewed his criticism of U.S. economic policies.

"The evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come," he wrote. He added that Berkshire owned $21.4 billion in foreign exchange contracts, denominated in 12 currencies, at the end of 2004.

In a 2003 article in Fortune Magazine, Buffett proposed that the United States achieve a trade balance - or at least a sharply reduced trade deficit - by issuing what he called import certificates to companies that exported goods from the United States. Those certificates could be sold by exporters, but imports would not be possible unless the importer had such a certificate. The idea has gained little support.

"There are deep-rooted structural problems that will cause America to continue to run a huge current-account deficit unless trade policies either change materially or the dollar declines to a degree that could prove unsettling to financial markets," he said.

If nothing is done, he said, the United States will continue to transfer ownership of assets to foreigners to finance American overconsumption. Americans, he said, will eventually "chafe at the idea of perpetually paying tribute to their creditors and owners abroad."

"A country that is now aspiring to an 'Ownership Society' will not find happiness in - and I'll use hyperbole here for emphasis - a 'Sharecropper's Society.' But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."

Buffett's reputation was built on buying stocks, and sometimes whole companies, cheaply, and on rarely selling stock in what have become Berkshire's principal holdings. In the report, he said that Berkshire's "Big Four" stock positions - American Express, Coca-Cola, Gillette and Wells Fargo - had performed well in terms of their businesses but that he had underestimated how overvalued they had become during the bubble. Of the four, only Wells Fargo now trades for more than it sold for in 2000; Coca-Cola is worth less than half its peak value.

Berkshire had never granted stock options, and Buffett has been a vocal proponent of treating the value of such options as an expense, something now required in Europe and that will be required in the United States beginning June 15 unless Congress intervenes. But in the annual report, Buffett, who is 76, said it was possible that Berkshire would change its policies. "My successor at Berkshire may well receive much of his pay via options," he wrote, quickly adding that such options would have to be structured to prevent the rapid sale of shares after options were exercised.

[FaGal]

Buffett condemns 'force-feeding' of US wealth to the rest of the world
Source: www.telegraph.co.uk, an Article by Robert Peston, March 6, 2005


Warren Buffett, the world's greatest investor, yesterday launched a vitriolic attack on the US government for failing to take effective action to reduce the country's trade deficit.

The chairman of Berkshire Hathaway, which owned $21.4bn (£11bn) of foreign exchange contracts at the end of 2004, also warned that the dollar would continue to fall, even after its recent declines.

In his latest annual letter to shareholders of Berkshire Hathaway, the extraordinary successful conglomerate he founded more than 30 years ago, Buffett complains that the trade deficit is leading to an alarming transfer of US assets into foreign ownership.

"Americans end up owning a reduced portion of our country while non-Americans own a greater part," he writes. "This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8bn daily."

"Consequently, other countries and their citizens now own a net of about $3 trillion of the US. A decade ago their net ownership was negligible."

He warns of dangerous consequences if these trends continue. He says that within a decade, the US would be compelled to deliver "3 per cent of its annual output to the rest of the world simply as tribute for the overindulgences of the past".

He adds: "This annual royalty paid the world... would undoubtedly produce significant political unrest in the US.

"A country that is now aspiring to an 'ownership society will not find happiness... in a 'sharecropper's society' " But he says that just such a demeaning outcome is "where our trade policies, supported by Republicans and Democrats alike, are taking us.