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Buffett's bet is not on management, its on the dollar losing value b/c its being printed like mad to meet gov't obligations and it losing its place as the reser

by hop 17y ago

Buffett's bet is not on management, its on the dollar losing value b/c its being printed like mad to meet gov't obligations and it losing its place as the reserve currency. Railroads can haul a ton of goods about 400 miles with one gallon of diesel. When the dollar devalues and gas goes to $5-$10+ per gallon, we will be reminded once again why he is the Oracle of Omaha. Buffett has talked about coming inflation in his last two or three annual letters to shareholders. When we start having 10% annual inflation, the p/e on this deal will get better and better. "The Green Back Effect" by Warren Buffett, NYT, 8/18/09 - http://www.google.com/search?hl=en&rlz=1C1GGLS_enUS346US.. http://www.google.com/search?hl=en&rlz=1C1GGLS_enUS346US.... (sorry for the indirect Google link, NYT redirects direct links to a tease subscriber only page)

steveplace 17y ago
I have to disagree, Buffett doesn't trade macro--he trades value. The (alleged) dollar devaluation may have been included in his analysis, but that's not the underlying rationale behind the trade.
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- hop 17y ago
  At the most recent annual shareholders meeting: Question: What is your latest outlook on the dollar given what's been thrown up in the air in the last 6 months? Buffett: It's pretty unpredictable. I guarantee you the dollar will buy less 10-20 years from now. But we are doing things that will hurt the purchasing power of the dollar. On the other hand the same thing is happening in different countries around the world. The British will run a deficit of 12 and a fraction percent of GDP. Even the Germans will run a deficit of 6 and a fraction GDP. You've got governments around the world all electing to run very material deficits. Electiing to do that to offset the contraction demand. How that plays out in relative exchange rates - I can't tell you. In terms of currency's purchasing power in the future - it's going to cause units of currency to buy a lot less.That isn't gonna happen in the next year or two. Doesn't mean markets won't start anticipating it at some point. We are doing things that we havne't seen in the past. And policy makers do not know the outcome and I don't know the outcome. You do know it will have consequences and you can bet on inflation. Munger: I remember the 2 cent first-class stamp and the 5 cent hamburger. In my life I think I've had the most privileged era to live. The trick is to avoid runaway inflation. [http://j.mp/3z6gpr http://j.mp/3z6gpr]
  - sethg 17y ago
    As I understand it, most economists (certainly, most economists whose opinions matter to central bankers) believe that a small rate of inflation, perhaps 1-2% annually, is a Good Thing, since it encourages savers to invest in productive companies rather than just stuffing greenbacks under their mattresses. So "I guarantee you the dollar will buy less 10-20 years from now" is a pretty safe bet, regardless of the general political and economic situation.
- jakarta 17y ago
  actually it is sort of a myth that buffett ignores the macro. he engages in a lot of macro trades if you look back. here are some examples: berkshire's silver trade executed by Commodity trader Andrew Hall of Phibro, going long the brazilian Real, investing in Petro China, his past investments in more than one railroad... these are all investments that correlate with a kind of macro theme. they might not be the only factor, but definitely A factor in his investment.
  - borism 17y ago
    No-one ignores the macro :) It's just that he loves to repeat he is not the macro guy.
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CamperBob 17y ago
When the dollar devalues and gas goes to $5-$10+ per gallon, we will be reminded once again why he is the Oracle of Omaha. If he thinks that's going to happen, he should buy OIL ETFs, not railroads...

by hop 17y ago

steveplace 17y ago

I have to disagree, Buffett doesn't trade macro--he trades value. The (alleged) dollar devaluation may have been included in his analysis, but that's not the underlying rationale behind the trade.

deleted 17y ago
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hop 17y ago
At the most recent annual shareholders meeting: Question: What is your latest outlook on the dollar given what's been thrown up in the air in the last 6 months? Buffett: It's pretty unpredictable. I guarantee you the dollar will buy less 10-20 years from now. But we are doing things that will hurt the purchasing power of the dollar. On the other hand the same thing is happening in different countries around the world. The British will run a deficit of 12 and a fraction percent of GDP. Even the Germans will run a deficit of 6 and a fraction GDP. You've got governments around the world all electing to run very material deficits. Electiing to do that to offset the contraction demand. How that plays out in relative exchange rates - I can't tell you. In terms of currency's purchasing power in the future - it's going to cause units of currency to buy a lot less.That isn't gonna happen in the next year or two. Doesn't mean markets won't start anticipating it at some point. We are doing things that we havne't seen in the past. And policy makers do not know the outcome and I don't know the outcome. You do know it will have consequences and you can bet on inflation. Munger: I remember the 2 cent first-class stamp and the 5 cent hamburger. In my life I think I've had the most privileged era to live. The trick is to avoid runaway inflation. [http://j.mp/3z6gpr http://j.mp/3z6gpr]
- sethg 17y ago
  As I understand it, most economists (certainly, most economists whose opinions matter to central bankers) believe that a small rate of inflation, perhaps 1-2% annually, is a Good Thing, since it encourages savers to invest in productive companies rather than just stuffing greenbacks under their mattresses. So "I guarantee you the dollar will buy less 10-20 years from now" is a pretty safe bet, regardless of the general political and economic situation.
jakarta 17y ago
actually it is sort of a myth that buffett ignores the macro. he engages in a lot of macro trades if you look back. here are some examples: berkshire's silver trade executed by Commodity trader Andrew Hall of Phibro, going long the brazilian Real, investing in Petro China, his past investments in more than one railroad... these are all investments that correlate with a kind of macro theme. they might not be the only factor, but definitely A factor in his investment.
- borism 17y ago
  No-one ignores the macro :) It's just that he loves to repeat he is not the macro guy.

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CamperBob 17y ago

When the dollar devalues and gas goes to $5-$10+ per gallon, we will be reminded once again why he is the Oracle of Omaha. If he thinks that's going to happen, he should buy OIL ETFs, not railroads...