- The Sage of Omaha said he never bought foreign currency - until now. Yesterday's BBC report tells us that Warren Buffett is worried about the dollar. The U.S. government deficit has "greatly worsened," he said, "to the point that our country's 'net worth,' so to speak, is now being transferred abroad at an alarming rate." The budget deficit this year is nearly twice the previous record.
- "Our country [the U.S.] has been behaving like an extraordinarily rich family that possesses an immense farm," Buffett warned in an interview with Fortune magazine. "In order to consume 4% more than we produce - that's the trade deficit - we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own." Continuing his analogy, Buffett goes on to explain that, as foreign ownership of the "farm" grows, income flows out of America in the form of dividends and interest payments.
- The U.S. trade deficit with China was a record $11.7 billion in August, according to U.S. government figures cited by Bloomberg. The trade gap with China, which widened to $77 billion in the first 8 months of this year, was a record $103 billion last year. "We have entered the world of negative compounding," laments Warren. "Goodbye pleasure, hello pain."
- Back in the bubble days - when New Era hero George Gilder and his ilk 'got it' - Buffett was crying wolf. When it came to investing in Cisco, Yahoo!, or Amazon, Buffett just didn't 'get it.' He couldn't understand the valuations...so he stayed away. And unlike the thousands - nay millions - of investors with the New Era light flashing in their eyes, Buffet still has his money. In fact, as we pointed out a few days back, Buffet has more money than he has investment ideas.
- "I am crying wolf again," Buffett continues, "and this time, I'm backing it with Berkshire Hathaway money. Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in - and today holds - several currencies."
- Coca Cola announced another layoff yesterday. Nine hundred more people will get pink slips. Coca Cola was one of the companies that helped make Berkshire Hathaway shareholders into millionaires...and Buffett famous for it. Now he regrets not having sold the stock in '99...he wished he had got going when the going was good.
- Easy Al and his Fed pals decided after breakfast yesterday to further underwrite the rapidly swelling U.S. asset and housing bubbles; they left interest rates unchanged at 50-year lows. And there they will remain for at least another six weeks.
- "Surely it must mean something when U.S. house prices are up nearly 20% in two years," writes our London correspondent, Sean Corrigan, commenting on the Fed's decision, "pushing up medical costs, tuition fees and insurance premiums by double digits, too? Or that good, old, speculative equities are roaring - with Semiconductors up 136%, Internets up 142% and Networkers up 209%? Or that four major commodities indices - each with a different composition - are up between 37% and 55% from their late- 2001 lows?
- "Doesn't it matter that long bond yields on U.S. Treasuries have risen 1% from their lows...meaning a 14% drop in T-bill prices? Shouldn't economists worry that U.S. household credit continues to boom, as current and budget accounts yawn ever-wider to record gaps...?"
- Well, apparently not. The Fed's official communiqué stated: "The probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period."
- In plain English, the Central Bank of history's greatest debtor nation thinks it wise to keep on fuelling today's enormous consumption of capital.
- The lumps loved it...by the market's close, fools had rushed in to push the Dow up 140 to 9748, the S&P 500 up 15 to 1046, and the Nasdaq up 49 points to 1932. One wonders whether the greater fools will show up when those in question decide that buying stocks at these valuations isn't such a good idea.
- Select foreign currencies also loved the Fed's decision. "The Kiwi [New Zealand Dollar]," writes Chuck Butler, our friend over at the Everbank trading desk, "hit a 6-year high overnight, and hasn't stopped on profit taking! In December 1997, the Kiwi last traded at .6142, and again, it was going in an opposite direction then on the slippery slope down to 39 cents 3 years later! Both the Aussie [Australian Dollar] and Kiwi got a nice kick when the Fed left rates unchanged, which gives the positive interest rate differential that both of these enjoy, new life!"
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