Warren Buffett, the American investment guru and chairman of Berkshire Hathaway, has issued a fresh warning over the way the US is deluging the world with dollars to fund its huge trade deficit.
In his annual letter to Berkshire Hathaway shareholders, the world's second wealthiest man says the consequences of this could be "troublesome", reaching far beyond the currency markets. He also discloses that Berkshire is loading up with foreign currency to offset its exposure to the dollar.
"Prevailing exchange rates will not lead to a material let-up in our trade deficit. So whether foreign investors like it or not, they will continue to be flooded with dollars," Mr Buffett writes.
Although Mr Buffett said the bulk of Berkshire's $120bn in net worth would continue to be held in US assets, such as its stakes in Coca-Cola and American Express, the company was spreading its risk by increasing its exposure to currencies including the euro. "Berkshire holds many billions of cash-equivalents denominated in dollars. So I feel more comfortable owning foreign exchange contracts that are at least a partial offset to that position," he tells shareholders. In 2002, the company took a deliberate decision to increase its holdings of junk bonds denominated in euros and now owns $1bn worth of these.
Elsewhere, in his famously folksy style, the Sage of Omaha, as he is known, criticises corporate America for boardroon greed, takes President Bush to task for his tax cuts, and attacks the "lapdog" behaviour of supposedly independent mutual fund directors who allowed the "market timing" scandal to take place under their noses.
On pay, Mr Buffett writes: "In judging whether corporate America is serious about reforming itself, CEO pay remains the acid test. To date, the results aren't encouraging."
But he reserves more of his ire for the mutual fund managers who allowed hedge funds to make millions of dollars at the expense of ordinary investors. "I am on my soapbox now only because the blatant wrongdoing that has occurred has betrayed the trust of so many millions of shareholders. Hundreds of industry insiders had to know what was going on, yet none publicly said a word."
As for President Bush's fiscal policies, Mr Buffett notes that in 1952 a third of all federal tax receipts came from the corporate sector whereas last year the figure was just 7.4 per cent, thanks to the tax breaks handed out to companies and their investors. "If class warfare is being waged in America, my class is clearly winning."
Berkshire Hathaway doubled its profits last year from $4.3bn to $8.1bn and increased its net worth by $13.6bn. But Mr Buffett cautioned that under-valued stocks were becoming hard to find, meaning that its future performance would fall "far short of what it has been in the past".Reuse content