[A-List] Buffett deepens dollar worries

["Sabri Oncu" <soncu@xxxxxxxxxxx>]

http://news.ft.com/cms/s/14d1fb9c-8da0-11d9-a4d2-00000e2511c8.html 
Buffett deepens dollar worries 
By Dan Roberts in New York 
Published: March 5 2005 18:22 | Last updated: March 5 2005 18:22 

Warren Buffett has warned that the US trade deficit risks creating a
"sharecropper's society" as his letter to shareholders sounded an
increasingly bearish tone about the value of the dollar. 

The billionaire fund manager said his own performance as chairman of
Berkshire Hathaway was "lacklustre" because he struck out in his quest for
new investments. Annual results showed the book value of Berkshire shares
underperformed the stock market for the second year in a row while full-year
profits fell 10 per cent. 

But his sceptical view of current market valuations continued as Berkshire's
holdings of cash rose from $36bn in 2003 to $43bn by the end of December -
equivalent to nearly all the "float", or excess cash, generated by its
insurance businesses. 

Mr Buffett's bet against the dollar also grew. Foreign exchange contracts -
mostly short positions against the US dollar - nearly doubled over the year
to $21.4bn, generating $1.8bn in gains as the greenback fell against other
major currencies. 

These currency profits were partly responsible for a sharper than expected
rise in fourth quarter earnings from $2.39bn to $3.34bn, although Berkshire
earnings are notoriously volatile due to the timing of investment gains. 

Mr Buffett stepped up his warning about the US trade deficit and the need to
finance it with foreign investment, devoting more than two full pages of the
annual report to the topic. 

"This force-feeding of American wealth to the rest of the world is now
proceeding at the rate of $1.8bn daily, an increase of 20 per cent since I
wrote you last year," he said. "Consequently, other countries and their
citizens now own a net of about $3,000bn of the US" 

In particular, he warned that this meant a sizeable portion of what US
citizens earned in future would have to be paid to foreign landlords. 

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

Nevertheless, Berkshire's chairman and chief executive conceded he did not
do his job very well last year in finding ways to profit from the unusual
market conditions 

"My hope was to make several multi-billion dollar acquisitions that would
add new and significant streams of earnings to the many we already have. But
I struck out," he said "Additionally, I found very few attractive securities
to buy. Berkshire therefore ended the year with $43 billion of cash
equivalents, not a happy position." 

Berkshire's net earnings, which are subject to volatile swings in realised
investment gains, fell from $8.15bn to $7.31bn for the year. Total assets
rose from $181bn to $189bn and shareholder equity increased from $77.6bn to
$85.9bn. 

Mr Buffett added little new information about an ongoing investigation into
potentially illegal trading practices in the insurance industry. 

"Berkshire cannot at this time predict the outcome of these investigations,
is unable to estimate a range of possible loss, if any, and cannot predict
whether or not that outcome will have a material adverse effect on
Berkshire's results," said the report.