This is Buffett’s way of betting against the U.S. dollar. Armed with about $38 billion of cash at Berkshire Hathaway, he can use dollars now to buy companies that will generate profits in other currencies for years to come. (Buffett is a director on the Washington Post Co. board.)
“I would recommend against buying long-term fixed-dollar investments,” Buffett said at a public appearance in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011 five years, 10 years or 20 years from now, I would tell you it will not.”
Buffett isn’t alone. Some of the most successful investors in the United States and the biggest money management funds are worried that trade deficits, big budget deficits and the possibility of renewed inflation will make the U.S. dollar a weak currency compared with others around the world. On Thursday, the dollar fell to an 181
2-month low against the euro.
Bill Gross, chief executive of the giant bond investment firm Pimco, said its flagship Total Return Fund has 8 percent of its assets — a historic high — in issues denominated in currencies other than the dollar. Earlier this year, the fund dumped its entire holdings of U.S. Treasury bonds, according to disclosures.
“The United States is one of the serial abusers of deficits and inappropriate budgets and finance,” Gross said in an interview. “Do the headlines in terms of debt ceilings and 10 percent budget deficits and the back-and-forth between Republican and Democratic orthodoxies, does that matter? Sure it does. It’s not confidence-inducing.”
Gross said the decline of the dollar is part of a longer-term trend Pimco calls “the new normal.”
“We are in this new-normal type of economy in which the developing world is growing at a far faster pace than the developed world,” he said. “And growth tends to be reflected in terms of currency value.”
The dollar may still have more room to decline against other currencies. Gross noted that the currencies of many Asian economies are still 50 percent or more below their levels before the Asian currency crisis of 1997.
In March, the dollar — adjusted for inflation — hit its lowest point against major U.S. trading partners’ currencies since its value was allowed to fluctuate in January 1973, according to Federal Reserve data.
“This is the true measure of what the dollar’s worth,” said Kenneth Rogoff, a Harvard economics professor and former chief economist at the International Monetary Fund. “It shows what you can buy with the U.S. dollar.”
A weak dollar isn’t necessarily a bad thing, Rogoff said — it can make the United States more competitive, bolster exports and help domestic companies that are vying against imported goods here in the United States.