OMAHA -- Billionaire Warren Buffett has been betting against the dollar, and the strategy has paid off for his investment and insurance company.
Berkshire Hathaway Inc. said Saturday its fourth-quarter profit rose 40 percent to $3.34 billion on a $1.63 billion gain from contracts to buy foreign currencies at a future date. Buffett, 74, wrote in his annual letter to shareholders that the nation's trade policies "will put unremitting pressure on the dollar for many years to come."
Warren Buffett's Berkshire Hathaway made a good bet against the dollar.
(Kathy Willens -- AP)
|
|
"In no way does our thinking about currencies rest on doubts about America," Buffett wrote. But he added, "Without policy changes currency markets could even become disorderly and generate spillover effects, both political and financial."
The U.S. trade deficit hit $617.7 billion last year, shattering the previous high, set in 2003, by 24 percent. Economists and business leaders differ widely about how great a problem the deficit poses. Buffett's essay -- and his investments in foreign currencies -- place him on the side of those concerned about a potential crisis in global financial markets.
Buffett, who noted that his company has been trading in foreign currencies since 2002, wrote, "Presently, most foreign investors are sanguine: They may view us as spending junkies, but they know we are rich junkies as well. Our spendthrift behavior won't however, be tolerated indefinitely."
The dollars that Americans pay for imports are invested by foreigners in U.S. securities such as Treasury bonds. Some analysts warn that as those foreign holdings rise in value to trillions of dollars, so do the chances that market players could be stampeded into a panic sell-off that would send the dollar plunging and interest rates soaring.
Buffett's essay is the centerpiece of his company's annual report to shareholders, and it's far more widely read than the financial tables and lists of accomplishments in most such corporate reports.
Reviewing the performance of Berkshire Hathaway, Buffett wrote that he "struck out" for shareholders by failing to find acquisitions last year. "I found very few attractive securities to buy," Buffett wrote. Berkshire's cash holdings stood at $43.4 billion at year's end.
Buffett's holdings include Geico and Fruit of the Loom. He is a major investor in The Washington Post Co., where he also serves on the board of directors.
While Berkshire's profit for 2004 fell 10 percent from the previous year to $7.31 billion, its fourth-quarter results were strong. Profit for the quarter ended Dec. 31 climbed to $3.34 billion ($2,172 a share) from $2.39 billion ($1,553) for the same period a year earlier.
Berkshire's book value, or assets minus liabilities, rose 10.5 percent in 2004 after taxes, compared with a 10.9 percent gain in the Standard & Poor's 500-stock index, before taxes. It's one of Buffett's favorite measures of success. On that basis, Buffett wrote in his letter, 2004 was one of only six years since 1965 when Berkshire's growth in net worth underperformed the S&P.
A $10,000 investment in Omaha-based Berkshire the day Buffett took control in 1965 would be valued at about $50 million today. Buffett's stake in Berkshire Hathaway is worth about $42.5 billion.
