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Buffett Says Avoid Long-Term Bonds Tied to Eroding Dollar

Berkshire Hathaway Warren Buffett
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., addressing policy holders of insurance schemes launched by the $60-billion financial services firm Berkshire Hathway in New Delhi on March 25, 2011. Photographer: Pankaj Nangia/Bloomberg

Warren Buffett, the billionaire who urged Congress in 2009 to guard against inflation, said investors should avoid long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will decline.

“I would recommend against buying long-term fixed-dollar investments,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said today 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, 5 years, 10 years or 20 years from now, I would tell you it will not.”

Buffett, 80, has shortened the duration of Omaha, Nebraska-based Berkshire’s bond holdings since 2009 as the U.S. Federal Reserve eased monetary policy to stimulate the economy. Over the same period, he has added to cash holdings and committed more than $35 billion to company takeovers.

“I would much rather own businesses,” he said. “It’s very easy to take away the value of fixed-dollar investments.”

The Fed and U.S. Treasury Department have pumped money into the economy since the financial crisis through bank bailouts, government stimulus and near-zero interest rates. Buffett said in an August 2009 op-ed in the New York Times that the government must address this “monetary medicine.”

Outlook for Inflation

Inflation expectations among consumers rose in March to the highest level since August 2008, according to the Thomson Reuters/University of Michigan final index of consumer sentiment. Consumers said they expect inflation at 3.2 percent over the next five years, compared with 2.9 percent last month.

Buffett, traveling in India to review Berkshire’s operations and scout opportunities, took questions at a meeting with insurance customers and spoke on topics from the economy to investments. Buffett, who built Berkshire through stock picks and takeovers, advised investors to be wary of valuations for social-networking websites as some of the industry’s biggest companies prepare to sell shares.

“Most of them will be overpriced,” Buffett said. “It’s extremely difficult to value social-networking-site companies,” he said, without naming firms. “Some will be huge winners, which will make up for the rest.”

Buffett has shunned technology investments in favor of industrial, financial and consumer-goods holdings in his four decades at Berkshire. As of Dec. 31, the company owned about $61.5 billion of stocks, $34.9 billion of fixed-maturity securities and $23 billion of “other investments.”

Berkshire’s securities maturing in more than 10 years fell 31 percent to $2.72 billion in the 18 months ended Dec. 31, according to regulatory filings. In that span, the company’s cash holdings surged 56 percent to $38.2 billion.

Buffett completed his biggest takeover, the $26.5 billion acquisition of railroad Burlington Northern Santa Fe Corp., last year. On March 14, he agreed to buy Lubrizol Corp., the world’s largest producer of lubricant additives, for about $9 billion.

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