Buffett worries about Fed’s ‘huge experiment’, thinks the Fed chief may have overplayed his hand

Buffett worries about Fed’s ‘huge experiment’

By Stephen Gandel, senior editor May 4, 2013: 3:17 PM ET

Says he admires Ben Bernanke, but thinks the Fed chief may have overplayed his hand.

Warren Buffett

FORTUNE — Warren Buffett has a piece of advice for Ben Bernanke: It’s easier to buy than it is to sell.

Buffett, speaking on Saturday at Berkshire Hathaway’s (BRKAannual meeting in Omaha, said he is worried about what will happen when the Federal Reserve tries to wind down its recent efforts to stimulate the economy. Via a program nicknamed QE, short for quantitative easing, the Fed in recent years has bought up over $2 trillion in bonds in order to lower interest rates and promote borrowing and investment.

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don’t know what will happen, but he is concerned.

“QE is like watching a good movie, because I don’t know how it will end,” says Buffett. “Anyone who owns stocks will re-evaluate his hand when it happens and that will happen very quickly.”Buffett says he has enormous respect for Bernanke. And he says the economy, and Berkshire, have “benefited significantly” from quantitative easing. Low interest rates are allowing Berkshire to do deals it wouldn’t have done in the past, he said, citing the recent Heinz deal. And he doesn’t think low interest rates are discouraging banks from lending. He says he knows Wells Fargo (WFC), of which Buffett is a large shareholder, is doing everything it can to find borrowers.

Nonetheless, Buffett says the Fed’s moves have the ability to cause a lot of inflation. And that it may not always be promoting the the best decision making.

“People make different decisions when they can borrow for practically nothing,” says Buffett. “It’s a huge experiment.”

Charlie Munger, Buffett’s long-term chief lieutenant, who was also talking at the meeting, says he worries about more than just inflation.

“What has happened in macro economics has surprised pretty much everyone,” says Munger. “Given that history, economists should be more cautious when they print money in massive amounts.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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