Buffett Says Federal Reserve Is Greatest Hedge Fund in History; laments lack of investment bargains

Buffett Says Federal Reserve Is Greatest Hedge Fund in History

Billionaire investor Warren Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank’s ability to profit from bond purchases as it accumulated a balance sheet of more than $3 trillion. “The Fed is the greatest hedge fund in history,” Buffett told students today at Georgetown University in Washington.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Marci Jacobs in New York at Mjacobs63@bloomberg.net

Buffett lauds Bernanke but laments lack of investment bargains

7:32pm EDT

By Jonathan Stempel and Peter Rudegeair

(Reuters) – Warren Buffett said on Thursday he would recommend reappointing Ben Bernanke as Federal Reserve chairman, while adding that low interest rates have inflated asset values and complicated his hunt for investments at his company Berkshire Hathaway Inc. The billionaire investor spoke one day after the central bank surprised investors by postponing its expected wind-down of monetary stimulus, which has in five years more than tripled the Fed’s balance sheet to above $3.6 trillion.“Since the panic of five years ago, he’s done a terrific job,” Buffett said on CNBC television in a joint interview with Brian Moynihan, chief executive of Bank of America Corp.

Asked if he would reappoint Bernanke when his term expires, Buffett said: “That’s what I would do.”

Nevertheless, at an event later Thursday afternoon at Georgetown University, Buffett said that the Fed’s eventual exit from its monthly bond-buying program will carry unforeseen risks.

“We are in an experiment which hasn’t really been tried before,” he said, adding that “buying securities is usually easier than selling securities.”

Berkshire owns more than 80 businesses in such areas as insurance, chemicals, railroads and clothing, and has more than $130 billion of equity and fixed income investments.

Some of its money went to Bank of America in August 2011, when Buffett announced a surprise $5 billion investment in the second-largest U.S. bank, which has been plagued by bad mortgages and legal liabilities mainly tied to the former Countrywide Financial Corp.

The investment included preferred shares with a 6 percent dividend, plus warrants to buy 700 million shares at about $7.14 per share, and has given Berkshire a paper profit of several billion dollars because the bank’s shares have doubled.

Moynihan said the bank has contracted in size and put many regulatory issues behind it, leaving it to focus on how best to grow in a slow-growth economy.

“You have an economy which we see very constructive, growing at 1.5 to 2 percent,” he said. “We don’t see a lot of downside risk… Until unemployment is down, (Bernanke) has to keep this economy going in the right direction.”

One side effect of the economic stimulus has been low interest rates, which Buffett called a “terribly important” variable in determining asset prices.

With major stock indexes at or near record highs, it has been harder for the 83-year-old Buffett, the second-richest American, to pursue his value investing strategy at Berkshire.

Stocks “were very cheap five years ago, ridiculously cheap, and that has been corrected,” Buffett said. “They’re probably more or less fairly priced now… We’re having a hard time finding things to buy.”

Buffett had invested $5 billion in preferred stock of Goldman Sachs Group Inc and $3 billion in General Electric Co preferred stock at the height of the 2008 financial crisis. That gave him a reputation as a possible lender of last resort during times of stress.

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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