Warren Buffett deepens dollar worries

Warren Buffett

Warren Buffett has warned that the US trade deficit risks creating a “sharecropper’s society” as his letter to shareholders sounded an increasingly bearish tone about the value of the dollar. Mr Buffett stepped up his warning about the US trade deficit and the need to finance it with foreign investment, devoting more than two full pages of the annual report to the topic.“This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8bn daily, an increase of 20 per cent since I wrote you last year,” he said. “Consequently, other countries and their citizens now own a net of about $3,000bn of the US”

In particular, he warned that this meant a sizeable portion of what US citizens earned in future would have to be paid to foreign landlords.“A country that is now aspiring to an “Ownership Society” will not find happiness in – and I’ll use hyperbole here for emphasis – a “Sharecropper’s Society,” added Mr Buffett. “But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.”

Jim Rogers on us dollar

Jim Rogers

Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was "in recession" as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan.

Mr Rogers, who ranks among the world's best-known investment figures, said he was putting his faith in China's politically-sensitive currency alongside the Japanese yen and the Swiss franc.

"I live in Asia. It is really not that strange that I am selling out of the US dollar," he told The Daily Telegraph. "All other things being equal during the next six months, that's the way I will go. But if the Swiss franc goes through the roof, I probably won't put money into the Swiss franc."Mr Rogers' comments are followed slavishly by many members of the international investment communities, and his view that the US economy is in a worse state than that suggested by most economic commentators is likely to add to pessimism in some quarters about its health.

"The US economy is undoubtedly in recession," he said. "Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is."Mr Rogers, a long-time enthusiast for investing in stocks hanging on the coat-tails of China's economic boom, said he had not altered his views about the booming Shanghai stock market.

Earlier this year, with the benchmark Shanghai index trading at around 4000, Mr Rogers, a former investment partner of George Soros, added his voice to the chorus of warnings about an incipient bubble forming in the mainland Chinese capital markets.With the Shanghai Composite Index closing at 5843 points, Mr Rogers said he was relaxed about the market's continued growth."I still feel the same way. It's not a bubble yet - if it goes past 9000 in January I'll have to sell. Bubbles always end badly," he said. "I do not want to sell Chinese stocks. I want to own them forever and I want my [four year-old] daughter to own them."

Mr Rogers' comments came as Warren Buffett, the 'Sage of Omaha', urged investors to be cautious about the Shanghai market's surge, which has seen it rise by more than 125pc this year.Speaking to Bloomberg during a visit to China, Mr Buffett said Berkshire Hathaway, the investment company he fronts, shied away from buying into soaring stocks.Mr Buffett has been a major beneficiary of Shanghai's growth, reaping a profit of hundreds of millions of dollars from his stake in PetroChina, one of the world's largest companies by market value.

George Soros quits dollar

George Soros

Billionaire investor George Soros has said fallout from the U.S subprime crisis will bring about the end of the dollar's status as the world's reserve currency. Soros, during a debate in Davos, said the current crisis will be the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. He said the rest of the world was now increasingly unwilling to accumulate dollars.Soros made US$1 billion in 1992 betting against the pound, forcing the British government to abandon a peg to a basket of European currencies. International Monetary Fund members say the dollar's share of global foreign-exchange reserves fell to a record low of 63.8 per cent in the third quarter as demand for U.S assets waned after the collapse of the U.S housing market.

The billionaire investor famous for "breaking" the Bank of England in the 1990s has warned that Britain is heading for a recession. George Soros said that a recession in both the United States and Britain "will be very difficult to avoid". He was speaking on the fringes of the World Economic Forum summit in Davos, Switzerland, where many of the world's top politicians and businessmen are meeting. The warning is significant, since although many of the major investment banks now agree that the US is set to suffer a recession, most economists have predicted that Britain's fortunes will be far better.

His warning came less than 24 hours after the US Federal Reserve used an emergency three-quarter percentage point cut in interest rates to try to prevent the world's biggest economy slumping dramatically. It will also fuel speculation that Mr Soros has been betting against the pound in recent months. Sterling has fallen dramatically since late last year, with the housing market slowing fast and the Bank of England being forced to cut interest rates.

Mr Soros also warned that the dollar's status as the world's reserve currency was drawing to an end, thanks in part to the financial crisis on Wall Street. He said the plight of US households, who are facing major slumps in nationwide house prices for the first time in living memory, was increasing the distaste among international investors for the greenback. He said: "The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars."

Another market turmoil...

The past week has seen an upheaval in the financial markets worse than the previous year as mentioned in my last few postings. We should view at what a few of the very well-known investors/speculators have to say about the current crisis and their outlook.....