Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said low interest rates and inflation should dissuade investors from buying bonds and other holdings tied to currencies.
“They are among the most dangerous of assets,” Buffett said in an adaptation of his annual letter to shareholders that appeared today on Fortune magazine’s website. “Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”
Buffett, 81, who built Omaha, Nebraska-based Berkshire from a failing textile maker into a firm selling insurance, energy and jewelry through acquisitions and stock picks, echoes Laurence D. Fink, chief executive officer of BlackRock Inc. Fink said this week that investors should be 100 percent in equities, because of depressed stock valuations and the Federal Reserve’s pledge to keep interest rates low.
“High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely,” Buffett wrote. “Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.”
The Fed has kept borrowing costs near zero, and said last month that economic conditions may warrant “exceptionally low levels” for rates through at least late 2014 to boost the economy and put more Americans back to work.
Berkshire still holds bonds, primarily Treasuries, for liquidity, and has a preference to invest in companies by buying them outright or acquiring stock, Buffett said. The firm purchased Lubrizol Corp. for about $9 billion and took a more than $10 billion stake in International Business Machines Corp. last year. Berkshire’s annual report will probably be released later this month.
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