Riddle: What Currency Is Warren Buffett Buying? 10 comments
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So, if you were him, what would you buy?
Let's look at the evidence. What is the investment guru's mantra when it comes to purchasing a company? Warren Buffett likes to buy the very best at a huge discount. And... he's patient. There's something else that Buffett looks for in his investments that is crucial: He only bets on a sure thing.
Taking those criteria, what are some of the currencies that Buffett would be interested in? Well, the currency would have to be undervalued and a great long-term value. Looking for a currency that is grossly undervalued, we can go ahead and eliminate everything but the Japanese yen and the good ol' greenback. All other currencies are at their all-time highs, so that would mean too pricey for the Sage.
So which one of these currencies is Buffett likely to purchase and why?
Japanese ¥en:
Certainly the fundamentals are there for the yen. It's at a rock bottom since what feels like eternity. But, the one thing that is most likely to push the yen higher over the longer run is interest rates, not necessarily growth. Buffett would have to believe that interest rates in Japan were going to go higher, and that the carry would unwind. That's a possibility, especially since the BoJ Fukui has been bantering all day long that he's going to be raising rates. But, after 17 years of being in the depths of despair, I don't see this as a sure thing. Buffett likes sure things, and he likes lots of upside. Against the USD, the yen will likely only appreciate about 10 full yen. Not a ton. There are other carry currencies that could get unwound and see bigger moves. But, I don't think Buffett would venture too far into the realm of sophistication with regards to his currency trades. He likes things simple. Playing a potential carry trade unwind is not enough of a sure thing for Buffett, and the upside isn't high enough.
The U.S. dollar:
Across the board, the USD has seen better days. But, the Sage just bet against the greenback not long ago. Would he seriously be considering a reversal of fortune already? And, is there enough fundamental analysis to push this currency higher across the board? I don't think so. The same reasons that the U.S. dollar fell back in 2001 are still lingureing today, save for higher interest rates. The trade deficit is still around, and so is government spending. However, U.S. companies are seeing a ton of profits coming from overseas from the cheaper dollar. Interesting. In fact, that might be the one saving grace for the U.S. dollar, and certainly one of the reasons that the U.S. equity markets keep pushing higher. But, I'd be reluctant to believe that Buffett has changed his mind on the greenback.
But... there's something else:
Of all of the articles that I read, the dollar and yen were the two obvious currencies that everyone pointed out. But... there's still one more: The Chinese yuan. I like this currency in the long run. It's at an artificial low against everything, and climbing. Plus, the upside of the economy is huge. Much bigger potential here than in the U.S.
So, if Buffett were to have purchased Chinese yuan, then he'd be in a great position to purchase a few companies. He's likely to see a 50% increase in his currency appreciation over the course of a few years. Plus, he's also likely to see some decent appreciation to any companies he would purchase with the strong economy over there. Buffett has already purchased big stakes in at least one Chinese company, PetrolChina (PTR). So, we know he's open to the idea.
Not sure why most of the articles I read missed the Chinese yuan as a potential purchase for the Oracle of Omaha. But there it is plain as day.
Perhaps we should all take a look at purchasing a few yuan for the long haul as well.
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This article has 10 comments:
That said; there are a lot of very smart and wealthy investors who may see an opportunity in the artificial price that the Yuan currently has and who will seek to place bets accordingly. Many would bet on the Yuan rising if it were floated...thus the expectation. That is not the same as somehow making that change actually happen.
There's something called NDF (non-deliverable forward) traded in Singapore that allows one to bet on the directions of the Yuan. The carry is about 5%, meaning that the Yuan needs to raise at least 5% in the next year to break even. Not a sure bet, I say.