Warren Buffett's Mystery Currency Position: Brazilian Real

Liz Claman of Fox Business News did a one-hour interview with Warren Buffett last week. In the excerpt below, Buffett reveals his 'mystery' currency position that he mentioned at this year's Berkshire Hathaway annual meeting:

BUFFETT: Ah, the mystery currency.

CLAMAN: ... that we talked about back in May and everybody was guessing. What was it?

BUFFETT: Well, I'll preface it by saying that I've decided rather than following this idea through currencies, I would buy businesses with lots of earnings abroad, because that's a better way, in my view, to play a bearishness on the dollar.

But I did have this one position and it's kind of an interesting position, because it's quite unlikely. If you had told me 10 years ago I would buy the Brazilian real, you would -- I would have thought you were crazy.

Brazil, in the last century, has had five different currencies that went basically to zero. I mean, they turned into confetti. It was almost a joke and whether it was the cruzeiro or whatever it may have been.

In the last five years, the Brazilian currency in terms of the American currency has doubled in value. The real has doubled against the U.S. currency and the more interesting point is that during much of that time, the Brazilian government, in effect, has been supporting the U.S. dollar.

Now, nobody would have believed, 10 or 20 years ago, that Brazilians would be supporting the U.S. dollar.

CLAMAN: Would be supporting the U.S.

BUFFETT: But they have been buying dollars in the market. They have been building up their own reserves. Their current account has turned into a good surplus and we have been, in effect, behaving like people attributed to the Brazilians or the Argentineans 10 or 20 years ago.

So the Brazilians have been supporting our dollar to the best of their ability, but they still have had that doubling in the value of their own currency.

CLAMAN: So did you buy some reals?

BUFFETT: Yes, we've got some reals. But I'm not telling anybody to buy reals. We'll probably be out...

CLAMAN: Exactly. I mean, this is right for you and your investors, but not necessarily for the average person.

BUFFETT: Right, right. And we may be cashing out of the reals and we bought a few Brazilian bonds, too, but -- and this is not a huge position. We'll make $100 million or something like that out of the...

CLAMAN: Not a huge position, $100 million. I know in the grand scheme of things...

BUFFETT: Well, it really isn't.

CLAMAN: ... to people listening, it's a lot.

BUFFETT: But it's not the kind of currency that you could take the size position as in the euro or something of the sort.

But it was -- it's sort of fascinating to me that we would sit here in the year 2007 and daily the Brazilian government would be supporting the U.S. currency.

Transcript credit: Whitney Tilson

Comments

[King Kang]

I am willing to give a man as experienced as Warren Buffett the benefit of the doubt. I think he knows what he is doing, and if you don't think so then just take a look at all the companies he is involved in www.newsvisual.com/newsvisual/warren_buf...

[kurt walter]

Who said Warren doesn't trade investments? Buy and hold forever? Sure. A big myth.