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When Smart People Are Wrong: Warren Buffett on Deficits and Inflation

|Includes: Berkshire Hathaway Inc (BRK.A), BRK.B, TLT

Investment News reports that "Warren Buffett shortened the duration of bonds held by his Berkshire Hathaway Inc. after warning that deficit spending could force inflation higher."

Despite his occasional involvement in policy discussions, Buffett is not a macro guy, and the article only speculates on the motivation for changes in the company's fixed income holdings.  One takeaway from the piece is that Berkshire's balance sheet is healthy enough to incur the decline in interest income that will result from this shortening (though it may have cost Berkshire shareholders some capital gains in recent weeks, given the recent slide in ten year Treasury yields).  And given Buffett's investing style, he's far more likely to be attracted to equities with healthy and growing cash flows and dividend yields than government debt, regardless of the macro environment.

We would just point out to the oracle that federal deficits are not always and everywhere inflationary -- at least not when the private sector is desperate to save, expectations are pessimistic, and the central bank is up against the zero bound.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. Neither the firm, its clients, or its principals own securities issued by Berkshire Hathaway.  Some clients of the firm own Treasury debt and/or TLT. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy.  Investors should consult with their personal financial advisors before engaging in any type of investment strategy. 

Disclosure: Neither the firm, its principals, or its clients own securities issued by Berkshire Hathaway. Some clients of the firm hold Treasury debt and/or TLT.