Buffett lauds Bernanke but laments lack of investment bargains
Warren Buffett said he would recommend reappointing Ben Bernanke as Federal Reserve chairman, while adding that low interest rates have inflated asset values and complicated his hunt for investments at his company Berkshire Hathaway.
The billionaire investor spoke one day after the central bank surprised investors by postponing its expected wind-down of monetary stimulus, which has in five years more than tripled the Fed’s balance sheet to above US$3.6 trillion.
“Since the panic of five years ago, he’s done a terrific job,” Buffett said on CNBC television in a joint interview with Brian Moynihan, chief executive of Bank of America.
Asked if he would reappoint Bernanke when his term expires, Buffett said: “That’s what I would do.”
Nevertheless, at an event later Thursday afternoon at Georgetown University, Buffett said that the Fed’s eventual exit from its monthly bond-buying program will carry unforeseen risks.
“We are in an experiment which hasn’t really been tried before,” he said, adding that “buying securities is usually easier than selling securities.”
Berkshire owns more than 80 businesses in such areas as insurance, chemicals, railroads and clothing, and has more than US$130 billion of equity and fixed income investments.
Some of its money went to Bank of America in August 2011, when Buffett announced a surprise US$5 billion investment in the second-largest US bank, which has been plagued by bad mortgages and legal liabilities mainly tied to the former Countrywide Financial Corp.
The investment included preferred shares with a 6 per cent dividend, plus warrants to buy 700 million shares at about US$7.14 per share, and has given Berkshire a paper profit of several billion dollars because the bank’s shares have doubled.
Moynihan said the bank has contracted in size and put many regulatory issues behind it, leaving it to focus on how best to grow in a slow-growth economy.
“You have an economy which we see very constructive, growing at 1.5 to 2 per cent,” he said. “We don’t see a lot of downside risk... Until unemployment is down, (Bernanke) has to keep this economy going in the right direction.”
One side effect of the economic stimulus has been low interest rates, which Buffett called a “terribly important” variable in determining asset prices.
With major stock indexes at or near record highs, it has been harder for the 83-year-old Buffett, the second-richest American, to pursue his value investing strategy at Berkshire.
Stocks “were very cheap five years ago, ridiculously cheap, and that has been corrected,” Buffett said. “They’re probably more or less fairly priced now... We’re having a hard time finding things to buy.”
Buffett had invested US$5 billion in preferred stock of Goldman Sachs and US$3 billion in General Electric preferred stock at the height of the 2008 financial crisis. That gave him a reputation as a possible lender of last resort during times of stress.