A riddle! Warren Buffett’s “surprising” new bet on the currency markets has got everyone guessing. Indicating that he was only actively buying one currency, “we will tell you about it next year,” he said.
So what would be surprising to a currency practitioner, ask Peter Garnham and Richard Beales in the FT? Analysts have suggested that Mr Buffett’s philosophy of investing for the long term and in businesses he understands seems ill-suited to the volatile currency markets - although Berkshire Hathaway did make more than $2bn overall on a $20bn-plus bet against the dollar that began in 2002, even after the market moved against him to the tune of $1bn in 2005.
Emerging markets look unlikely - Mr Buffett famously dislikes investments carrying any significant risk of capital loss.
A bet on a major currency would suit Mr Buffett’s need to make big investments, with Berkshire sitting on a $46bn cash hoard. One object of Mr Buffett’s affection could be the yen, which has hit a series of record lows against a host of currencies in recent months - fitting the Sage’s reputation as a value investor.
A bet on an appreciation of the yen - either in the short term as investors get out of the carry trade, or in the longer term through the narrowing of interest rate differentials - might be a bumpy ride, said analysts, but “for people with deep pockets like Mr Buffett, it’s time to start thinking about buying the yen,” said one.
It is also not clear how a bet on yen strength against the dollar would be “surprising” for followers of Mr Buffett, who is known to be a dollar-bear of long-standing.
Perhaps the most surprising call for him would be to reverse his stance on the dollar. Paul Mackel, currency strategist at HSBC, says it is possible that Mr Buffett thinks that US economic growth could accelerate, and has bought the currency. Ultimately, though, Mr Mackel says that Mr Buffett’s views on currencies are unlikely to carry as much weight as his views on companies. “His currency calls do generate a lot of headlines, but I’m not sure quite how seriously people take it,” adds Mr Mackel.
