Tags: buffett | debt | stocks

Buffett Loads Up on Debt Ahead of Inflation

By Forrest Jones   |   Monday, 10 Aug 2009 11:55 AM

Warren Buffet is buying more corporate and foreign-government bonds and less stock these days, a possible sign that he is concerned about rising U.S. inflation.

Buffet's investment company Berkshire Hathaway held $11.1 billion in foreign government bonds in its insurance units as of June 30, compared with $9.6 billion three months earlier, the company said in a regulatory filing.

Berkshire's investments in companies such as plane-rental business NetJets and financial institution Wells Fargo have turned out to be poor bets while securities issued by Goldman Sachs and General Electric are offsetting slumping equity investments.

“Some of the normal places he’s gotten the cash to invest are just getting killed in the recession,” Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington, told Bloomberg.

“So he’s locking in these guaranteed returns, moving from the volatility of stocks to a steady stream of income that, in some cases, is almost at the return you normally get from the stock market.”

Investments in foreign government bonds may signal Buffet's fear for what's in store for the U.S. economy: inflation.

“It may be that Buffett thinks that inflation in the U.S. will be worse than elsewhere in the world,” said Martin.

Buffett warned on inflation earlier this year. The explosive rise of the U.S. budget deficit and debt burden will lead to serious inflation down the road, Buffett told CNBC in early May.

Buffett warned that U.S. debt as a ratio of GDP might surpass 80 percent, unless there are significant spending cuts or tax increases.

“A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt,” Buffett said.

Experience proves that, he points out.

“Every country that has denominated its debt in its own currency and has found itself with uncomfortable amounts of debt relative to the rest of the world, in the end they inflate,” Buffett explained.

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Warren Buffet is buying more corporate and foreign-government bonds and less stock these days, a possible sign that he is concerned about rising U.S. inflation.Buffet's investment company Berkshire Hathaway held $11.1 billion in foreign government bonds in its insurance...
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