Warren Buffett, Bill Gates betting billions against the greenback
By James Hertling in Davos and Simon Clark in London
February 1, 2005
Bill Gates and Warren Buffett, the world's two richest men, are partners in business, bridge and travel. Now they've joined in a bet against the US dollar.
Mr Gates, chairman of Microsoft, said he expected the US dollar to extend its three-year drop because of widening US trade and budget deficits.
"I'm short the dollar," Mr Gates told television interviewer Charlie Rose this weekend at the World Economic Forum in Davos, Switzerland. "The ol' dollar, it's gonna go down."
Mr Buffett, whose personal fortune of more than $US42.9 billion ($55.4 billion) is topped only by Mr Gates's $US46.6 billion, has been buying foreign currencies since 2002, citing the impact of the US deficits. Their concerns were echoed in Davos by policy makers including European Central Bank President Jean-Claude Trichet and investors such as George Soros.
The US dollar has fallen 26 per cent against a basket of six major currencies since the start of 2002. The trade deficit swelled to a record $US609 billion last year and the Bush Administration expects the budget shortfall to reach a record $US427 billion in the year to September 30.
"It is a bit scary," Mr Gates said of the US's $US7620 billion in debt. "We're in uncharted territory when the world's reserve currency has so much outstanding debt."
Mr Buffett, chairman of investment company Berkshire Hathaway, bought $US1 billion in foreign currency contracts in the third quarter, bringing his total to $US20 billion of forward contracts in eight currencies on September 30, according to Berkshire. The currency position gave Berkshire a $US412 million pretax gain in the quarter as the value of the US dollar fell.
"That's a long-term position," Mr Buffett, 74, said in an August interview. "I have no idea what currencies are going to do next week or next month or even next year. I think I know over time."
Mr Gates and Mr Buffett's shared view on the US dollar is not their only joint interest.
Mr Gates revealed a $US319 million stake in Berkshire Hathaway on December 21, a week after he joined the company as a director. The two play bridge and have travelled together, taking a 1995 train trip through China.
Mr Buffett made his first investment in China in 2003, buying a stake in PetroChina Co.
In Davos, Mr Gates described China as a potential "change agent" for the next two decades. "It's phenomenal," Mr Gates said. "It's a brand new form of capitalism."
The Microsoft founder's $US27 billion foundation in September received approval from China's foreign-currency regulator to invest up to $US100 million in the nation's yuan shares and bonds.
The comments by Mr Gates about the US dollar came a week before Group of Seven officials meet to discuss currency policy and were echoed by officials from Europe and Asia.
The euro rose as high as $US1.3666 on December 30 and bought $US1.3038 at the end of last week. A stronger euro reduces the competitiveness of European exports and slows growth among the nations sharing the currency.
"The governing council of the ECB has repeated a very, very short sentence, namely that the sharp moves upward of the euro were unwelcome and that we thought they were counterproductive from the economic growth perspective," Mr Trichet said at a Davos panel discussion.
US growth reached a five-year high of 4.4 per cent in 2004, outpacing Europe for the 12th time in 13 years.
The euro region probably grew 2.1 per cent, according to European Commission estimates.
The US budget shortfall was "the No.1 risk, disregarding geopolitical risks" to the global economy, German Deputy Finance Minister Caio Koch-Weser said in a January 27 interview in Davos.
He urged US President George Bush to present a "credible" plan for getting the deficit under control.
Chinese central bank adviser Yu Yongding said in Davos the US should do more to tackle its record current-account deficit and ease pressure on China to loosen its currency's peg to the US dollar.
"The US should take the lead in putting its own house in order," Mr Yu said. "It's the root cause" of global imbalances. "China will make its contribution, but the world should not put disproportionate pressure" on the country.
Although it's old news I'm always interested when the rich (Gates) and esp. Buffet place their money...