Warren Buffett sees ‘Inflation’ not Deflation to worry for!!!

Legendary investor Warren Buffett sees chances of high inflation in years to come. While all the other economists around the world are worried about the stalling US recovery and deflating prices, Buffet thinks the other way round.

Buffett This contrarian view is in fact a part of Buffett’s investment strategy and a way of looking at economic and financial developments.

Buffett thinks that printing of US debt during the recession time will eventually have its effect as and when US economy starts comes out of recession. This view is very different from other academicians and professionals who are much gripped with fears of ‘Japanese lost decade’ type deflation and double dip recession. Warren Buffett has in fact moved much of the shares of Berkshire Hathaway into short-term bonds as short-term bonds are less effected by the rise in the interest rate than the long-term bonds.

Berkshire continues to hold its iconic investments in Coca-Cola, Proctor & Gamble and American Express.  Equities have traditionally been the most effective hedge for inflation due to their ability to give high returns as high inflation causes more earnings in nominal terms for the businesses and hence the share prices respond through upward movement.

Berkshire Hathaway profits fell 40% in last Quarter. Company had to suffer substantial losses in their Derivatives investments. There are discussions opening up against Buffett, is he losing it now? Is the contrarian view not for this world anymore?? I don’t think so. If looked at more closely we find that what Buffett said is due to happen sooner or latter. Only bet he is placing is on time. Excessive money poured into the economy has to be withdrawn at some point of time and that time will come only when inflation starts to move up. At that time interest rates would surely go up and investment in long term bonds would be effected most. Buffett has always been a long term investor and thinker. If we look in a long-run then inflation is eminent, only thing is we can’t predict the time when this will happen.

Hitesh Anand

I am a post graduate from Newcastle University, UK. I like studying and analyzing economic data and financial health of world.

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