I tuned into Charlie Rose's program this past weekend to watch a re-run of his November interview with Warren Buffett, and I was pleased to find out someone agrees with my view that inflation is our real worry.
Recently, I gave my analysis of Buffett's Burlington Northern deal, which had perplexed many on Wall Street. A railroad? In this economy?
As I explained in "Warren Buffett's Anti-Inflation Strategy," the deal was an investment play by Buffett as a hedge against inflation.
The Sage of Omaha knows that the last thing you want to own in a period of high inflation is actual cash.
Interestingly, Rose asked Buffett if the Burlington deal was an inflation play against a weakening of the dollar.
At first, Buffett cleverly brushed past the question and talked about how he always like to own a business than own cash (which doesn't fully explain why he has kept boatloads of cash at Berkshire for years).
But Rose, who is a master at interviewing, pressed Buffett about the Burlington deal as a hedge against the dollar devaluing.
In response, Buffett not only fessed up to his inflation worry, then added — another line from my article — almost all asset classes will rise in value when inflation hits.
He also warned that most currencies will also devalue. As Buffett sees it, and I agree, inflation is the only way out for debt-ridden economies. Those who cling to the belief that deflation will be our enemy are simply wrong.
Here's the exchange between Rose and Buffett:
CHARLIE ROSE: When you look at the future, there’s also the argument
made that this is something that goes with your philosophy today -- get out
of cash and get into assets. Because we don’t know what’s going to happen
to the dollar.
WARREN BUFFETT: Well, cash is always a bad investment. I mean, when
people say cash is king a year ago, I mean that’s crazy. I mean, cash
wasn’t producing anything, and it was sure to go down in value over time.
And then you always want to be sure you have enough. It’s like -- like
oxygen -- you want to be sure it’s around, you know. But you don’t need to
have -- you don’t need to have excessive amounts of it around. And cash,
we will always have enough cash around.
CHARLIE ROSE: Yes.
WARREN BUFFETT: But anytime we have surplus cash around, I’m unhappy.
I mean, I would much rather have good businesses than cash. And we found a
chance in the last year, thereabouts, to deploy -- we came in with
something over $40 billion in cash ...
CHARLIE ROSE: Right.
WARREN BUFFETT: ... and we have got about $20 billion now, and we’ve
had some earnings. So, we -- we’ve put a lot of cash to work. And I like
that. No, I’d much rather own a good business than have cash.
CHARLIE ROSE: And it is a hedge against the dollar?
WARREN BUFFETT: Well, you can say all assets are a hedge against the
dollar. I mean, but -- all you know is that the dollar is going to be
worth less 10, 20, 30 years from now. I say "worth less." Not worthless.
CHARLIE ROSE: Right.
WARREN BUFFETT: You want to watch that. But it will be -- you know,
and that’s true of almost every currency that I can think of. The question
is how much it depreciates in value. But cash -- cash is not a place...
CHARLIE ROSE: Now, why is that?
WARREN BUFFETT: Well, because ...
CHARLIE ROSE: ... that the dollar is going to be worth less?
WARREN BUFFETT: Because we’ll print more of them in relation to the
amount of goods that are moving. You know, if we dropped -- if we dropped
a million dollars of cash into every household in the United States today,
everybody would feel very good except the people that invested in things
that were denominated in dollars. You know ...
CHARLIE ROSE: Exactly. Got it.
WARREN BUFFETT: There will be no tendency toward deflation in this
country over time or -- or virtually ...
CHARLIE ROSE: A tendency towards inflation.
WARREN BUFFETT: Absolutely.
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