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Warren Buffett 2013 Interview on Ben Bernanke's Monetary Policy

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Published on May 7, 2013

Warren Buffett discusses Ben Bernanke's monetary policies and how he is devaluing the currency. What effect will his policies have on gold and silver? Visit http://DailySilverUpdate.com for more interviews.

"I feel sorry for people that have clung to fixed-dollar investments," he told investors at Berkshire Hathaway's annual meeting in Nebraska, an event akin to a rock concert.
Mr Buffett defended the emergency stimulus of Fed chairman Ben Bernanke, saying the "consequences would have been terrible" if the authorities had failed to act, but those nearing pension age have paid the price. Many are trapped in such assets through pension funds. "Bernanke had tough choices to make, but he decided to step on the gas pedal, in terms of monetary policy, and he brought down rates to virtually unheard of levels, and kept them there. And he's still got his foot on the pedal and that really does hurt savers. It has made it extremely difficult for all kinds of people who live on fixed-income investments," he told CNBC. Mr Buffett said those who parked their money in cash equivalents or short-term US Treasuries had missed the party over the last nine months as Wall Street rocketed to all-time highs. "It is brutal. I don't know what I would do if I were in that position," he said. Analysts have been fretting for months that long-dated bonds may suffer a nasty bear market as economic recovery takes hold and starts to force up interest rates, with growing talk of a 'Great Rotation' from bonds into equities. Bank of America issued a client alert in January warning of a "bond crash" much like the sell-off in US Treasuries in 1994 as rates jumped 240 basis points in nine months. Yet bonds have continued to rally since then. Yields on 10-year US Treasuries have fallen this year to 1.74pc as sliding commodity prices signal deflation and global recovery fails to gain traction. French and German yields fell to the lowest in ever last week. "The great rotation has not (yet) taken place. Safety first seems to be the name of the game," said Koen Straetmans from ING. Louise Yamada, Wall Street's oracle of technical analysis, said the "bottoming process" in the rates cycle may be gradual, like the slow turn in the late 1940s as bonds lost their shine. "It's disturbing to see retirees who got stuck at the top of the stock market, now get stuck at the top of the bond market." David Kostin from Goldman Sachs said the surge in the S&P 500 index to record highs has created a "large gap" between stock and bond values. "We believe bonds are more mispriced than stocks", he said. However, Mr Kostin also said the majority of first quarter earnings revisions on Wall Street have been "negative", and five of the ten S&P 500 sectors have seen a fall in earnings per share from a year earlier. Economic growth is slowing again as the fiscal shock hits, while the ISM manufacturing gauge fell to 50.7 in April. A drop below 50 can be a recession trigger. Seth Masters from Bernstein Global Wealth has said the entire universe of safe-haven assets from bonds to defensive stocks and gold are all "dangerously overpriced", adding that the "safety bubble" is now the worst of the lot.


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