Warren Buffett:Low rates help business, hurt savers

Investment doyen Warren Buffet said ultra low interest rates around the world were great for the financial returns of companies, but he lamented how easy money policies of central banks “destroyed” pensioners and other savers.

“With practically zero interest rates, American business is earning terrific returns on tangible equity,” Mr Buffett said.

“They have not suffered even as people on fixed interest instruments have suffered enormously.”

His remarks to 40,000 shareholders at Berkshire Hathaway’s annual meeting in Ohama, were the billionaire’s latest shot across the bows of low and negative interest rates employed by central banks in the US, Europe and Japan.

The Berkshire Hathaway chairman has been a long term critic of the Fed’s near zero rates.

Fed chair Janet Yellen has previously defended loose monetary policy, arguing it has helped reduce unemployment and stoke the economic recovery.

The Reserve Bank of Australia will meet on Tuesday and consider joining the word’s central bank rate cutting club and whether to push borrowing costs to fresh record lows.

Berkshire has more than $US50 billion invested in low-yielding short term government bonds, including in Europe, which is experimenting with negative interest rates.

At the all-day shareholder meeting known as the “Woodstock for capitalists”, Mr Buffett said the low interest returns were a bigger problem for retirees and fixed income investors than Berkshire.

US stock markets are trading near an all time high and capital’s share of profit versus labour’s share is also close to records, despite underwhelming US corporate profit results for the 2016 first quarter unveiled in recent weeks.

Low rates have reduced the cost of borrowing for firms to borrow, invest and conduct share buybacks.

Cheap money has also lifted the values of shares by causing a “search for yield” among investors chasing returns in riskier assets like equities.

Mr Buffett is a long-term bull on the American economy, but the Democratic supporter of Hillary Clinton remains worried about income and wealth inequality in America.

The 85-year old said business was still the “engine” of the market economy, highlighting that US gross domestic product per person had multiplied an incredible six times in his lifetime.

“The system works very well in terms of aggregate output,” he said.

“In terms of distribution of that output it can fall very short in my view.”

“But it will keep working, you don’t have to worry about that.”

“Twenty years from now there will be far more output per capita in the United States in real terms than there is now.”

Still scarred by the 2008 global financial crisis which caused household incomes to slump for years, polls suggest many Americans are fearful of the next generation being left worse off than their parents and grandparents

Mr Buffett was more upbeat.

“A majority of the American public thinks it’s a bad time to be born today compared to when they were born.”

“They’re wrong,” he said.

Pressed by a shareholder about the prospect of a Donald Trump presidency, Mr Buffett said: “No presidential candidate or president is going to end” the economy.

If the Republican frontrunner or Mrs Clinton become president, Berkshire will “continue to do fine”, he said.

Berkshire shares have averaged a compound annual return of 20.8 per cent since its inception in 1965.

The Berkshire AGM was webcast live for the first time, opening up the meeting to millions of newcomers.

Berkshire released its preliminary first quarter results, reporting net profit of $US5.59 billion, up from $US5.16 billion in 2015.

The rise in earnings was due to gains from investments and derivatives.

Operating profits fell, because of railway, energy and insurance underwriting businesses posting declines.

 

x

Check Also

Getting to know you: the robot assistant who can second-guess your every need

It’s here – a world in ...

Virgin Australia to reduce capacity by 5%

Edited by Nelly Tawil The March ...

Australian rental prices are dropping

Edited by Nelly T. Compared to ...

Global Economy to Grow by 3% in 2016: OECD

The global economy will grow by ...

There are 300 million in circulation but why do you never see Australia’s $100 notes?

UST days ago it was mooted ...

CBA trader the latest to lose job in messaging scandal

A Commonwealth Bank trader is the ...