Warren Buffett: Buy 'foreign'

NEW YORK Mon Mar 3, 2008 5:11am EST

NEW YORK (Reuters) - Warren Buffett said on Friday he plans to increase foreign earnings at his Berkshire Hathaway Inc (BRKa.N) insurance and investment company.

Buffett has been devoting more of Berkshire to non-U.S. companies and investments, reasoning that Americans' love for buying from abroad has led to higher trade deficits and a falling dollar.

The euro on Friday set a record high of $1.5238 against the greenback EUR=, while the dollar touched a three-year low against the yen at 103.67 JPY=.

"At Berkshire, we will attempt to further increase our stream of direct and indirect foreign earnings," Buffett said in his annual letter to Berkshire shareholders.

The famed U.S. investor's largest international foray came in 2006, when Berkshire paid $4 billion for a controlling stake in an Israeli company, Iscar Metalworking Cos.

Berkshire's $75 billion of year-end stock holdings included $2.14 billion in South Korean steelmaker Posco (005490.KS), $1.58 billion in French drugmaker Sanofi-Aventis SA (SASY.PA) and $2.16 billion in British retailer Tesco Plc (TSCO.L).

A $3.3 billion stake in a fourth non-U.S. company, PetroChina Co (601857.SS), was sold last year.

Berkshire also holds even larger stakes in many companies that generate much of their business outside the United States, including Coca-Cola Co (KO.N), Kraft Foods Inc KFT.N and Procter & Gamble Co (PG.N).

"Foreign companies own more and more of the United States every day," said Glenn Tongue, who runs $140 million of hedge fund capital at T2 Partners LLC in New York. "So if Buffett can get an earnings stream from a non-dollar-denominated activity, he'll get a double benefit from the earnings growth, compounded by appreciation in the non-dollar currency."

While the 2007 U.S. trade deficit fell 6.2 percent, it still totalled $711.6 billion, or nearly $2 billion a day. It's more than $2,300 for each American, and Buffett said it's too high.

"So far, at least, a plunging dollar has not done much to bring our trade activity into balance," he wrote. "Our legislators should recognize the current imbalances are unsustainable and should therefore adopt policies that will materially reduce them sooner rather than later."

SOVEREIGN WEALTH FUNDS

The cheap dollar has helped lure a raft of sovereign wealth funds to take minority stakes in many U.S. companies, particularly in the financial sector, including Citigroup Inc (C.N), Merrill Lynch & Co MER.N and Morgan Stanley (MS.N).

"This is our doing, not some nefarious plot by foreign governments," Buffett said. "Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?"

Federal Reserve Chairman Ben Bernanke this week told the Senate Banking Committee he was confident the sovereign fund investments were for economic purposes. Yet a bipartisan congressional panel called for "reasonable standards" to ensure the funds' activities are not cloaked in secrecy.

Berkshire has eliminated much of the $21 billion bet it held in 2005 against the dollar, as Buffett found other places to invest. Still, the company said currency bets generated a $2.3 billion pre-tax profit over five years. Buffett said his only direct currency bet in 2007 was on the Brazilian real.

Still, Buffett said that even as he looks overseas, he's keeping Berkshire firmly planted at home too.

"Our assets and earnings will always be concentrated in the U.S.," he said. "Despite our country's many imperfections and unrelenting problems of one sort or another, America's rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce ever-growing prosperity for its citizens."

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