Tuesday, August 10, 2010

Buffett Concerned about Inflation? Maybe Not

Good grief. I used to get so frustrated with financial media and would rant on the blog about this piece of poor reporting or how this was taken out of context. I have gotten away from that as I just read less and less financial news from financial media outlets but I couldn't help it this time after reading this Bloomberg article. I actually saw this article about midnight last night and was like, ridiculous, but hoped it would just go away. Instead it became front banner Bloomberg news this morning. Let's start with the title. "Buffett Shortens Bond-Holding Duration After Inflation Warning." I am a Buffett follower and remember no such recent chatter out of Omaha. So I look in the article.

This is the supposed warning:

Buffett, 79, urged Congress last year to guard against inflation as the U.S. economy returned to growth. In an August 2009 op-ed in the New York Times, the Berkshire chief executive officer said government must address the “monetary medicine” that was pumped into the financial system after the 2008 crisis.

Are you kidding me? From a year ago. Opinions on Wall St. have changed drastically from a year ago. Buffett was wrong like everyone else was (well, almost everyone) that inflation was coming. That has no bearing on what Buffett thinks now.

Well what about him shortening duration of his bond portfolio? From the article:

Twenty-one percent of holdings including Treasuries, municipal debt, foreign-government securities and corporate bonds were due in one year or less as of June 30, Omaha, Nebraska-based Berkshire said in a filing Aug. 6. That compares with 18 percent on March 31, and 16 percent at the end of last year’s second quarter.

So he increased his holdings in bonds due in less than one year from 16% of his portfolio to 21%. So an entire article on how Buffett is gearing up for inflation making front page news is based on a warning from a year ago and the fact a 5% increase in the portfolio in bonds due less than one year? Are you kidding me????? I mean the reporter should be fired. Now 5% is not a small move but it isn't gigantic either, but there could be an additional reason for this move THAT IS NOT MENTIONED AT ALL that has nothing to do with inflation. Credit risk!!! Ding ding ding ding. Do we have a winner? This article doesn't mention at all that in June (so only 2 months ago compared to a year ago on his other comments) he warned in front of Congress about the municipal bond market and the possible train wreck it is headed for. Many very savvy investors are also worried about a sovereign debt bubble.

Okay - so if I am worried about credit risk in municipal bonds and potentially in the future on government bonds - I may just shorten the duration of my bond portfolio. That would be logical and has nothing to do with inflation concerns.

Buffett may or may not be really worried about inflation, I would guess not, but there is nothing at all that Buffett has done in the last six months that should generate a headline article on how Buffett is concerned about inflation and we should also. Really really poor reporting.

1 comment:

MarkWolfinger said...

It's amazing to me that Bloomberg is filled with some stupid writing from people who indeed should be fired.

But no one is going to fire them.