Sunday, February 15, 2015 11:48:24 AM
By Jay Jenkins | February 15, 2015 |
Click For Article
When Warren Buffett speaks, the investing world listens. So do economists, central bankers, and yes, even presidents.
That's why it's a big deal that the Oracle of Omaha spoke out in a Fox Business interview on two huge issues in U.S. economic policy earlier this month. Here's what he had to say.
Don't raise interest rates in 2015
Ever since the Federal Reserve lowered its target federal funds to zero in December 2008, markets have speculated about when interest rates would begin to rise. More than six years later, that day has yet to arrive.
The consensus among most analysts is that the Fed will begin raising rates this year, perhaps in the summer or fall. Buffett thinks that move would be a challenge, if not impossible, to pull off.
He said that raising rates in 2015 "is going to be very tough ... when you've got what's going on around the world."
To Buffett, the challenge in raising rates is not the strength of the U.S. economy, which is showing continuing improvement with every employment report, GDP estimate, and every look at the current levels of the Dow Jones and S&P 500 indices.
Instead, the problem is more about the interconnectedness of the global economy and the impact of a rise in U.S. rates on the rest of the world.
Buffet specifically mentioned Europe, which is currently in a rate-easing environment to try to avoid the region's third recession in the past few years. Rising rates in the U.S., coupled with low rates in Europe, would have the effect of making the dollar stronger relative to the euro. Buffett didn't mention Japan, but the situation there is largely the same. Even China is seeing its once unstoppable double-digit GDP growth slow.
An even stronger dollar will exacerbate these global growth issues even further. A study from Bank of America's Merrill Lynch predicts that global nominal GDP will shrink 3.5% in 2015, largely driven by a strengthened dollar.
The "not-in-my-backyard" problem
Buffett then shifted gears, repeating a call for the federal government to approve the much-debated Keystone XL pipeline. This pipeline would facilitate the transport of Canadian-drilled oil to U.S.-based refiners and shipping networks.
In an interview on CNBC in March of last year, Buffett stated that he'd "vote yes" on the project if he were a D.C. lawmaker. His opinion hasn't changed, saying this month that "by and large, Keystone should be done."
For Buffett, the viewpoint is based on a bigger-picture perspective of what's best for the United States. The Burlington Northern Santa Fe Railway, owned by Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) , would actually lose business with the pipeline, as much of that oil is shipped by rail today.
The challenge is that getting the pipeline approved is characterized by what Buffett calls a "not-in-my-backyard" problem. Areas where the pipeline would be built are cautious, given the thought of having hundreds of millions of gallons of oil rush through neighborhoods, and past schools, farms, and waterways. The risk of a major spill is terrifying for communities that would suffer the potential environmental and economic fallout from such a disaster.
Yet, many of those risks already exist by transporting the product on railroads. Some argue that the pipeline would decrease the chance of a disaster overall. It would also lower costs in the supply chain of oil products, giving North America oil an advantage on international markets. To Buffett, the improvements to the oil infrastructure are worth the risks and costs of building the Keystone.
Will rates rise in 2015? Will the Keystone XL pipeline ever get built? The answers to those questions can only be answered with time. In the meantime, though, it's always a learning experience listening to the Oracle of Omaha discuss the issues facing the national and global economy today.
TRUTH
I've never claimed to have all the answers but feel i'm beginning to corner the market in questions worthy of solutions.
Recent BRK.A News
- Paramount’s Shares Surge Following Sony and Apollo’s Joint Bid; ISS Backs Berkshire Hathaway Director Re-election, and More • IH Market News • 04/19/2024 11:31:22 AM
- Unilever Initiates Ice Cream Division Spin-Off and Announces Job Cuts; Berkshire Ramps Up Share Buyback Efforts, and More • IH Market News • 03/19/2024 11:33:10 AM
- Tesla Exits Market Top 10, Victoria’s Secret Stock Tumbles 30% on Weak Forecast • IH Market News • 03/07/2024 10:43:17 AM
- U.S. Stocks May Lack Direction Following Yesterday’s Modest Pullback • IH Market News • 02/27/2024 02:14:46 PM
- Cisco Systems Stock Drops 5% Following Restructuring Plan, Berkshire Trims Apple Stake, and Latest News • IH Market News • 02/15/2024 11:34:25 AM
- NetJets' sterling safety record at risk as Fractional threatens litigation against its Pilot Union • PR Newswire (US) • 01/26/2024 01:00:00 PM
- NetJets threatens litigation over alleged slowdown • PR Newswire (US) • 01/19/2024 10:15:00 PM
- Wall Street Highlights: Tesla Cuts Prices in Germany, Interactive Brokers Increases Revenue by 17%, and More • IH Market News • 01/17/2024 11:33:30 AM
- Wall Street Highlights: Apple Cuts iPhone Prices in China, Microsoft Launches Copilot Pro Subscription, and More • IH Market News • 01/16/2024 11:15:52 AM
- Wall Street Highlights: Mastercard’s Financial Rise, Citigroup’s $3.8 Billion Charges, and More • IH Market News • 01/11/2024 11:18:22 AM
- Wall Street Highlights: Amazon to Introduce Ads on Prime Video, JD.com Raises Salaries in 2024, and More • IH Market News • 12/28/2023 12:27:06 PM
- Batteries Plus & Duracell Ignite Children's Holiday Spirit With Annual Toys For Tots Partnership • PR Newswire (US) • 12/05/2023 03:07:00 PM
- Tuesday’s Wall Street Highlights: Teck Resources, Starbucks, Nvidia, Fisker, Home Depot, and more • IH Market News • 11/14/2023 11:35:03 AM
- Monday’s Wall Street Highlights: Boeing, Novo Nordisk, Moody’s, StoneCo, and more • IH Market News • 11/13/2023 11:45:20 AM
- BRK.B Stock: How Did Berkshire Hathaway Perform in Q3 of 2023? • Finscreener.org • 11/06/2023 10:15:00 AM
- NJASAP TO HOST WALL STREET INFORMATIONAL PICKET ON THURSDAY, SEPT. 14 • PR Newswire (US) • 09/13/2023 02:15:00 PM
- From Status Carrier to Steppingstone: NetJets Continues Freefall • PR Newswire (US) • 09/11/2023 02:00:00 PM
- Wednesday’s Wall Street Highlights: Ambarella, Alphabet, Toyota, HP Inc, Vinfast, and more • IH Market News • 08/30/2023 11:16:41 AM
- NJASAP to host informational picket on Sunday, Aug. 27 coinciding with the FedEx Tour Championship in Atlanta • PR Newswire (US) • 08/25/2023 01:30:00 PM
- Friday’s Wall Street Highlights: Applied Materials, Farfetch, Bloomin’ Brands, and More • IH Market News • 08/18/2023 11:32:37 AM
- Tuesday’s Wall Street Highlights: Delcath Systems, Getty Images, Home Depot, Berkshire Hathaway, and more • IH Market News • 08/15/2023 11:14:09 AM
- Monday’s Wall Street Highlights: Berkshire Hathaway, Tesla, BP, Yellow, UBS and more • IH Market News • 08/07/2023 11:26:29 AM
- Luxury Jewelry Brand, Aurate, Partners With Helzberg Diamonds To Launch Exclusive Collection • PR Newswire (US) • 08/04/2023 01:02:00 PM
- Friday’s Wall Street Highlights: Amazon, Apple, Fortinet, Atlassian, DraftKings, and more • IH Market News • 08/04/2023 11:31:53 AM
- Thursday’s Wall Street Highlights: Anheuser-Busch InBev, Apple, Hasbro, Sunrun and more • IH Market News • 08/03/2023 11:33:50 AM
Axis Technologies Group and Carbonis Forge Ahead with New Digital Carbon Credit Technology • AXTG • Apr 24, 2024 3:00 AM
North Bay Resources Announces Successful Equipment Test at Bishop Gold Mill, Inyo County, California • NBRI • Apr 23, 2024 9:41 AM
Epazz, Inc.: CryObo, Inc. solar Bitcoin operations will issue tokens • EPAZ • Apr 23, 2024 9:20 AM
Avant Technologies Launches Advanced AI Supercomputing Network and Expansive Data Solutions • AVAI • Apr 23, 2024 8:00 AM
BestGrowthStocks.com Issues Comprehensive Analysis of Triller Merger with AGBA Group Holding Limited • AGBA • Apr 22, 2024 1:00 PM
Cannabix Technologies to Present Marijuana Breathalyzer Technology at International Association for Chemical Testing (IACT) Conference in California • BLO • Apr 22, 2024 8:49 AM