I thought his most interesting comments were about how huge the 1990s bubble really was, and how we're still very much experiencing its effects. I wonder how the real estate bubble will feel. As The Economist has written recently, if we treat asset inflation as "true inflation" we're now experiencing early 1970s style inflation. We know how that story turned out.
IHT: Buffett profits on weak dollar
... When the stock market was soaring in the late 1990s, Warren Buffett now says, he should have sold stocks rather than just complain about overvaluation. Now, with the dollar still headed down in his view, he says he is acting on his opinions even though it makes him nervous that so many agree with him.
The annual report showed that of the $3.5 billion in pretax gains on investments Berkshire realized in 2004, well over half came from betting against the dollar. Of them, $1.8 billion came from foreign exchange contracts, and a portion of the $730 million in profit on junk bonds also came from foreign exchange gains. The bonds were purchased in 2001 and 2002 when such bonds traded at relatively high interest rates.
... Berkshire ended the year with $43.4 billion in cash and short-term investments, up from $36 billion a year earlier and 12.7 billion at the end of 2002. He said he was looking for good investments but having difficulty finding them.
..."The evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come," he wrote. He added that Berkshire owned $21.4 billion in foreign exchange contracts, denominated in 12 currencies, at the end of 2004.
..."There are deep-rooted structural problems that will cause America to continue to run a huge current-account deficit unless trade policies either change materially or the dollar declines to a degree that could prove unsettling to financial markets," he said.
... "A country that is now aspiring to an 'Ownership Society' will not find happiness in - and I'll use hyperbole here for emphasis - a 'Sharecropper's Society.' But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."
Buffett's reputation was built on buying stocks, and sometimes whole companies, cheaply, and on rarely selling stock in what have become Berkshire's principal holdings. In the report, he said that Berkshire's "Big Four" stock positions - American Express, Coca-Cola, Gillette and Wells Fargo - had performed well in terms of their businesses but that he had underestimated how overvalued they had become during the bubble. Of the four, only Wells Fargo now trades for more than it sold for in 2000; Coca-Cola is worth less than half its peak value.