Warren Buffett : Negative Rates 'Distort' Everything

Warren Buffett, Berkshire Hathaway CEO said in the annual letter that Berkshire Hathaway is obviously an interest rate sensitive company and therefore consequently when rates go up the company will do very well.In an interview with CNBC , Buffett, explains what he is telling people about market volatility and shares his thoughts on the impact of negative interest rates. well what's happened with interest rates is really extraordinary, said Buffet . You can go back and read everything Keynes wrote and everything Adam Smith wrote or Ricardo wrote or Galbraith wrote or Paul Samuelson wrote ,you name it , you won't see a word in my view , At least I've never seen , about sustained negative interest rates . I mean we are doing something the world hasn't seen . it does have the effect of making all assets more valuable . interest rates are like gravity in valuations . If interest rates are nothing you know values can be almost infinite .if interest rates are extremely high that's a huge gravitational pull on values and we had that in the early eighties . so we have gone into this period when Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company that we have in Europe . and they will bear a negative rate . We would be better off if we had a big mattress in Europe and we just stick all this stuff in it , if I could just find the right person who I trusted to sleep on the mattress you know that's what we would do . if we have a billion of euros at minus thirty five basis points, that's would be three and a half million euros a year that it's costing us just to have that . well that means you don't want to collect your receivables, why would you want to cut your receivables . It goes into a negative , it distorts everything . Now there's a good reason why they're doing it , but nobody has really gone through an extended period like this . we do not know how this movie plays out . We thought when we started it , that it would end fairly soon ,and then Europe in particular needed further jolts in the arm . They've extended it and we can't get too far away from it ,we talked about that a year ago the problems of this country raising rates while Europe was at negative rates and what that might do to the dollar and what that does to trade and when trade does the business . In economics the most important thing to remember it's important in other areas of life as well , but after anything that happens if somebody tells you this is going to happen , you got to say , and then what . it's like in physics or anything else there's always and then what the question .I always ask myself , and then what ... and in terms of sustained low interest rates when I say and then what ...., I don't know the answer ,Buffet explained . Zero rates, which central banks set to try to reinvigorate their economies, have long been a problem for savers and retirees, who cant get a return on their interest-bearing accounts. Buffett weighed in on that dilemma. Its not just a problem for insurance companies, its a problem for retirees, its a problem for anyone that's stuck with fixed investments and finds that their income is a pittance . And that was something that wasn't in their calculation 50 years ago Buffett said. The worlds most famous investor, who prides himself on focusing on productive assets, just admitted that money under the mattress is the only way to go in a negative-rate environment. There could be a point where you'd really want to start withdrawing currency. That would be an interesting point, if currency in a bank is worth less than currency in your hands or in a mattress, that could produce something in the way of behavior that nobody's even anticipated. In other words, bank runs . Well, if the deposits aren't doing anything there and, and they charge you for having them there, you know, I might contemplate taking them out. But in negative-rate setting, there is one place better than a mattress for your money: and that is , gold. The biggest knock on gold is that it is a non-interest-bearing asset. With banks and bonds providing at least some return on cash, why risk putting money into gold when the price can fall? That was the argument of golds critics. But now that banks and bonds are providing negative yields, gold actually looks great in comparison given its upside potential. The World Gold Council released a paper arguing that demand for gold may structurally increase as negative-rate policies spread. Gold returns in periods of low rates are historically twice as high as their long-run average, The World Gold Council said. Investors may benefit from increasing their gold holdings up to 2.5 times, depending on the asset mix, even under conservative assumptions for gold. Warren Buffett has never been a fan of gold, although he once had a massive position in silver. However, if push comes to shove and negative rates come to the United States, Buffett might do well to consider removing his cash from underneath his mattress and trading it for both gold and silver. This was The Atlantis Report . Please Like . Share . and Subscribe . Thank You .







The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more