The Rude Awakening PRESENTS:
Warren Buffet has placed a colossal bet against the dollar, but what if the dollar keeps going up and he's forced to liquefy?
Will the market finally get its man? 
Except Gartman's analysis is directed toward Warren Buffett
and his colossal bet against the dollar. Gartman thinks the
market will eventually force Buffett out of the position,
and push the dollar higher still.
"The dollar is strong; the EUR is weak and we are left to
wonder what it is that Mr. Buffett is going to do now with
his huge short U.S. dollar position that is becoming more
and more untenable with each passing day?" he says. "The
market will do what it can (and must) to force Mr. Buffett
from his position, for that is its 'Harsh Mistress's'
duty."
Gartman is one of our favorite analysts, as you can
probably tell from they way we reference him in nearly
every column we write, but in this instance, we disagree
with him. Gartman is confusing Buffett for a trader. But
he's not a trader, he's betting on a long-term,
fundamentally driven trend and he isn't the type to be
frightened by a ten percent rally against his position.
Besides, Buffett's bet has already made a fortune. In the
fourth quarter of 2004, his foreign currency positions
earned $1.63 billion versus a $310 million loss in the
first quarter of this year.
Any way, Buffett would prefer his currency positions to
LOSE money! He said it himself...
"Both as an American and an investor, I actually hope these
commitments prove to be a mistake. Any profits Berkshire
might make from currency trading would pale against the
losses the company and our share holders, in other aspects
of their lives, would incur from a plunging dollar."
Here's another voice who thinks Buffett's currency strategy
is more like trading than value investing, found on a
discussion board at the Turtle Trader's website. "Do you
buy and hold currencies forever? How does that work? Give
us a break," the anonymous poster writes. "Buffett is
running a hedge fund just like other managers. Just admit
it. He is a trader. He is speculating on currencies and
freely says so. However, Buffett's currency trading goes
squarely against that well honed image of the 'value'
player that so many have bought into for decades."
Even Charlie Munger, Buffett's right hand man, is a little
skeptical of the trade...
"Charlie is less enthusiastic about our foreign currency
position than I am," said Buffett at the AGM. "I might have
somewhat more if I didn't know I'd have him sitting next to
me here next year."
And what about this little teaser from value investor Dan
Ferris, received last week via email. First, Ferris gives
us this quote:
"Our enormous trade deficit is causing various forms of
'claim checks' - U.S. government and corporate bonds, bank
deposits, etc. - to pile up in the hands of foreigners at a
distressing rate. By default, our government has adopted
an approach to its finances patterned on that of Blanche
DuBois, of A Streetcar Named Desire, who said, 'I have
always depended on the kindness of strangers.' In this
case, of course, the 'strangers' are relying on the
integrity of our claim checks although the plunging dollar
has already made that proposition expensive for them."
Then asks:
"That's Warren Buffett, on trade deficits, his new favorite
subject. During what decade did Buffett write the above
quote? The 1960s? 1970s? 1980s? 1990s? 2000s?"
"The answer is 1988, in the 1987 shareholder letter. That's
the first mention of the topic in the shareholder letters
starting in 1977," recalls Ferris. "I thought it was a
fairly new topic for him...but it's not. He first brought
it up to his shareholders in 1988."
"The term 'trade deficit' appears in three Berkshire
letters since 1977: 1987, 2003 and 2004. The topic got
five paragraphs in the 2003 letter, two full pages in 2004,
and three paragraphs back in the 1987 letter."
Buffett waited 15 years before he invested in foreign
currencies. It's fair to say a three-month rally in the
dollar is not going to shake him from the trade. The rest
of the dollar shorts may not have such patience, and that's
why, for now, we buy dollars.
special interest projects which I believe constitutes an egregious form of spin.
