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Buffett: US-EU Interest Rates; Stocks vs Bonds
Aspire, Thought Leaders | 18 May 2015
By: Vance Wong
Articles (74) Profile

Source: CNBC

The investing community is currently engaged in the longest of discussions and speculations of when the interest rates in the US will rise. According to the Oracle of Omaha, many economists believe that September is the most likely date for such an increase.

In a recent interview, Warren Buffett mentioned that he “has no idea when the Fed might move.” All his previous predictions had been wrong; he thought that “by now you would have seen much higher rates.”

Conservative US Rates Hike If Europe Continues QE

Source: Fundweb

Although Buffett is not sure of when the interest rates will increase, he feels that the Fed “should stay low” if Europe keeps up its current QE policies. He also mentioned that the Euro-zone would continue with the accommodative policies until its economy starts to normalise and strengthen.

This is essentially because if the interest rates in the US go too high, it will result in a significantly stronger US Dollar against the Euro and other strong currencies. As such, Buffett commented that the Fed’s present “easy monetary policy” is the right move.

The US Stock Market

Source: Livetradingnews

While the Berkshire chairman is unsure about how much will the rates increase in the US, he “cannot imagine having a four percent rate or something here (in the US) and negative rates in Europe.”

Therefore, Buffett said that US stocks would be considered “extremely cheap” right now if the interest rates in the US remained low for the next five to ten years. However, if the rates normalise, “stocks would be on the high side” and “not so cheap.”

On the other hand, Buffett thinks that bonds are significantly overvalued compared to stocks right now. He illustrated this point by mentioning that even if he “had an easy way, and a non-risk way, of shorting a lot of 20-year or 30-year bonds…” the quantity would not be attractive enough for Berkshire.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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