The billionaire investor covered a range of topics in a CNBC interview on Monday, including his purchase of ketchup maker Heinz, the "meat ax" of automatic budget cuts, and what's going to happen when the Federal Reserve stops pumping money into the economy.
Cheap money boosts stocks
Warren Buffett has long been bullish on stocks, and still is. But they're likely to be hurt when interest rates rise, he said.
Cheap loans make it easy to get money to invest. And low returns on bank savings make stocks more attractive.
Buffett predicted that those low interest rates won't go on forever.
"If interest rates go up dramatically, all assets will go down in value," he said.
The dumbest investment
Buffet says he'd still rather own stocks than other options such as farmland, junk bonds, real estate trusts, or long-term government bonds.
"They're not as cheap as they were four years ago" during the financial crisis and stock market selloff, he said in an interview on CNBC on Monday. "But you get more for your money" compared to other investments.
He called long-term government bonds "the dumbest investment." Interest rates are much lower than usual. If they rise, bond investors could see the price of their bonds drop. That's because bond prices fall when interest rates rise.
Big shift ahead
Buffett said money managers will be selling some investments when the Fed stops pumping extra money into the economy. He says it will be a "very interesting day" when it becomes clear the Fed has reversed direction.
"We've never had the degree of disgorgement that might be called for down the line, and who knows how it will play out. It will be noticeable," he said.
Buffett said that in 50 years of deciding whether to buy companies, he has never taken long-term economic worries into account. That includes his recent deal to buy Heinz. Last month he agreed to work with 3G Capital to buy the H.J. Heinz Co. for $23.3 billion.
"Charlie and I will talk about the business, we will not get into discussions about the Fed or whatever," he said, referring to Charles Munger, Berkshire's vice chairman. Buffett noted that he bought his first stock in 1942 during World War II, when the U.S. was losing the war in the Pacific.
Buying a company cheaply enough means that future economic shocks won't wreck a deal. He predicted that Berkshire Hathaway will own Heinz 100 years from now. "Heinz is forever, as far as we're concerned," he said.
Automatic spending cuts
Buffett said the automatic spending cuts that went into effect over the weekend are a "meat-ax way" to cut spending. But considering all the government spending and Federal Reserve cash infusions, spending probably has to be cut one way or another.
"You may have to use the meat ax first," he said, "and then people kind of look at their handiwork and say, 'We have to do better than this."'
Buffett's company has been buying papers. Berkshire Hathaway will own 28 daily newspapers in small and mid-sized cities once its acquisition of the Tulsa World is complete.
And there are more to buy. Last month Tribune Co. said it has hired investment bankers to help it sell its newspapers, which include The Chicago Tribune and the Los Angeles Times.
"No thanks," Buffett said when asked about buying those two papers.
He said the papers that are going to make money will be those in a tight-knit community that wants local news.
He said that the smaller papers have smaller profit margins than most other companies that Berkshire Hathaway invests in.
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