From Dr. Ed's blog, March 1:
In a CNBC interview
on Monday, Warren Buffett, the Oracle of Omaha, declared that stocks
are “on the cheap side.” He has played the Trump rally by putting
another $20 billion into the stock market since Election Day. Stocks are
cheap, he said, because interest rates remain very low. This suggests
that Buffett is betting both on and against Trump. He obviously made a
very good decision not to let his personal politics get in the way of
joining the animal spirits rally since Election Day. Warren Buffett is a
long-time Democrat who supported Hillary Clinton, but he says he agrees
with President Donald Trump on some issues—including homeland security
as a top priority, boosting economic growth, and increasing the incomes
of more Americans who have been hurt by globalization.
Yet, Buffett seems to be betting that interest rates won’t go up much
anytime soon. In other words, he isn’t convinced that Trump will succeed
in stimulating the economy very much with fiscal policy. He said that
Republican leaders will probably have to scale back their tax reform
ambitions because their current plan is too complicated to pass
Congress, especially if they intend to do something on this by August:
“I think complexity will give way to speed.” He expressed skepticism
that the Republican tax plan will be revenue-neutral “without the
craziest dynamic scoring in the world.” He also said that he doubts that
the border adjustment tax (BAT) will see the light of day.
I agree with Buffett on the revenue-neutrality issue. The plan that the
administration is outlining suggests a guns-and-butter fiscal approach
with more defense spending, no cuts in entitlements, and lower tax
rates. It’s hard to see how this won’t lead to higher bond yields,
especially if the Fed starts increasing the federal funds rate at a pace
closer to normal. (I am still forecasting that the US Treasury 10-year
bond yield will range between 2.00%-2.50% during the first half of this
year and 2.50%-3.00% during the second half of this year.)
In his interview, Buffett told CNBC on Monday that mixing politics and investment strategies would be a “big mistake.”...
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