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Is Warren Buffett Wrong on Interest Rates This Time Too?

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Jan. 4 2019, Published 8:32 a.m. ET

Warren Buffett

As noted previously, one of Berkshire Hathaway’s (BRK-B) subsidiaries is issuing a 30-year note to refinance a floating rate note. The move has attracted a lot of attention for the simple reason that it concerns Warren Buffett. Having said that, while Buffett is known for his stock-picking prowess, he has never been known for predicting interest rates. In 2015, Buffett said, “So far, I have been wrong on interest rates.” He added, “It is so hard for me to believe that you can drop money from a helicopter and not have inflation, but we haven’t.” Notably, Buffett has been quite candid about making mistakes. Last year, he admitted that he missed out on Amazon (AMZN) and Alphabet (GOOG).

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Interest rates

Markets (WFC) (BAC) are placing too much importance on the note issuance, as the subsidiary also issued similar notes last year. According to Bloomberg, “the Berkshire unit also issued 30-year bonds in August to refinance a portion of floating-rate notes.” Another thing to consider would be that the notes are being issued to refinance a short-term floating rate paper that was issued in 2017. Back then, Berkshire might have been better off issuing a fixed rate paper instead of the floating rate note. Simply put, Warren Buffett hasn’t really been a good predictor of interest rates, nor has the legend even claimed to do so. So, it wouldn’t be prudent to draw many conclusions from the recent note issuance.

Meanwhile, accounting rules might come to haunt Berkshire this year. We’ll explore this in detail in the next article.

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