Women will save the American economy, billionaire investor Warren Buffett has predicted.
As fears grow that the United States is preparing to plunge over the “fiscal cliff”, the octogenarian philanthropist said he expected a deal to be reached to avoid automatic austerity measures kicking in.
But over the longer term he said he was particularly optimistic about prospects for the US because the country was finally beginning to harness the full potential of women.
In an interview with fellow philanthropist Melinda Gates, who was guest editor on BBC Radio 4’s Today, the so-called Sage of Omaha said affording women the same prospects to succeed as men was key to a bright economic future. “[It is] one of the things that make me so optimistic about the future,” he said.
Mr Buffett, aged 82, is the world’s third richest man behind Carlos Slim Helu, the Mexican telecoms tycoon, and Bill Gates, founder of Microsoft, according to Forbes magazine. He made his fortune, estimated at $44 billion, through decades of shrewd investment decisions and stock market calls.
But he today expressed disappointment at the lack of opportunity extended to his sisters.
He said: “Woman have been subjugated for time immemorial. In this country in 1776 we said all men are born equal – and then ignored that fact for 150 years until the 19th amendment. I saw it in my own family. I was born in 1930 with an older sister and a younger sister, and the hope was that they would marry well and the hope for me was that I would fulfil my potential, whatever that would be.
“It was two human beings with enormous potential and it was assumed they could be a nurse or a secretary or a flight attendant. Or they could be a teacher – but not in upper education. What a waste of human talent – 50pc of the population was pushed off into the corner for 200 years.”
But he said he was now upbeat. “I see how far we’ve come using only half the talent in the country and now we’re getting to the point that we are using 100pc. It makes me optimistic but we still have a way to go”.
Asked about the fiscal cliff by Mrs Gates, he said the US had over promised and under taxed but added: “America has faced much tougher problems than this and we’ll get them solved.”
Mr Buffett has remained upbeat about American’s long-term economic prospects throughout the financial crisis. He invested heavily in US shares during the darkest phase in late 2008 using his “personal money”. The bet paid off, with stock markets soaring in 2009 and 2010.
Most of his wealth is tied up in his company investment vehicle, Berkshire Hathaway, which has delivered incredible returns over more than four decades.
Mr Buffett’s annual letter to shareholders is closely watched for indications of his view on the market.
Should you invest in the US?
The issue for UK investors considering whether to invest in the American stock market is whether it is cheap compared with the profits generated by the companies on it – and whether the economy will grow rapidly in future and enable those profits to increase at a decent pace.
The first challenge is the “fiscal cliff”. New rules were set down by Congress in 2011, the last time the budget was taken to the brink, to compel huge tax rises and spending cuts from January 2, 2013 unless a deal was reached on trying to move towards balancing the government’s spending.
The effect, if it happens, could be to halt America’s fragile economic recovery; another recession may follow. Others argue that dramatic measures are needed to stop the country’s profligate overspending.
Another factor to consider is demographics. Many Western economies are paying the price for having an ageing population. Some of this effect has been offset in the US by high immigration. This has created a bubble of younger people in the population but has also benefited the economy by importing cheap labour. But a four-decade tidal wave of immigration from Mexico went into reverse this year with more Mexicans leaving than arriving.
The optimists, however, argue that America’s ingenuity and excellence in technical innovation will drive the economy to new highs, outweighing these other issues.
So is the US cheap? Measuring the value of the stock market against profits, known as the price-to-earnings ratio, is regarded as one way to measure the value of stock markets. Smoothing those returns over the cycles of the economy – the regular rises and falls – is, according to some studies, an even better way to measure how well stock markets may perform in the future.
The cyclically adjusted price to earnings ratio, known as Cape, smoothes p/e ratios over a decade. The US was one of the most expensive stock markets, as measured in a recent Cape analysis by Cambria Investment Management. It put the US on a Cape ratio of 20.9, compared with 12.47 for the UK and 7.23 for Italy.
Financial advisers warn investors to keep a balanced portfolio but for those who want to take the plunge, Rob Crawshaw, senior fund analyst at Brewin Dolphin, earlier this month recommended, on Telegraph Money, Brown Advisory US Equity Growth and JPM US Equity Income, which over the past three years have returned 48.1pc and 42.3pc respectively, compared with 39.1pc from the S&P 500.
Darius McDermott of Chelsea Financial Services tipped Axa Framlington American Growth, Jupiter North American Income, Legg Mason US Equity Income and Threadneedle American Select. He said: “The US story looks very compelling as we are seeing some material structural changes coming through. While valuations aren’t expensive, the US market is not the cheapest developed market by any means.
“That said, any investors who do take this opportunity to invest in the world’s largest economy could be rewarded over the long term, even more so if the dollar appreciates.”