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Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.

The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.

He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.

On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.

The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.

Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.

Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.

On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.

At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.

Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.

Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.

He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.

3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.

Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.

Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.

BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.

At this point in time, the United States is about to hold a very critical debate that’s really important to the future the country. The debate is about whether or not to tax, consume and redistribute income that would otherwise likely be invested.

When Warren Buffett weighed in with his opinion, he told us that he supports higher taxes on our nation’s wealthy taxpayers. But the information that he uses to make his point is both flawed and superficial.

Warren Buffett is chairman and CEO of Berkshire Hathaway Inc., and he’s an iconic leader. It’s no question that the US needs insightful guidance from this investing genius. But the claim that higher income earners should pay more taxes, and this will not reduce investments, is counter to all economic logic.

A survey by the Federal Reserve shows that the top 5% of all households save and then invest about 40% of their total income. Households of a median income save hardly anything at all. In the Buffett household, they probably invest about 99% of their total income.

So, if America is to consume, tax and redistribute money that would otherwise have been invested, the investable pool of savings begins to disappear. With that said, the less attractive investment opportunities will logically go without funding.

Buffett also claims that investors are going to continue to invest in opportunities where returns are expected to go above the cutoff point. But at that margin, the investment is lost.

During his examples, Warren Buffett uses the 1950s and the 1960s as his timeframe of proof. At that point, marginal tax rates were a lot higher. So he claims that because the economy grew much quicker back then, it’s feasible that our economy will grow faster today with the same higher marginal tax rates.

But he fails to mention two important factors that took place during the 1950s. We had the advent of interstate highways, and the boom in creation and distribution of the television, which really pulled together the US economy. So you had large companies like Procter & Gamble and General Motors rushing to fund and exploit these previously unrealized economic opportunities. The result of that being that individual tax rates didn’t matter as much to less growth as they matter today. The growth rate acceleration was completely independent of the tax rate.

Plus, the United States had put its workforce into college a lot earlier than the rest of the world. That also created a lot more new investment opportunities. There were two decades of underinvestment in the private sector – this was during the Great Depression and World War II – which provided a lot further potential for an economic rebound. The cost of food fell by 20%, and the GDP dropped to less than 10%, which provided a lot more resources to fuel the boom in manufacturing.

Back then, a much smaller portion of GDP was also taxed at that time. And, local, state and federal government spending was roughly 28% of GDP, where it’s now closer to 40% at this point in time.

Using the 1950s and 1960s as evidence to increase government consumption by raising taxes on the wealthy, shows us that it played no meaningful affect on economic growth. As a matter of fact, it showed us that investments matter more than ever.

Buffett also tells us that the commercialization of the Internet during the early and mid-1990s created a large tailwind that ultimately benefited the rich – basically saying that investors didn’t do much to earn this success. There are many other proponents of higher taxes and spending who often use the same argument – saying that the 1990s showed us that placing higher taxes on investors isn’t going to hurt economic growth. They say commercialization of the Internet would have accelerated growth regardless of the tax rate.

If you compare the growth of the US with Europe during that early 1990s, you can remove the Internet effect. Both of the economies had the same technology, and the workforces were similarly educated to take advantage of the opportunities on the Internet. Since then, the United States economy grew by 63% up until the year 2010, but Germany and France combined grew less than half of that amount. Productivity growth in the United States between the years 1972 to 1995 increased from 1.2% per year to 2% between the years 1995 to 2004. On the flip side, Germany and France’s productivity growth dropped to less than 1.5% each year.

If there was no US innovation involved, the growth in Europe would have even been slower.

There’s truth to the matter that high labor redeployment costs limited Europe’s transition to move away from manufacturing. But it doesn’t fully explain why talented and young European workers held onto jobs in declining industries, while their counterparts in America happily walked away to join risky startups instead of sticking with their otherwise promising careers.

Well for starters, in the US there were higher payouts that drove employees to take greater risks. The most promising of US students flocked in droves to business schools, and were willing to work much longer hours than their counterparts who were being underutilized in Europe. The European work effort actually declined. The success of these early American startup companies created such large Internet businesses like Facebook and Google, among countless other companies that provided immense on-the-job training to the US workforce. This training provided much-needed increases in the chance to have entrepreneurial success.

And the entrepreneurial success we’ve seen put more equity in the hands of investors willing to take risks in order to improve innovation. It’s no surprise that the US has more equity per dollar of GDP then both Japan and Europe, as well as more innovation.

Even though the commercialization of the Internet actually created a tailwind, much of that tailwind was definitely earned.

During that 1990s, federal spending was also a lot lower than it actually is today. It was 18% of GDP at that time, versus the current 24%. As well local and state government spending was also much lower too. Because of this, President Bill Clinton was able to increase taxes across the board in order to pay down US debt. This was a good move and was able to strengthen the US economy. In today’s world, paying higher taxes is going to fund an increase in unproductive consumption, which will seriously slow down economic growth.

Far from showing that government spending and tax rates provided no effect on growth, on the contrary, the 1990 show us plain and simple evidence that payoffs for risk-taking, as well as accumulating equity, actually do matter.

This debate of whether we should tax, consume and redistribute income that would otherwise be invested is critical to the future of the United States. The US cannot afford to base this major decision on arguments that are superficial. The United States deserves much more from a leader such as Warren Buffett.

Warren Buffett gave an interview on CNBC this morning. He mentions that the companies under the Berkshire Hathaway umbrella are starting to show that “there is a slowing down going on” throughout the economy on a global scale. He mentions that the US economy is thriving more than in Asia and Europe.

Warren Buffett also tells us that US Home construction is picking up once again. The businesses that Berkshire Hathaway has tied directly into the housing market are showing more signs of profit. Shaw carpet, one of the businesses under the Berkshire Hathaway umbrella, will double in profits this year. Mister Buffett also told us that Clayton Homes, another Berkshire company, plans to build 15% more manufactured housing units in the coming months.

Due to the spike in business and profits, Berkshire Hathaway expects to add an additional 8000 people to its workforce. At the time of this writing, Berkshire Hathaway currently employs 270,000 individuals in the workforce.

Not all is perfect in the world of Berkshire Hathaway. Their Iscar metalworking business experienced a drop-off in orders from their Asian customers Buffett tells CNBC. He also mentions that Europe is still working through problems that they have yet to straighten out.

Warren Buffett is one of the most successful investors in history. There is no denying it. As such, investors follow Buffett’s views on the economy and investing closely. During the interview on CNBC this Wednesday, he mentions that the Tuesday market declines leave him “salivating” and ready to buy more stocks. He also plans to acquire another large company that Berkshire Hathaway will own outright.

On Tuesday night, someone approached Buffett about a $6 billon dollar company. Since he is already familiar with this company, he plans to learn more about it over the next few days.

Berkshire Hathaway already has a large stake in Wells Fargo bank. Regardless, they bought more shares this week and added to their already sizable investment.

He warns investors that US bank stocks will not rebound to the levels they once saw prior to the financial crisis. They no longer have the ability to use as much leverage as they once were capable of using in the past. Buffett reminds us that banking is “still a good business” in the United States.

Buffett once again endorsed Federal Reserve Chairman Ben Bernanke, saying he “has done an absolutely superb job.” He also predicts that Bernanke would most likely continue as Federal Reserve chairman if anyone asked him to stay for another term.

Although, Buffett mentions that his “instinct” tells him that the quantitative easing program from the Federal Reserve is not the correct strategy any longer.

“I get a little worried about continuously expanding” the Federal Reserve’s balance sheet, he mentions on CNBC.

Many of the financial talking heads have been telling us that the housing sector has finally bottomed out and it’s going to turn around really soon. Robert Toll, the CEO of Toll Brothers, which is a major homebuilder, claimed that “we may be seeing the floor” back in December. Do you know which year he said that? 2006!

Warren Buffett also called the bottom of the housing market too early, which he mentioned during his 2011 letter to shareholders. He told them that he was dead wrong in his prediction.

But that doesn’t mean that Warren Buffett isn’t grinning today. Wednesday’s economic data showed us that the housing bottom is more than just right around the corner. It has actually already passed us by, and that’s obviously a good thing.

The Census Bureau in the United States of America announced this past Wednesday that the number of new homes being constructed in the United States are their highest since July of 2008. We began construction on 872,000 in September of 2012. This is a 15 percent increase since August, and it’s also a 35 percent increase from this time last year. Economists only expected to see an average of 768,000 homes being built, and that would’ve been only a modest increase.

The big jump in home starts follows a revision in August numbers, which obviously moved upwards, and a host of reports from the National Association of Homebuilders, which showed us that this sentiment has changed in the residential construction industry. Plus, the Schiller-Case home price index shows us that home prices are currently strengthening.

The Census Bureau also released further information on Wednesday, when they shared their estimate of the number of building permits that were granted in September. This is a strong indicator of home starts that will be taking place in the future. They actually granted 894,000 new permits, and this is an 11.6% gain. This shows us that the new housing pipeline is strong enough to continue with the recovery. If you look at the Federal Reserve’s commitment to keep interest rates low on mortgages, combined with six years of growth in the population bumping up against the existing home inventories, the drivers of demand seem to truly be in place to finally overcome the housing market headwinds.

Larry Sorsby, CFO of Hovnanian Enterprises said this past Wednesday: “it’s no longer a question of whether the industry is rebounding. There is clear evidence that we have bounced off the bottom and are in the midst of a recovery.”

Because of this incredible news, the capital goods sector made some of its biggest gains in a while. Hovnanian led the pack, and they reached their 52 week high this past Wednesday, and they are now trading at $4.12 cents per share. The high during the trading day was $4.19. KB Home gained eight point seven percent and Toll Brothers and added another one point eight percent to their share price.

The housing recovery is going to positively affect much more than just a homebuilders. It’s important because the new home starts are a significant indicator of economic growth. Plus, when a family purchases a home, they are going to have to buy all different types of products and services in order to fix it up the way that they like it. So companies like ADT, General Electric and Waste Management tend to benefit from a recovery in the housing market as well.

Another company ready to benefit from new home construction is Caterpillar. They are the largest retailer of heavy equipment for construction all around the world. Caterpillar has a wide variety of material haulers and earth movers, and they have more than any other company in this industry. Plus, they have a wide array of dealers which will expose their products to the homebuilders all around the country. Caterpillar is structured to be a profitable company even during a recession, but a recovery in the housing market is definitely going to boost their sales and allow their profits to soar.

The one person (and company) that has more riding on the recovery of the housing market than any other investor is Warren Buffett. Not only is his capital on the line, but his reputation is on the line as well. He made a big bet in the housing recovery during 2011, and it appeared to be a little bit too soon. But you know Warren Buffett. He doesn’t show any fear, so he doubled down on his housing bets during the past months, and he even bought a wide portfolio of home mortgages. This proves that he truly believes that single-family homes are the best investment available. Also, Berkshire Hathaway recently bought up companies like Clayton Homes, Acme Building Brands and Benjamin Moore. This proves that they are committed to believing in the housing recovery.

These aren’t the only housing recovery bets that Warren Buffett and company have going right now. They have investments in utilities, property reinsurance, home furnishings and mortgage holders. They have subsidiaries in many of these businesses, and there isn’t another company around that has such a broad exposure to the overall turnaround in the housing market. It’s not always easy to understand all of the subsidiaries of Berkshire Hathaway. But there is information and reports on the Internet that can help you do just that.

Earlier in September, the United States Federal Reserve took it upon themselves to undergo a third round of quantitative easing. This is part of an initiative and worldwide effort to bring our struggling economy back onto firmer soil. Investors have mainly been looking for a safe haven such as gold, which is something that often happens while there is so much economic uncertainty. It’s true that the Fed has promised to avoid inflation, but what happens if they can’t fulfill on that promise?

In Warren Buffett’s book, The Essays of Warren Buffett: Lessons for America, Mister Buffett spends a lot of time talking about investing throughout an environment that is riddled with inflation. In the book, the main idea is between weighing economic goodwill versus accounting, and high return on investment, light asset businesses versus lower return on investment, hard asset businesses.

A way to describe economic goodwill is when a business can use their net tangible assets as a way to create a tremendous rate of return, then the premium value provided by the net tangibles is said goodwill.

Accounting goodwill is when a business is purchased at a price that is actually higher than its net asset value. To put it simply, true economic goodwill doesn’t disappear over time, but it actually nominally rises right along with the rate of inflation.

We learn in popular investing that good investments during an environment of inflation would be capital-intensive businesses. But Warren Buffett has a much different view on an inflationary environment. He prefers to stick with asset light businesses, but they have to have high economic goodwill. This is his idea of a far better investment.

He believes this for very interesting reasons. First, the businesses that are heavy with assets must constantly reinvest in order to keep their sales figures high and hold onto their market position. Second, as prices go up for inflationary reasons, any advantage that higher sales prices bring will probably be negated because of the high rising costs associated with bigger capital spending.

If we play devil’s advocate for a minute, the businesses that are asset light are much less capital-intensive. Because of this, these businesses are capable of investing much less, but they are still going to keep their position during an environment that is filled with inflation. Plus, this type of business will be able to raise their prices on the consumer market, so it has the possibility of earning more money for each and every dollar that the company invests.

It’s important that you realize that this style of business actually appears to be more expensive when you compare it to a low ROI, heavy asset business. But as the logic of Warren Buffett shows us, these businesses are truly worth more, and the value of this type of company will only grow during an environment of inflation.

It’s also possible for you to figure out the after-tax return on tangible capital if you use a mathematical formula to figure out if one of these businesses will be a good hedge for inflation. So use this mathematical equation and apply it to the economic circumstances of certain businesses that you’re interested in, and invest in that company if it fits the specific criteria needed to thrive in an inflationary environment.