Warren Buffett thinks good times are over.
The post-WW2 relatively prosperous period of economic expansion with a growing middle class, where future generations expect higher living standards, punctuated with a mild recession, is over, according to Warren Buffett.
The “incredible period for the US economy” is coming to an end”, said the billionaire investor to his audience at Berkshire’s annual general meeting in Omaha, Nebraska.
Warren Buffett is not known for his bearish views on the US economy, bearing in mind his insights have typically been upbeat and cheerful.
Warren Buffett’s investment strategy, which made him a fortune, is to pick stocks in business monopolies backstopped by government policies.
Moreover, in the decade-long period of central bank bond buying, it was easy to be an optimistic bond investor, with the central bank putting a floor on prices
“Warren Buffett’s investment strategy, which made him a fortune, is to pick stocks in business monopolies backstopped by government policies”
WEALTH TRAINING COMPANY
Warren Buffett thinks good times are over is an anomaly and perhaps a sign of changing times
Speaking at Berkshire’s annual general meeting, Warren Buffett said he expects earnings at most of the conglomerate’s operations to fall this year as the fallout from the worst cost of living crisis collapses discretionary spending. What is unusual about the current downturn in the economic cycle is that central banks previously cut rates and expanded their balance sheet to stimulate investment in the hope it would dampen a recession.
So the bankruptcy of Lehman Brothers in 2008 triggered unprecedented easing from monetary policymakers.
Despite the 2023 great bank runs, where more than three known banks collapsed in the US, global financial contagion is spreading to Europe, Credit Suisse has failed as we forecasted. European banks with another potential peripheral sovereign bond crisis brewing could make US banks shine.
But despite financial woes, bank failures, 30 trillion dollars of assets wiped off portfolios in 2022, a liquidity crisis worse than 2008, business failures, bankruptcies and a growing army of unemployed, the Fed and its western aligned side kicks continue tightening.
“global financial contagion is spreading to Europe”
WEALTH TRAINING COMPANY
An entire year of back-to-back rate hikes has had little or no impact on inflation because the factors driving prices are rising input costs, shortages, scarcity and a long bloody war in Europe. In fact, central bank rate hikes could push prices higher because it will increase bankruptcies, and collapse supply chains.
For example, OPEC cuts output to adjust to weaker demand to keep prices inflated and maintain profit margins.
Frankly, more rate hikes from here and the central bank fiat debt system will burn its most valuable asset, credibility, and trust.
We are not surprised central banks are buying gold hand over fist, which we did forecast they would do to counteract the loss of credibility in monetary policy and a fiat currency based on evaporating trust.
Beggar thy neighbour policy, cooking problems and woes elsewhere to make your system look relatively safe is the magnetic pull that keeps investors on the USD. A policy of rivalry, rather than building alliances, is leading to discord, conflict and war. The post-WW2 trade alliances and infrastructure that kept countries trading with each other rather than fighting are being dismantled. In Europe, BREXIT and the blowing up of Nord Stream. In Asia, US sanctions on China keep growing.
“The majority of our businesses will report lower earnings this year than last year” – Warren Buffett
Warren Buffett thinks good times are over as the economic downturn slows corporate activity further.
Warren Buffett made his pessimistic comments as Berkshire posted an almost 13% gain in operating earnings to $8.07 billion for the first quarter, up from $7.04 billion a year ago.
“The majority of our businesses will report lower earnings this year than last year,” Buffett, 92, said, before crowds of thousands at the event in May according to Bloomberg. During the last six months or so, the “incredible period” for the US economy has been coming to an end, he said.
Warren Buffett owes his fortune to the incredible growth of the US economy over the decades. So, his prediction for a slowdown in profits comes as the banking crisis threatens to cut lending in a backdrop of higher inflation and interest rate, which continue to bite.
So where is the billionaire investing if Warren Buffett thinks good times are over?
Warren Buffett’s Berkshire Hathaway increased its cash pile in the first quarter of 2023.
The company’s cash pile has risen by $2 billion since the start of this year to $130.6 billion, its highest level since the end of 2021.
Berkshire Hathaway sold $13.3 billion worth of stocks in the first quarter and $4.4 bn repurchasing its own stock, and $2.9 billion of stocks in other publicly traded businesses.
But with the world less safe than in recent times, some investors are turning to defence sector stocks and defence ETFs.
Charlie Munger, Vice Chairman of Berkshire Hathaway, said in April, investors should reduce their expectations for stock market returns as the Fed raises interest rates and the economy slows.
“Signs of third-world poverty in first-world economies are already visible in 2023” – Warren Buffett
Warren Buffett thinks good times are over is a view which is not a lone voice in the wilderness
A growing number of top investors believe the economy is already in a recession with two consecutive negative quarters of GDP clocked last year, 2022.
Despite all the financial and economic fallout from the Fed’s rate hikes which have not been successful in reducing inflation, the Fed continues with its liquidity-busting bank-failing tightening policy.
The next phase of the downturn could get ugly with a sharp spike in joblessness, evictions, bank foreclosures and growing signs of a great depression. Hoovervilles, shacktowns and homeless encampments during the Great Depression reached two-mile lengths in some US cities. In the UK, ten million adults and four million children experience mild and severe hunger missing a meal. Continental Europe is not much better.
Signs of third-world poverty in first-world economies are already visible in 2023.
