Warren Buffett: US economy's unexpected strength benefitting Berkshire Hathaway

New York

WARREN Buffett said on Saturday that Berkshire Hathaway is being lifted by a US economy faring far better than he predicted early in the coronavirus pandemic, though investor euphoria is making it hard to deploy cash.

Speaking at Berkshire's annual meeting, Mr Buffett said the economy has been "resurrected in an extraordinarily effective way" by monetary stimulus from the Federal Reserve and fiscal stimulus from the US Congress. "It did the job," Mr Buffett said. "This economy, right now, 85 per cent of it is running in super high gear."

He lamented how an influx of so-called special purpose acquisition companies (SPACs) and inexperienced investors hoping for quick riches have made markets feel like a casino, making it hard for Berkshire to deploy more of its US$145.4 billion cash hoard.

But the 90-year-old retained his optimism for the future of the company he has run since 1965, including after he's gone.

"We've seen some strange things happen in the world in the last year, 15 months," Mr Buffett said. "It has reinforced our desire to figure out everything possible to make sure that Berkshire is, 50 or 100 years from now, every bit the organisation and then some that it is now."

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The annual meeting was held in Los Angeles, where Mr Buffett joined Berkshire's 97-year-old vice-chairman Charlie Munger, to answer more than three hours of shareholder questions.

Berkshire scrapped for a second year its annual shareholder weekend in its Omaha, Nebraska, hometown, an extravaganza that normally attracts around 40,000 shareholders.

But Saturday's meeting, broadcast online on Yahoo Finance, was "kind of what you come to love about Berkshire", said Steve Haberstroh, a partner at CastleKeep Investment Advisors in Westport, Connecticut. "It's a little bit less about learning new things and more about being reminded about the old things."

Many of Berkshire's dozens of operating units, which include Geico car insurance and the BNSF railroad, have been rebounding as anxiety over Covid-19 lessens, more people get vaccinated, stimulus cheques are spent, business restrictions are eased and confidence about the economy grows.

Gross domestic product grew at an annualised 6.4 per cent rate from January to March, according to an advance government estimate.

Some economists project the economy will grow in 2021 at the fastest clip in nearly four decades.

Mr Buffett conceded that the recovery made his decision last year to exit stakes in the four major US airlines - American, Delta, Southwest and United - appear ill-timed.

Mr Munger, meanwhile, downplayed concern that Congress and the White House might raise the corporate tax rate to 25 per cent or 28 per cent, saying it wouldn't be "the end of the world" for Berkshire.

Shareholders rejected proposals requiring Berkshire to disclose more about its efforts to address climate change and promote diversity and inclusion in its workforce.

But both proposals received about one-quarter of the votes cast, suggesting greater discontent than Berkshire shareholders historically demonstrate. Mr Buffett, who controls nearly one-third of Berkshire's voting power, opposed both proposals.

Saturday's meeting came after Berkshire said first-quarter operating profit rose 20 per cent to about US$7 billion, while net income including investments totalled US$11.7 billion.

But there were signs Berkshire has grown more cautious about the markets. While it repurchased US$6.6 billion of its own stock from January and March, the pace of buybacks slowed. Berkshire also said it sold US$3.9 billion more stocks than it bought, though it still owned US$151 billion of stock in just two companies, Apple and Bank of America.

Mr Buffett said the growth of SPACs, which take private companies public, has made buying whole companies pricey for Berkshire, which hasn't made a major acquisition since 2016. "It's a killer," he said, referring to SPACs. "We've got probably US$70 or US$80 billion, something like that maybe, that we'd love to put to work ... but we won't get a chance to do it under these conditions."

As the meeting concluded, Mr Buffett said the odds were "very, very good" that next year's meeting would include shareholders again. "We really look forward to meeting you in Omaha," he said. REUTERS