Warren Buffett sees ‘hot’ economy with rampant inflation

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(Bloomberg) – Warren Buffett delivered a clear verdict on Saturday on the state of the US economy after the pandemic: bright red.

“It’s almost a buying spree,” said the CEO of Berkshire Hathaway Inc. at the conglomerate’s annual meeting, which was held virtually from Los Angeles. “People have money in their pockets and they pay higher prices,” he says.

Buffett attributed the faster-than-expected recovery to swift and decisive bailouts from the Federal Reserve and the US government, which helped shift 85% of the economy into “high gear,” he said. . But as growth rebounds and interest rates remain low, many – including Berkshire – are raising prices and there is more inflation “than people would have anticipated six months ago,” said he declared.

Buffett reunited with his longtime friend and business partner Charlie Munger for this year’s reunion. Munger did not attend last year’s meeting in Omaha, Nebraska – Buffett’s hometown – due to closures across the country. Some shareholders were relieved to see the duo answering questions again.

“I really have a feeling that Charlie and Warren showed their usual and incredible level of sharpness and intellectual energy,” said James Armstrong, who manages assets, including Berkshire stocks, as chairman of Henry H. Armstrong Associates.

Buffett and Munger have spent hours answering questions, from economics to climate and diversity, the PSPC boom, taxes and inheritance. Here is the truth:

Climatic pressure:

Berkshire has faced pressure from two shareholder proposals, one aimed at improving transparency related to its efforts on climate change. The topic had to be a feature of the meeting – and it was.

When asked about the proposals, Buffett stuck to his previous position. The moves to produce big diversity and climate reports for its industries ranging from energy to railways were, he said, “absurd.” The proposals were then rejected.

Buffett was also asked about Berkshire’s stake in oil and gas producer Chevron Corp., which he revealed earlier this year. Buffett said he had “no qualms” about his ownership in the business, which he said had benefited the company in many ways. While acknowledging that the world is moving away from hydrocarbons, people who are at the extremes of either argument are “a little bit crazy,” he said.

Greg Abel, chairman of Berkshire Hathaway Energy, called climate change a “significant risk”. He added that they are setting targets and spending $ 18 billion over 10 years on transportation infrastructure.

PSPC killers:

Buffett warned investors that Berkshire may not have much of a chance of closing deals amid the boom in special purpose acquisition companies that have taken hold of the market over the past year.

“He’s a killer,” Buffett said of the influence of the PSPC companies on Berkshire’s ability to find companies to buy. “It won’t last forever, but that’s where the money is now, and Wall Street is going where the money is.”

Buffett, 90, also spent part of the Berkshire annual meeting on Saturday to address the recent boom in retail and day trading. A lot of people have entered the stock market “casino” over the past year, he said.

Tax:

Buffett said President Joe Biden’s proposals for a corporate tax hike would hurt Berkshire shareholders. He added that antitrust laws and tax policy could make a difference for the company, but the new tax laws would not change its no-dividend policy.

Succession:

Buffett and Munger, 97, answered the majority of questions at Saturday’s meeting, but their two main assistants Abel and Ajit Jain, who runs the insurers, also shared the stage. Investors were able to take a closer look at which pair are considered the best candidates for the job.

Munger dropped a small mention of the post-Buffett years which drew speculation on social media about the most likely candidate to succeed Buffett. The CEO stressed that decentralization does not work everywhere as it requires a certain type of culture that companies must have.

“Yeah, but we do,” Munger insisted. “And Greg will keep the culture.”

Abel has long been considered the best candidate to replace Buffett, especially when he was promoted to vice president overseeing all non-insurance operations, giving him a wide range of responsibilities, including supervision of the BNSF railway and the energy sector.

Mistakes:

Buffett offered a few mea culpas at the meeting on Saturday. He noted that the sale of certain shares of Apple Inc. last year was a mistake and even said that Haven, the healthcare company with JPMorgan Chase & Co. and Amazon.com Inc., thought it could. tackling the “tape worm” of American health care. costs but the worm won.

“It was probably a mistake,” Buffett said of those sales of Apple shares last year. Berkshire still held an estimated $ 110 billion stake in the iPhone maker at the end of March. “Actually, Charlie, in his usual low-key way, let me know you thought that was a mistake too,” he told Munger, who was sharing the stage with him.

Cash stack:

Before the start of the annual meeting, the company released its first quarter results, giving investors a dive into the 19.5% gain in operating income during the period.

Berkshire ended the quarter with near-record cash of $ 145.4 billion as it continued to generate funds faster than Buffett could deploy. But Buffett also stopped withdrawing some levers of capital deployment during the period. It repurchased just $ 6.6 billion of Berkshire’s own shares, below the record $ 9 billion set in previous quarters, and ended up with the second-highest level of net share sales in the first trimester in nearly five years.

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