Buffett warns of ‘red hot’ US economy and rising inflation

Warren Buffett delivered a clear verdict on Saturday on the state of the US economy as it emerges from the pandemic: red hot.

“It is almost a buying frenzy,” the Berkshire Hathaway chief executive said during the conglomerate’s annual meeting, which was held online from Los Angeles. “People have money in their pocket and they are paying higher prices.”

Mr Buffett, 90, attributed the faster-than-expected recovery to swift and decisive rescue measures by the US Federal Reserve and the Biden administration, which helped kick 85 per cent of the economy into “super high gear”, he said.

However, as growth roars back and interest rates remain low, many – including Berkshire – are raising prices and there is more inflation “than people would have anticipated six months ago”, he said.

Mr Buffett reunited with his long-time friend and business partner Charlie Munger for this year’s meeting. Mr Munger could not make it to last year’s meeting in Omaha, Nebraska – Mr Buffett’s home town – due to the shutdowns across the country. Some shareholders were relieved to see the duo fielding questions together again.

“I really feel that both Charlie and Warren displayed their usual and amazing level of acuity and intellectual energy,” said James Armstrong, who manages assets including Berkshire shares as president of Henry H Armstrong Associates.

Mr Buffett and Mr Munger, 97, spent hours fielding questions – from the economy, to climate and diversity, the blank cheque company boom, taxes and succession.

Berkshire faced pressure from two shareholders proposals to improve transparency related to its efforts on climate change. The topic was bound to be a feature at the meeting – and it was.

When asked about the proposals, Mr Buffett stuck to his previous stance.

Measures to produce big reports on diversity and climate for his business lines spanning energy to railroads were, he said, “asinine”. The proposals were later voted down.

Mr Buffett was also asked about Berkshire’s stake in oil and gas producer Chevron, which it disclosed earlier this year. Mr Buffett said he felt “no compunction” in the least about its ownership in the company, which he said had benefitted society in many ways.

While he acknowledged that the world is shifting away from hydrocarbons, people on the extreme sides of either argument are “a little nuts”, he said.

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

Mr Buffett warned investors that Berkshire might not have much luck striking deals amid the boom in special purpose acquisition companies that gripped the market over the past year.

“It is a killer,” Mr Buffett said about the influence of Spac companies on Berkshire’s ability to find businesses to buy.

“That will not go on forever but it is where the money is now, and Wall Street goes where the money is.”

Mr Buffett also spent part of Berkshire’s annual meeting addressing the recent boom in retail and day trading.

A lot of people have entered the stock market “casino” over the past year, he said.

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

Mr Buffett and Mr Munger fielded most questions at Saturday’s meeting but their two top deputies – Mr Abel and Ajit Jain, who runs the insurers – also shared the stage. Investors were

The Berkshire Hathaway chief attributed the recovery to swift rescue measures by the Fed and the US government

able to have a closer look at the pair who are considered the top candidates for the job.

Mr Munger dropped a little mention of the post-Buffett years that drew speculation on social media about the most likely candidate to succeed Mr Buffett. The chief executive was pointing out that decentralisation does not work everywhere because it requires a certain type of culture that businesses need to have.

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

Mr Abel has long been considered the top candidate to replace Mr Buffett, especially when he was promoted to a vice chairman role overseeing all non-insurance operations, which gives him a wide array of responsibilities, including oversight of the railroad BNSF and the energy business.

Mr Buffett offered a few mea culpas during Saturday’s meeting. He noted that selling some Apple stock last year was a mistake and even said that Haven, the healthcare venture with J P Morgan Chase and Amazon, thought it could fight the “tape worm” of American healthcare costs but the worm won.

Berkshire ended the quarter with a near-record $145.4bn of cash on hand as it continued to generate funds faster than Mr Buffett could use them.