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Warren Buffett says U.S. economy's unexpected strength benefits Berkshire

Stock MarketsMay 01, 2021 08:56PM ET
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4/4 © Reuters. FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett (left) and Vice Chairman Charlie Munger at the annual Berkshire shareholder shopping day in Omaha 2/4

By Jonathan Stempel and John McCrank

(Reuters) - Warren Buffett said on Saturday that Berkshire Hathaway (NYSE:BRKa) Inc is being lifted by a U.S. 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, Buffett said the economy has been "resurrected in an extraordinarily effective way" by monetary stimulus from the Federal Reserve and fiscal stimulus from the U.S. Congress.

"It did the job," Buffett said. "This economy, right now, 85% of it is running in super high gear."

Buffett lamented how an influx of so-called special purpose acquisition companies and inexperienced investors hoping for quick riches have made markets feel like a casino, making it hard for Berkshire to deploy more of its $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," 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 organization and then some that it is now."

REINFORCEMENTS

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

Greg Abel and Ajit Jain, Berkshire's other vice chairmen and potentially successors to Buffett as chief executive, also fielded several questions.

Asked about their rapport, Jain said that they don't interact as much as Munger and Buffett, but they talk every quarter about businesses they oversee.

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 checks are spent, business restrictions are eased and confidence about the economy grows.

Gross domestic product grew at an annualized 6.4% 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.

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

Munger, meanwhile, downplayed concern that Congress and the White House might raise the corporate tax rate to 25% or 28%, 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. 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% to about $7 billion, while net income including investments totaled $11.7 billion..

CAUTION, SPACS AND ROBINHOOD

But there were signs Berkshire has grown more cautious about the markets.

While Berkshire repurchased $6.6 billion of its own stock from January and March, the pace of buybacks slowed.

Berkshire also said it sold $3.9 billion more stocks than it bought, though it still owned $151 billion of stock in just two companies, Apple Inc (NASDAQ:AAPL) and Bank of America Corp (NYSE:BAC).

Buffett acknowledged that low interest rates made Berkshire's $140 billion of insurance "float," which it uses for investing and acquisitions, less valuable.

He also 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," Buffett said, referring to SPACs. "We've got probably $70 or $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."

Berkshire's leaders also heaped criticism on trading apps such as Robinhood, with Buffett saying they encourage a "gambling impulse" and Munger saying it was "just god-awful that something like that would draw investment from civilized man and decent citizens. It's deeply wrong."

Buffett stood by Apple, calling the iPhone maker an "extraordinary business" with "indispensable" products, and admitted he erred by selling a small percentage of Berkshire's shares late last year.

As the meeting concluded, 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.

Warren Buffett says U.S. economy's unexpected strength benefits Berkshire
 

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Comments (11)
TL Chan
TL Chan May 02, 2021 12:26AM ET
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Berkshire is more consistent not like Fed Wednesday Dovish then Friday analysts hawkish (higher chance of earlier tapering), Those stud*p*d analysts made people lose money , making people schizophrenic, slapping people faces ! Starting from European market panic sell off on Thursday then US algo sell off on both Thursday and Friday, no matter how strong the earning results in the week. Retail investor could not react cause they don't know what was happening and be punished for buying strong earning stocks. This is ridiculous !
Modern Matrix
Modern Matrix May 02, 2021 12:26AM ET
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preach
B l u e Max
B l u e Max May 01, 2021 9:00PM ET
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IF WARREN BUFFET SAID OTHERWISE I WOULD DROP DEAD
michael engel
michael engel May 01, 2021 6:49PM ET
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Beffett buyback saved SPX from : I am falling and I can't get up. He will be too old, or gone, next time around.
john hu
john hu May 01, 2021 6:49PM ET
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🤣🤣🤣
Sam Vogel
Sam Vogel May 01, 2021 6:40PM ET
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isn't this the same buffet that said be greedy when others are fearful and be fearful when others are greedy
Sam Vogel
Sam Vogel May 01, 2021 6:39PM ET
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isn't this the same buffet that said be greedy when others are fearful and be fearful when others are greedy
CHAD TENDIES
CHAD TENDIES May 01, 2021 6:35PM ET
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The USA is about to experience the worst hyperinflation of all time.
Jacob Steinschlag
Jacob Steinschlag May 01, 2021 6:00PM ET
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This guy needs to step down. Doing nothing for the future of mankind.
Leon Kelly
Leon Kelly May 01, 2021 5:10PM ET
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So if Buffett thinks we're good why does Powell insist on keeping rates low ?
Jerome Sheehan
JayShee May 01, 2021 5:10PM ET
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China
Benjamin McIntire
Benjamin McIntire May 01, 2021 5:10PM ET
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Investing Man
Investing Man May 01, 2021 5:00PM ET
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The biggest corporations hire no more than a few city highschool worth of people. Tesla for example hires 45000. That's 1/10th the students in New York.  We shouldn't be giving trillions to these companies whose CEOs are hording it and rewarding their cronies with luxurious life styles rather than lifting up their employees. That is not value. The problem with the wealth gap is the overwhelming burden of the taxes on the regular people to support the loop holes, breaks, subsidies, and welfare making the ultra rich even richer.  The ultra rich doesn't feel any burden at all from taxes, however the regular person does, especially the single population.They are the population you don't want to make angry because they have nothing to lose. The system has to go back to where 1 parent, or 1 person can succeed. Then maybe America can get back to the family values it once had.
Dave Jones
Dave Jones May 01, 2021 4:26PM ET
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what wonderful news! So basically we're giving 120 billion per month for companies to buy back their own stock? From the article his money is coming from trailer parks?
Al Gore
Al Gore May 01, 2021 3:10PM ET
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why print so much money if economy was stronk?
jigar bhatt
jigar bhatt May 01, 2021 3:10PM ET
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This kind of statement r traps so that people go for buy and then they crash the market. I agree if economy was strong then y printed so much money.?
Victor Ng
Victor Ng May 01, 2021 3:10PM ET
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jigar bhatt they want to crash the trump economy thats why. All those printed money are sitting with the big banks and corporation. We are only getting a nickle of a dollar
 
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