Warren Buffett told Berkshire Hathaway shareholders on Saturday that he was surprised by the US’s “red hot” economic rebound and warned the company was being hit by inflationary pressures.
“We’re seeing very substantial inflation,” the 90-year-old chair said in his address to investors that was held virtually for the second consecutive year because of the pandemic. “It’s very interesting. We’re raising prices. People are raising prices to us and it’s being accepted.”
Berkshire Hathaway, which owns Geico, the insurer, railroad BNSF and Benjamin Moore, the paint maker, reported robust $11.7bn in profits earlier in the day, with some divisions disclosing price hikes to keep pace with the increased costs of raw materials.
“This has been a very unusual recession,” Buffett said. “Right now business really is very good in a great many segments of the economy.”
US household incomes rose by the most in recorded history in March as the country’s economic expansion accelerated, lifted by government stimulus and a healing labour market. That has sent reverberations throughout financial markets, with investors’ inflation expectations over the next decade rising to an eight-year high.
“It just won’t stop,” Buffett added. “People have money in their pocket and they’ll pay the higher prices.”
Buffett had to defend his decisions over the past year, particularly his reluctance to make an acquisition even as other asset managers had moved to put their cash to work. One shareholder charged that the billionaire investor had “sat on your hands” during the crisis as the company’s cash pile ballooned to $145.4bn from $138.8bn at the end of 2020.
Buffett said before the Federal Reserve intervened last March, the company was focused on maintaining and financing its own businesses.
Charlie Munger, Berkshire’s vice-chair, added that it would have been “crazy” to expect an acquisition at the nadir of the crisis.
Buffett warned that the company would continue to struggle to compete on purchases, a persistent theme at recent annual meetings, particularly as other well-funded rivals, including conventional buyout groups, enter the fray.
Berkshire is also now vying with so-called special purpose acquisition companies as it looks for takeover targets.
Munger on Spacs
‘I call it fee-driven buying. In other words, they’re not buying because it’s a good investment. They’re buying it because the adviser gets a fee. And of course, the more of that you get, the sillier your civilisation is getting. And to some extent, it’s a moral failing too. Because the easy money made by things like Spacs and total return derivatives and so on and so on, you push that to excess, it causes horrible problems with civilisation. It reflects no credit on the people who are doing it and no credit on the regulators and monitors that will allow it. So I think we have a lot to be ashamed of current conditions.’
“Spacs generally have to spend their money in two years,” he said. “If you put a gun to my head and said you have to buy a business in two years, I’d buy one but it wouldn’t be much of one.”
He added: “Frankly we’re not competitive with that.”
Investors also founded out why Berkshire sold its airline stakes last year, a move that has been criticised given the bounce back in the industry’s fortunes. Buffett said many of the companies, which included American and Delta, would have received the same government financing if they were backed by a wealthy shareholder such as Berkshire.
Buffett on selling Berkshire’s stakes in airlines
“But I do not consider it a great moment in Berkshire’s history, but also we’ve got more net worth than any company in the United States under accounting principles and we’ve got $600bn or $700bn of generally good businesses. And I think the airline business has done better because we’ve sold, and I wish them well, but I still wouldn’t want to buy the airline business, international.”
“Imagine if Berkshire was a 10 per cent holder of the airlines and they [the government] said get it from Berkshire,” he said. “You might not have gotten the same result and I would think they wouldn’t.”
Buffett and Munger were joined on stage by Greg Abel and Ajit Jain, vice-chairmen of Berkshire Hathaway who have been tipped by shareholders as potential successors to the company’s longtime leaders.
Abel and Jain were given a greater proportion of screen time at the event than on previous occasions. But investors hoping for the same special relationship that has characterised Buffett’s rapport with Munger over the past six decades will have been left wanting.
“There is no question the relationship Warren has with Charlie is unique and that it cannot be replicated by Greg and me,” Jain said, adding that he had “a lot of respect” for Abel. “We do not interact as much as Warren and Charlie do but we talk every quarter.”
Buffett on climate change
‘But I would say that people that are on the extremes of both sides are a little nuts. I would hate to have all hydrocarbons banned in 3 years or you wouldn’t want a world that — it wouldn’t work . . . I think Chevron’s benefited society in all kinds of ways. I think it continues to do so, and I think we’re going to have a lot of hydrocarbons for a long time and we’ll be very glad we’ve got them. But I do think that the world is moving away from too. And that could change.’
Abel joined Buffett in defending the board’s advice that shareholders vote down two stockholder proposals that would push Berkshire to disclose its efforts on climate change and diversity and inclusion in the workforce.
Abel said the company’s large energy division that he chairs had already made a strong push to decarbonise its business. He noted that the unit had planned to close 16 coal-fired power plants by 2030 and shutter all such facilities by 2050.
Buffet was more emphatic in his disagreement with the proposal.
“It’s asinine frankly in my view,” he said. “Now, we do some other asinine things because we’re required to do them. But to have the people at BusinessWire, Dairy Queen, all these places filling out reports to make a common report . . . we don’t do that stuff at Berkshire.”
Munger on Bitcoin
‘Of course, I hate the bitcoin success. And I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth. Nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So I think I should say modestly that I think the whole development is disgusting and contrary to the interest of civilisation. And I’ll leave the criticism to others.’
The two proposals won backing from several large investors, including the California Public Employees’ Retirement System, asset manager Neuberger Berman and Norges Bank, one of Berkshire’s biggest backers. More than a quarter of the votes cast in the election were in favour of the first proposal on climate change disclosures.
But neither curried enough support to overcome the sway Buffett’s high vote class A stock holds. It was a reminder of who has the power at the $631bn conglomerate.
The Link LonkMay 02, 2021 at 06:28AM
https://www.ft.com/content/06220c54-43c6-4e77-8952-a65245011a99
Buffett says Berkshire hit by rising inflation amid ‘red hot’ US recovery - Financial Times
https://news.google.com/search?q=Red&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment