- Warren Buffett’s Berkshire Hathaway has raised a record $157 billion in cash and Treasuries.
- Buffett is preparing to trade and make deals when the economy weakens, says Steve Hanke.
- Investors are notorious for taking advantage of crises and profiting from higher interest rates, says Hanke.
Warren Buffett has amassed a record amount of cash, so he’s ready to grab deals and make attractive deals when the U.S. economy descends into chaos, says Steve Hanke.
The famed investor’s Berkshire Hathaway held an unprecedented $157 billion in cash, Treasury bills and other liquid assets at the end of September, an increase of nearly $50 billion in 12 months. The company’s cash hoard increased in part because Buffett and his team sold a net $5 billion of stock last quarter; combined, they sold a net $44 billion worth of stock over the last four quarters.
“It’s classic Buffett,” Hanke, a professor of applied economics at Johns Hopkins University, said in a recent interview with Markets Insider. “He loves fishing in rough waters.”
“And with the Fed causing a sharp decline in the money supply the likes of which we haven’t seen since 1933, Buffett rightly predicts economic problems are coming,” said the veteran economist and trader.
Hanke, who has taught students how to value companies like Buffett for decades, is known for being an adviser to President Ronald Reagan and president of Toronto Trust Argentina when it was the world’s best-performing mutual fund in 1995.
Hanke said the Berkshire boss would profitably put his gunpowder to work when the economy collapsed. “Don’t forget that Buffett has made a lot of money over the years by lending to and bailing out troubled financial institutions,” he noted. “And even though Buffett is waiting for economic disruptions and stresses to come, he is getting paid decently.”
Indeed, Berkshire committed $21 billion to five deals in just 18 months during the financial crisis, when Buffett struck lucrative deals with Goldman Sachs, General Electric, Mars, Dow Chemical and Swiss Re.
Moreover, Berkshire earned more than $4 billion in interest, dividends and investments last quarter, a 70% increase over last year’s third quarter. A key factor was the Fed’s increase in its benchmark interest rate from near zero to north of 5% since last spring, which boosted Berkshire’s gains in Treasuries.
According to Hanke, Buffett’s cash resources mean he is well-positioned to buy discounted stocks and companies and borrow money at attractive rates if the economy falters, and thanks to higher bond yields he will get a solid return with zero risk while you wait.
Other commentators also pointed to Buffett’s bulging war chest as a warning sign for investors. “I think he sees trouble next year,” Lee Munson, director of portfolio advisors, said recently. “This means you need to be careful. He doesn’t see any screaming offers.”