The billionaire investor Warren Buffett has warned of inflation hitting the US economy amid a “red hot” recovery from the worst of the coronavirus pandemic.
Buffett said his portfolio companies were “seeing very substantial inflation” in a range of sectors amid shortages of raw materials and high savings among those who kept jobs but were barred from spending on things such as holidays during lockdowns.
In a typically wide-ranging meeting, Buffett and his right-hand-man, Charlie Munger, took aim at what they saw as signs of over-exuberance across the financial markets, with potshots fired at bitcoin, so-called Spac investment vehicles and the share-trading app Robinhood.
Buffett is the world’s richest investor, with a fortune worth $104bn, according to the Bloomberg Billionaires Index. His investment conglomerate, Berkshire Hathaway, owns stakes in a wide range of businesses, ranging from the tech company Apple to railway interests to the battery-maker Duracell and the ice-cream fast-food chain Dairy Queen.
The 90-year-old was speaking on Saturday night from Los Angeles at the company’s second shareholder meeting to be held online due to the pandemic. The meeting is usually well attended by investors and fans hoping to glean wisdom from a man regularly labelled as the “oracle of Omaha” – a reference to the Nebraska city where he still lives.
Buffett’s comments on inflation will be carefully considered by economists across the world who are closely watching for signs of overheating in the US economy.
Coronavirus lockdowns prompted deep recessions across the world in 2020, but huge monetary stimulus efforts coupled with easing restrictions are expected to cause a rapid economic recovery. Buffett revealed that in 2020’s presidential election he backed Joe Biden, who has pushed through a huge $1.9 tn fiscal stimulus.
If inflation starts to surge it could prompt the US central bank, the Federal Reserve, to raise interest rates – a move that could hit asset prices.
Buffett criticised the zero-commission Robinhood share-trading app, saying that it was making it easier for younger investors to view stock market investments as “gambling chips”. Robinhood was at the centre of a share-trading mania at the start of the year as retail investors piled into “meme stocks” such as the video-game retailer GameStop.
He and Munger both hit out at the glut of special-purpose acquisition companies (Spacs), which are “blank-cheque” vehicles that raise money in order to find private companies to buy. Hundreds of companies have pursued stock market listings via Spacs after their popularity soared in 2020, but some observers believe they are a sign of a growing stock market bubble fuelled by cheap money.
Munger said Spacs represented a “moral failing” and that the easy money being made by Spac sponsors could cause “horrible problems with civilisation”.
Munger also said he hated the rise of bitcoin, the cryptocurrency, describing it as “useful to kidnappers and extortionists”. He said it was “disgusting and contrary to the interest of civilisation” because it was a financial product created “out of thin air”.
Buffett also defended Berkshire Hathaway’s continued ownership of stakes in fossil-fuel companies including the US oil “supermajor” producer Chevron and multiple other large energy companies.
“Chevron is not an evil company in the least and I have no compunction about owning Chevron,” Buffett said, adding that on the climate crisis that he thought that “people that are on the extremes of both sides are a little nuts”.
Berkshire Hathaway resisted shareholder resolutions calling for it to report its own climate exposures, despite a growing consensus among many of the world’s largest investors that climate disclosures should be made by all companies as a first step in combating the climate crisis. The investors Calpers, Federated Hermes and Caisse de Dépôt et Placement du Québec, had proposed requiring Berkshire to publish annual reports about its climate-crisis efforts.
Their proposal garnered a quarter of the votes cast after Buffett and other directors voted against it, suggesting growing discontent among Berkshire Hathaway’s shareholders. Another proposal calling for increased efforts to promote diversity at the company received 24% of votes.
Berkshire Hathaway struggled during 2020 in part due to the difficulties faced by airlines and aerospace manufacturers. It eked out a gain of 2.4% in its share value, against the S&P 500 benchmark 18.4% return. However, in the first quarter of 2021 it made profits of $11.7bn as the market rallied.
The company is sitting on a cash pile of $145.4bn, up 5% during the first quarter, as it looks for new investments.