Warren Buffett before Berkshire Hathaway’s annual shareholders meeting in Omaha, Nebraska.
David A. Grogan | CNBC
OMAHA, Neb. – Warren Buffett, whose conglomerate is considered a barometer of America’s economic health because of the range of businesses it owns, said something that doesn’t bode well for those who think we’ll avoid a recession .
The ‘Oracle of Omaha’ believes the ‘extraordinary period’ of overspending following the Covid pandemic stimulus is over, and now many of its businesses are facing a buildup of inventory they will have to shed having sales, he said about 40,000 shareholders who met in Omaha to Berkshire Hathawaythe annual meeting on Saturday.
investment related news
“It’s a different climate than six months ago. And a number of our managers were surprised,” Buffett said Saturday. “Some of them had too much stock on order, and then all of a sudden they were delivered, and people weren’t in the same mindset as before. Now we’re going to start having sales when we didn’t need to have any before.”
Berkshire has a diverse group of subsidiaries, from Borsheims Fine Jewelry and Brooks Running sportswear, to Duracell, See’s Candies, Dairy Queen, the Fruit of the Loom clothing company, as well as Nebraska Furniture Mart. Investors still look to Buffett for economic news, as his myriad businesses are closely tied to broader spending and aggregate demand. Then there’s its ownership of BNSF Railway, which gives it an overview of goods being shipped across the country, and its large energy operations, which can also give clues to the level of economic activity.
The “extreme” time is over
Buffett said his companies had experienced an “extreme” time when consumers splurged, leading many of his affiliate managers to overestimate demand for certain products.
“It was just a matter of getting the goods delivered. People were buying and they weren’t waiting for sales. If you couldn’t sell them one thing, they would put another thing in their backlog,” Buffett said. .
The 92-year-old investment icon said he expects to see declining profits for many of his businesses in light of an economic downturn.
“In the general economy, the feedback we’re getting is that, I would say, maybe the majority of our businesses will actually report lower earnings this year than they did last year,” he said. .
Still, Buffett thinks Berkshire is well positioned in terms of investment income, as higher interest rates earn the conglomerate a substantial return. Berkshire had about $130 billion in cash and Treasury bills at the end of the first quarter.
So far, Berkshire has performed well despite a difficult macroeconomic environment, with operating profit up 12.6% in the first quarter. This strong performance was driven by a rebound in the conglomerate’s insurance business. Overall profit also rose sharply thanks in part to gains in its equity portfolio, led by Apple.
“Nothing is certain tomorrow, nothing is certain next year, and nothing is ever certain, whether in markets or in trade forecasts or in anything else,” he said. said Buffett.