Warren Buffett's firm Berkshire Hathaway sold $28.7 billion of stock in the first three quarters of 2023 in a move that some economists have interpreted as ringing alarm bells for the American economy.
According to the company's earnings, the Nebraska-based firm of the legendary investor and billionaire, known as the Oracle of Omaha, sold a net $10.4 billion of stock in the first quarter of the year. In the second quarter, it sold close to $13 billion of shares and bought less than $5 billion. In the third quarter, it sold about $5.3 billion worth of stocks.
As Buffett is considered one of the greatest investors of all time, as well as one of America's richest men, his moves are closely observed and analyzed.
For Steve H. Hanke, a professor of applied economics at Johns Hopkins University who served on President Ronald Reagan's Council of Economic Advisers, Buffett's and Berkshire Hathaway's "recent lightening up on stocks and accumulation of a pile of cash—$157 billion—is consistent with the fact that stocks are relatively pricey right now."
But it's also, crucially, a sign "that a recession is right around the corner," Hanke told Newsweek.
"The money supply of the United States, broadly measured [M2], started contracting in July 2022, and has been falling like a stone," Hanke said. "Since last year, the U.S. money supply has contracted by 3.3 percent."
According to Hanke, there have been only four periods in U.S. history—in 1920-21, 1929-33, 1937-38 and 1948-49—in which the money supply has had significant contractions.
"Each of those four episodes was followed by a serious recession," he said. "The current monetary contraction is clearly going to lead to precisely what monetary contractions always lead to: a recession."
With the expectation of a recession, Hanke said, Buffett's recent moves "are classic Buffett."
"He loves to fish in troubled waters," Hanke said. "And with the Fed putting the money supply in a nosedive the likes that we haven't seen since 1933, Buffett is correctly anticipating that troubled economic waters are in the offing. He will then profitably deploy his cash hoard.
"Don't forget that Buffett has made big bucks over the years by lending to and rescuing distressed financial institutions. And while Buffett waits for the coming economic dislocations and stresses, he is receiving a decent return on his cash hoard."
Other investors are more cautious in interpreting Berkshire Hathaway's selling of stock as a warning about the U.S. economy.
David Wagner, portfolio manager at Aptus Capital Advisors, told Newsweek that Buffett is likely holding on to more cash because insurance costs have increased, and "historically, Buffett has stated that his company likes to hold cash on its balance sheet to cover potential insurance losses."
The billionaire might also be keeping cash on hand "for optionality if there is market weakness," Wagner said.
"And right now, cash is earning a relatively healthy nominal return. If the market were to take a fall, he'll be ready to buy when valuations are lower, much like what he did in 2008."
Correction 12/12/2023 4:30 a.m. ET: This article was updated to correct the spelling of Warren Buffett's surname.
Uncommon Knowledge
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Giulia Carbonaro is a Newsweek Reporter based in London, U.K. Her focus is on U.S. and European politics, global affairs ... Read more
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