Warren Buffett says US economy is ‘red hot’ but warns on inflation

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Warren Buffett said the US economy is “red hot” — but warned inflation is a rising threat as businesses and jobs come roaring back.

“Right now, business really is very good in a great many segments of the economy … It’s almost a buying frenzy,” Berkshire Hathaway’s chief executive told shareholders at the company’s annual meeting this weekend. “This has been a very unusual recession.”

Over the weekend, the company reported a $12 billion quarterly profit at the virtual event — a massive number that nevertheless fell short of what many investors had hoped for after the past year’s eye-popping stock rally. Berkshire also reported around $7 billion in operating income, up 20 percent from the first quarter of 2020.

The Oracle of Omaha and his brainy right-hand man Charlie Munger — who in a wide-ranging discussion blasted Robinhood and the Reddit rally and pushed back on rising demands for disclosures on diversity and climate-related risks — defended the company’s strategy over the past year. Berkshire’s value-driven approach has lately underperformed during an era of government bailouts and rock-bottom interest rates that have goosed growth stocks like Tesla.

That included Berkshire’s decision to sell their roughly 10 percent holdings in major airlines. Shares of Delta, Southwest, American and United have surged in recent months even as they were hit hard a year ago by pandemic-related travel restrictions.

Nevertheless, Buffett noted that given Berkshire’s strong financial position — at the time the company had $120 billion in cash and liquid investments — they could have faced demands from the US to bail out the airlines themselves. After Berkshire got out of the position, the feds decided to step in and help the airlines weather ongoing lockdowns.

“You’re looking at probably a different result than if we had kept our stock,” Buffett said.

One stock sale Buffett conceded was “probably a mistake” was his decision to sell 9.81 million shares of Apple at the end of 2020. Buffet said Apple’s products are “indispensable” to people and that Apple stock is still a bargain. Even after the sale, Berkshire still holds $111 billion in Apple stock, making it Berkshire’s largest position.

The wide-ranging event even touched on Buffett’s fellow billionaire, iconoclast Elon Musk, and whether Buffett would consider underwriting an insurance policy for Elon Musk’s SpaceX business that aims to take people to Mars.

One of Berkshire’s most central investments is its insurance and reinsurance businesses, but so far their insurance policies have only applied to planet earth. Buffett didn’t rule out working with Musk on a space expedition but said it would come down to the premium and whether Musk himself was a passenger on the space adventure.

“If somebody’s asking to insure something,” Buffett said, “that’s called getting skin in the game.”

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