Warren Buffett’s hedge fund Berkshire Hathaway is retreating from the US financial market, putting over $13.3 billion in stocks on for sale and buying only $2.9 billion worth in the first quarter of 2023. According to an earnings report released Saturday, the fund spent $4.4 billion on buybacks of its own common stock over the same period.
The hedge fund reported net earnings of $35.5 billion in the first quarter, and is sitting on a portfolio of $328 billion. Operating revenues have jumped by 12.6 percent compared to 2022 to $8.1 billion, according to the earnings report.
The stock selloff, made by a hedge fund known in the trading world as one of the shrewdest and most careful investment giants on the planet, comes amid warnings by CEO Warren Buffett and his right-hand man Charlie Munger about an array of problems facing the US and global economy.
Speaking at an annual shareholders meeting in Omaha, Nebraska on Saturday, Buffett said he was not surprised that the US has been facing a string of bank failures recently, given how complex the banking sector has become, and the “dumb” decisions made by some bankers.
“The American public doesn’t understand their banking system – and some people in Congress don’t understand it anymore than I understand it,” the tycoon, whose company began a selloff of US bank stock from 2020 onward, but is holding on to a 13 percent share of Bank of America and a 2.8 percent share in Citigroup, said.
Buffett praised the federal government’s decision to guarantee deposits above the Federal Deposit Insurance Corporation’s limit of $250,000 after the collapse of Silicon Valley Bank in March, suggesting that doing otherwise “would have been catastrophic,” and would have caused a “run on every bank in the country.”
Buffett also warned that bank runs are becoming easier in the modern world thanks to technology, with the speed at which information travels and the opportunity to withdraw deposits virtually meaning that nowadays, “you could have a run in a few seconds.”
Commenting on the debt ceiling crisis, the billionaire said he fully expects Congress to ultimately step up and resolve the issue before the government runs out of money and defaults on its obligations, saying that doing anything less would “cause the world to go into turmoil.”
An AI ‘Atom Bomb’
Buffett also offered a grim warning about the rise of artificial intelligence capable of replacing human beings in many roles, comparing the technology to the atomic bomb and saying it cannot be “un-invented.”
“When something can do all kinds of things, I get a little bit worried,” Buffett said. “Because I know we won’t be able to un-invent it, and you know, we did invent, for very, very good reason, the atom bomb in World War II. It was enormously important that we did so. But is it good for the next two hundred years of the world that the ability to do so has been unleashed?” Buffett asked, presumably referring to nuclear weapons’ awesome destructive power.
“We didn’t have a choice, but when you start something – well, Einstein said after the atomic bomb, he said ‘this has changed everything in the world except how men think’. And I would say the same thing…I mean with AI, it can change everything in the world except how men think and behave. And it’s a big step to take,” he said, echoing recent warnings by Elon Musk and hundreds of technology researchers.
Global Tensions Depress Growth
Buffett also waded into international politics, calling on the US and China to resolve their differences and stop escalating tensions, which he said undermines both countries economically. “It’s imperative that China and the United States both understand what the game is and that you can’t push too hard, but both places are going to be competitive and both can prosper,” he said.
Blasting the US government’s money printing “madness” and pointing out that people are losing faith in the dollar, Buffett said that although “it’s easy for America to do a lot” of money printing, “if we do too much it’s very hard to see how you recover once you’ve let the genie out of the bottle. People lose faith in the currency and they behave in an entirely different manner than they do when they feel…they’re going to have something with roughly equal purchasing power. It changes the economy.”
Nevertheless, for the moment, the billionaire doesn’t see a real effective alternative to the dollar’s hegemony.
“I see no option for any other currency to be the reserve currency,” Buffett said. As for prospective digital stores of value like Bitcoin, Buffett dismissed them as mere “toys,” suggesting “it’s a joke to think of any tokens, that’s madness.”