Warren Buffett’s money machine is firing on all cylinders. Berkshire Hathaway (BRK.B) reports astounding growth.
For example, Berkshire Hathaway’s quarterly revenues rose from $76.201 billion on 30 June 2022 to $92.503 billion on 30 June 2023. Similarly, Berkshire Hathaway’s quarterly gross profit grew from $59.018 billion on 30 June 2022 to $73.557 billion on 30 June 2023.
Incredibly, Berkshire’s quarterly operation income grew from -$52.898 billion on 30 June 2022 to $47.362 billion on 30 June 2023. Hence, Uncle Warren’s enormous bets on the US economy and the stock market are paying off.
This growth is continuing and expanding. For example, Berkshire Hathaway reported four straight quarters of quarterly revenue growth. Significantly, the quarterly revenue growth rate rose from 10.25% on 30 June 2022 to 21.39% on 30 June 2023. Indeed, BRK.B offered two straight quarters of revenue growth. In depth, the quarterly revenue growth rate rose from 20.54% on 31 March 2023.
This growth translates into stock price increases. Mr. Market paid $302.82 for Berkshire Hathaway Class B (BRK.B) shares on 15 August 2022. That share price grew to $358.48 on 14 August 2023.
How Much Cash is Berkshire Hathaway (BRK.B) generating?
Berkshire Hathaway (BRK.B) still generates enormous amounts of cash that are growing. For example, Berkshire Hathaway’s quarterly ending cash flow grew from -$8.438 billion on 30 June 2022 to $23.355 billion on 30 June 2023.
Interestingly, the quarterly ending cash flow fell from $27.298 billion on 31 March 2023. In contrast, Berkshire’s quarterly operating cash flow rose from $8.531 billion on 30 June 2022 to $12.234 billion on 30 June 2023. Berkshire is using that money. For example, Berkshire Hathaway reported a quarterly investing cash flow of $10.655 billion on 30 June 2023.
Conversely, Berkshire Hathaway has far less cash. Its cash and short-term investments fell from $130.616 billion on 31 March 2023 to $50.055 billion on 30 June 2023. The cash and short-term investments were $105.411 billion on 30 June 2022.
Hence, Berkshire is still a super-cash-rich company. However, Berkshire carries an enormous amount of debt. For example, it reported $125.347 billion in total debts on 30 June 2023. The total debts rose slightly from $124.988 billion on 30 June 2022 and fell from $134.503 billion on 31 December 2022.
Berkshire has paid off a lot of debt over the past year. It reported a -$9.922 billion quarterly financing cash flow on 31 March 2023. Furthermore, Berkshire reported three quarters of -$1 billion to -$2 billion preceding March 2023. However, the quarterly financing cash flow rose to $289 million on 30 June 2023.
Why is Warren Buffett dumping cash?
Intelligent speculators and investors will wonder why Berkshire Hathaway (NYSE: BRK.B) is suddenly dumping cash.
Dramatically, I calculate Berkshire Hathaway dumped $80.561 billion in cash and short-term investments in the third quarter of 2023. To elaborate, Berkshire had $131.616 billion in cash and short-term investments on 31 March 2023 and $50.055 billion on 30 June 2023.
Fear mongers will wonder if Buffett and his advisors think inflation or deflation could soon destroy the US dollar’s value. Remember, Buffett is a ruthless investor. He dumps money losers fast. Hence, people will wonder if Buffett thinks the US dollar could lose value soon.
Does Buffett think Inflation is Coming?
Notably, the US wholesale inflation rate rose than more expected in July 2023. The Bureau of Labor Statistics reports the US wholesale inflation rate, or Producer Price Increase (PPI), rose to 0.8%, a 0.2% increase. Analysts were expecting a 0.7% increase in the PPI, CNN reports.
Economists watch PPI because it can predict future retail prices. To explain when wholesalers and manufacturers raise prices. Retailers pass the price increase to consumers.
I wonder if Buffett saw this coming. To elaborate, Berkshire Hathaway owns many manufacturers such as the Precision Castparts Corp, LiquidPower Specialty Products Inc. (LSPI), and W&W AFCO Steel. Moreover, Berkshire owns a large wholesaler to retail stores, the McClane Group. Berkshire also owns consumer products companies such as Fruit of the Loom and Duracell, realtors, and a home builder, Clayton Homes. Thus, Buffett could see a slowdown coming.
Hence, Buffett could have access to economic indicators before others. Buffett could see inflation coming and is preparing for it.
Does Buffett see deflation coming?
Inflation occurs when prices rise faster than incomes, making it hard for businesses and consumers to cover costs.
Conversely, deflation occurs when prices fall so fast they reduce economic activity and buying power. Disturbingly, the most famous deflation in US history was the Great Depression.
Frighteningly, the world’s second largest economy, China, is falling into deflation. For example, China’s consumer price index fell by 0.3% in July, the National Bureau of Statistics reports.
China’s economy is shrinking. For example, Chinese imports shrank by 12.4% in July. That’s over twice the 5% decline economists expected, The Guardian notes. Similarly, Chinese exports fell by 14.5% in July 2023.
I think Buffett could fear deflation will spread to the US from China. Remember, if Chinese imports shrink by 12.4%, US companies could export 12.4% less to China.
Buffett could dump dollars in order to escape deflation. Uncle Warren thinks dollars will lose value, so he wants them out of Berkshire’s portfolio.
If Buffett is right, some Americans could feel serious economic pain. In particular, people on fixed incomes, low-wage workers, and people with big cash savings. Conversely, Buffett could make money by using his cash to buy stocks that will gain value regardless of inflation or deflation.
What is Buffett Buying?
Interestingly, Buffett is still bullish on the US economy. For example, Berkshire increased its stakes in Apple (AAPL), Bank of America (BAC), HPQ Inc. (HP), and Occidental Petroleum (OXY) in the first quarter of 2023.
In particular, Berkshire bought 20.42 million Apple shares, 22.75 million Bank of America, 16.48 million HP shares,and 12.42 million Occidental shares in the first quarter of 2023. Notably, Berkshire also bought 9.92 million Capital One (COF) shares, 93,790 Paramount Global (PARA), and 89,000 Citigroup (C) shares in the first quarter of 2023.*
Interestingly, Berkshire bought 227,750 shares of liquor distributor Diageo Plc (DEO) and 51,030 shares of Vitesse Energy Inc. (VTS). Vitesse owns financial interests in operating US oil and gas wells.
Buffett is Still Bullish on Stocks
Thus Buffett is still bullish on US stocks. In particular, Buffett thinks oil and gas, electronics, financial services and liquor could be recession or deflation proof.
To explain, Buffett thinks people will still drink, buy smartphones, fill their gas tanks, buy printer cartridges, use credit cards, and watch Paramount movies and TV in a recession. Notably, Paramount owns the largest and fast-growing free ad-supported television (FAST) Streamer Pluto TV. Pluto had 78.5 million monthly active users (MAU) in the fourth quarter of 2022.* Pluto’s MAUs grew from 68 million in the fourth quarter of 2021.
Hence, Buffett thinks the economy will grow if there is inflation or deflation. Buffett is protecting himself by dumping cash which could lose value and buying stock which could gain value in any economy. Moreover, Buffett knows stocks add value faster than dollars.
Moreover, I think Buffett is still bullish on China. To explain, Apple and HP manufacture most of their products in China. Buffett wouldn’t buy those stocks if he thought the People’s Republic was about to collapse.
So what can we learn from Uncle Warren here?
First lesson, cash is not always safe. There are many situations when cash is the riskiest investment. For example, in times of deflation or inflation.
Second lesson, the potential gains from stocks are always better than cash. Yes, cash offers buying power, but stocks offer growth potential.
Third lesson, be willing to use cash in any economy. In particular, use cash to buy excellent stocks when they are cheap. Even if you see economic turmoil coming.
Fourth lesson, Buffett thinks the demand for US oil could increase because he is buying Occidental and Vitesse. In particular, Buffett could think the Ukraine War and growing Chinese oil demand could increase the price of US crude.
Last lesson, Buffett’s value investing strategy is still sound and money making. Thus, observing Berkshire Hathaway (BRK.B) is still an excellent way to learn to make money in the stock market.
*https://www.cnn.com/2023/08/11/economy/ppi-producer-inflation-july/index.html
*https://www.berkshirehathaway.com/subs/sublinks.html
*https://www.statista.com/statistics/1127084/pluto-tv-monthly-active-users/
*https://hedgefollow.com/funds/Berkshire+Hathaway
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