Uncharacteristically, Warren Buffett is betting against the US economy. To explain, Berkshire Hathaway (BRK.B) sold all of its stock in several iconic American companies.
Berkshire Hathaway (BRK.A) sold 100% of its General Motors (GM), United Parcel Service (UPS), Johnson & Johnson (JNJ), and Procter & Gamble (PG) shares in the third quarter of 2023, Investors.com reports. Hence, Berkshire is dumping US consumer economy stocks.
For example, Procter & Gamble manufactures iconic consumer products such as Tide laundry detergent. Meanwhile, UPS delivers consumer goods for Amazon (AMZN) and other retailers. Johnson & Johnson sells drugs. Meanwhile, General Motors manufactures vehicles for the middle class.
Buffett bets against American consumers
Tellingly, Berkshire also unloaded all of its Mondelez International (MDLZ) shares. Mondelez owns a large portfolio of consumer food brands. Those brands include Oreo, Ritz, Philadelphia Cream Cheese, Chips Ahoy!, Cadbury, Belvita, Honey Maid, Tang, Triscuit, and Wheat Thins.
I calculate Berkshire Hathaway (BRK.B) sold 23.279 million shares in five consumer-dependent stocks in the third quarter of 2023. Interestingly, Berkshire also sold all of its 5.359 million Celanse (C) shares. Celanese manufactures chemicals consumer products companies use. For example, vehicle paint, drugs, plastic, and food.
Predictably, many people will wonder if Buffett and his advisors think a recession is coming. The paranoid will theorize that Buffett believes a recession has begun. There is media speculation about a 1970s style economic downturn.
Economists fear a return to the 1970s because US stocks lost 51.86% of their value between December 1972 and September 1974, Time estimates. This market crash triggered a recession that lasted for almost a decade.
I suspect Buffett could fear another 1970s style lost decade. Hence, Uncle Warren is selling vulnerable stocks and hoarding cash.
Does Buffett still believe in America?
However, Berkshire Hathaway (BRK.B) still holds gigantic amounts of US consumer stocks.
On 30 September 2023, Berkshire’s largest holdings included:
- 915.56 million Apple (AAPL) shares.
- 1.03 billion Bank of America (BAC) shares.
- 400 million Coca Cola (KO) shares.
- 356.63 million Kraft Heinz Company (KHC) shares.
- 228.05 million Occidental Petroleum Corp (OXY) shares.
- 110.25 million Chevron Corp (CVX) shares.
- 97.85 million Hewlett Packard (HP) shares.
- 55.24 million Citigroup (C) shares.
- 50 million Kroger (KR) shares.
Hence, Buffett still believes in America’s consumer economy. For example, Apple comprised 50.04% of Berkshire’s portfolio on 30 September 2023, Hedge Fellow estimates.
All of those companies are consumer brands. Apple and HP sell electronics to the public, Chevron and Occidental sell fuel. CitiGroup and Bank of America are consumer banks. Kraft Heinz owns consumer food brands and Kroger is America’s largest standalone grocer.
How Buffett Views the US Economy’s future
Hence, Buffett still believes in the US economy and the American consumer. However, sales show Buffett no longer believes in some consumer brands.
For example, Buffett doubts GM’s ability to compete with Tesla (TSLA) and Toyota (TM). Buffett also doubts the future value of some consumer brands such as Procter & Gamble’s Crest toothpaste and Oreos. Plus, Uncle Warren could think Amazon (AMZN) is winning the shipping war with UPS.
Skeptics will note that both UPS and GM are union shops. Notably, UPS gave employees significant wage increases to avoid a strike in August. GM workers struck in September and won a big pay increase in September.
Berkshire is adding some consumer brands. It bought 14.658 million shares of the video game maker Activision Blizzard (ATVI) in the third quarter of 2023.
Hence, Buffett thinks the future of the US economy is digital. Moreover, Uncle Warren thinks some big US brands are losing their value. In particular, he could fear brands like Tide are losing their value.
Yet, Buffett still bets on America and Americans’ willingness to shell out cash for consumer brands. However, today’s consumers want different brands. For example, iPhones instead of Tide.
Berkshire Hathaway (BRK.B) has less cash
I think Buffett made a major bet on the US economy’s success in the third quarter 2023.
Berkshire Hathaway (BRK.B) cut its cash and short-term investments from $50.055 billion on 30 June 2023 to $30.840 billion on 30 September. Hence, Berkshire reduced its cash and short-term investments by $19.215 billion in the third quarter. Moreover, the cash and short-term investments fell from $32.626 billion on 30 September 2022.
Additionally, Berkshire’s total assets fell from $1.042 billion on 30 June 2023 to $1.020 billion on 30 September 2023. Yet, the total assets grew from $902.296 million on 30 September 2022.
Buffett Fears Inflation
However, I think Buffett fears inflation. To explain, Berkshire Hathaway’s total debts fell from $251.457 million on 30 June 2023 to $124.781 million on 30 September 2023.
I think Buffett is reducing the debt because he fears inflation and higher interest rates. Cutting the debts is a smart move giving rising interest rates. Notably, the Federal Reserve’s key borrowing benchmark, the Federal Funds Rate, was sitting at a 22-year high of 5.25% to 5.5% on 8 November 2023, Bankrate notes.
I suspect Buffett fears the federal funds rate could rise in upcoming months as the Fed and other central banks raise interest rates. In particular, Buffett fears higher costs for commercial paper. Consequently, Berkshire is reducing its debt to cut borrowing costs.
Moreover, I think Buffett fears a period of higher inflation because of the Ukraine and Israel-Hamas wars. Notably, high inflation in the 1970s followed the Vietnam, Third Indo-Pakistan, and Yom Kippur wars. In particular, Buffett fears inflation could destroy stock values and trigger a 1970s style crash.
How Much Money is Berkshire Hathaway (BRK.A) making?
Berkshire Hathaway (BRK.B) is experiencing dramatic growth. For instance, Berkshire’s quarterly revenues grew from $76.904 billion on 30 September 2022 to $93.210 billion on 30 September 2023.
Stockrow estimates Berkshire Hathaway’s revenues grew by 21.20% in the quarter ending on 30 September 2023. The revenue growth rate rose from 8.96% in the quarter ending on 30 September 2023.
Meanwhile, the quarterly gross profit rose from $56.858 billion on 30 September 2022 to $74.851 billion on 30 September 2023. Yet Berkshire’s quarterly operating income fell from $47.362 billion on 30 June 2023 to -$14.872 billion on 30 September 2023. The quarterly operating loss grew from -$2.261 billion on 30 September 2023.
I guess Berkshire’s loss grew because it was paying off debt and making enormous stock purchases. Thus, Berkshire Hathaway is a growth stock.
How Much Cash is Berkshire Hathaway (BRK.B) generating?
Berkshire Hathaway (BRK.A) is generating more cash. For example, the quarterly operating cash flow rose from $11.682 billion on 30 September 2022 to $13.669 billion on 30 September 2023.
However, the quarterly ending cash flow fell from $2.132 billion on 30 September 2022 to -$19.049 billion on 30 September 2023. Yet Berkshire can generate enormous amounts of cash. It reported quarterly ending cash flows of $27.298 billion on 31 March 2023 and $23.355 billion on 30 June 2023.
Berkshire has less cash because it is making enormous investments. For example, Berkshire reported a -$28.048 billion quarterly operating cash flow on 30 September 2023. That reflects investments in stock and other assets. However, Berkshire investing can pay off. It reported a $10.655 billion quarterly investing cash flow on 30 June 2023.
Berkshire Hathaway is still an excellent barometer for America’s economy. Investors who want growth, cash, and value need to examine Berkshire Hathaway.