Warren Buffett declares the US economy to be red hot, but cautions against inflation

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, talks on a laptop computer during Saturday's virtual Berkshire Hathaway annual shareholders meeting.

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, talks on a laptop computer during Saturday's virtual Berkshire Hathaway annual shareholders meeting.

Warren Buffett declared the US economy to be “red hot”  but cautioned that inflation is a growing danger as businesses and employment rebound.

“Right now, business is booming in a wide variety of sectors of the economy… It’s almost a purchasing spree,” Berkshire Hathaway CEO Warren Buffett told shareholders this weekend at the company’s annual meeting. “This has been a truly extraordinary recession.”

The business posted a $12 billion quarterly profit at the virtual event over the weekend — a huge figure that fell short of many investors’ expectations after the previous year’s eye-popping stock rally. Berkshire also posted net income of about $7 billion, up 20% from the first quarter of 2020.

The Oracle of Omaha and his astute right-hand man Charlie Munger — who in a wide-ranging debate blasted Robinhood and the Reddit rally and pushed back against growing demands for diversity and climate-related risk disclosures — defended the company’s recent strategy. Berkshire’s value-oriented strategy has recently underperformed in an environment of government bailouts and ultra-low interest rates, which have boosted growth stocks such as Tesla.

This included Berkshire Hathaway’s decision to sell approximately 10% of its stake in major airlines. Delta, Southwest, American, and United’s stock prices have soared in recent months, despite the fact that they were hard hit a year ago by pandemic-related travel restrictions.

Warren Buffett (left), chairman and chief executive officer of Berkshire Hathaway, and Charlie Munger, vice chairman of Berkshire Hathaway, talk on a laptop computer during Saturday’s virtual annual shareholders meeting.

Buffett noted, however, that given Berkshire’s strong financial position — the firm had $120 billion in cash and liquid assets at the time — the company may have faced demands from the US to bail out the airlines. Following Berkshire’s exit from the job, the feds agreed to intervene and assist the airlines in navigating ongoing lockdowns.

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

Buffett admitted that his decision to sell 9.81 million shares of Apple at the end of 2020 was “possibly a mistake.” Buffet stated that Apple’s goods are “indispensable” to the public and that Apple stock remains inexpensive. Even after the deal, Berkshire retains a $111 billion stake in Apple stock, making it the company’s largest holding.

Buffett’s fellow billionaire, iconoclast Elon Musk, was also discussed, as was Buffett’s willingness to underwrite an insurance policy for Musk’s SpaceX company, which is attempting to send humans to Mars.

Berkshire Hathaway’s insurance and reinsurance companies are critical investments, but their insurance plans have so far been limited to planet Earth. Buffett did not rule out collaborating with Musk on a space expedition, but added that it would depend on the premium and whether Musk was a passenger on the space adventure.

“When someone asks to insure something,” Buffett said, “that is referred to as putting skin in the game.”

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