$350 BILLION ISN’T CHUMP CHANGE
All kidding aside, the amount is startling, if not staggering. Berkshire Hathaway now holds $350 billion in cash and Treasury bills. The amount represents 30% of total assets.
What is the thinking that led to this accumulation of cash, and what does it mean for investors?
Warren Buffett has said that America, when viewed analytically as a stock, is “a revenue stream, a capital-producing stream, a brains-producing machine like the world has never seen.”
If that is so, why should Berkshire be focusing on liquidity now as contrasted with the long-term buy and hold strategy that is Buffett’s (and Berkshire’s) hallmark?
Apparently, it is because of fiscal management.
DRUNKEN SAILORS RUN AMOK
For most of my life, I have heard the analogy of profligate spending by an individual characterized as “spends money like a drunken sailor”. To whatever extent that analogy is undeserved, inaccurate, or insensitive, I apologize for my reference to it. However, I want to emphasize the descriptive aspects of that reference when speaking about the spending habits of Congress and the United States government.
This is not a political issue. However much politicians argue about issues, they are always in agreement about the solution to any problem or crisis; nay, even the ongoing day-to-day administration of “company business”. A perpetual cycle of “borrow and spend” exists; there is no debt management.
When interest on the national debt is due, additional money is borrowed to pay the interest, and the debt grows larger and larger. Seemingly, there is no limit to the amount of money that can be created by the issuance of debt.
DEBT HAS ITS LIMITS
Since the inception of the Federal Reserve in 1913, America’s fiscal strategy of borrow and spend has been practiced nonstop. The continual expansion of the supply of money and credit has destroyed the purchasing power of the U.S. dollar.
The Fed’s responsibility for price stability seems a laughable presumption. A little bit of inflation can go a long way when applied conscientiously.
Even so, it is not the long term that concerns Warren Buffett. Before stepping down (end of 2025) as CEO of Berkshire Hathaway, Buffett recalled a statement made by Herbert Stein: “Things that can’t go on forever, don’t”, or words to that effect.
Buffett referred to Berkshire’s large cash position as being defensive in nature. More practically speaking, I would call it shelter from the storm.
MESSAGE FOR INVESTORS
Thirty percent of investable assets in cash is not harshly negative. For most investors, however, it may be an uncomfortable stretch to have that much “lying around, doing nothing”. Although when the winds blow, and the rains come, it probably won’t be enough. (also see Eggs Aren’t Dairy; Crypto Isn’t Money)