Warren Buffett, legendary investor and CEO of Berkshire Hathaway (BRK-A), needs everybody to know that he stays a long-term bull on U.S. shares.
“Regardless of what some commentators presently view as a rare money place at Berkshire, the nice majority of your cash stays in equities,” Buffett mentioned this in his new annual letter to Berkshire Hathaway shareholders. “That desire received’t change.”
Buffett seems to be responding to the various information headlines emphasizing Berkshire’s rising money place. Listed here are a number of from the previous few weeks:
Berkshire’s money pile grew to $334 billion in 2024, up from $167.6 billion the 12 months prior.
Buffett acknowledges that the worth of marketable equities — corporations that proceed to commerce publicly within the inventory market — held by Berkshire declined final 12 months.
However he additionally takes a extra holistic view of Berkshire’s portfolio, which incorporates 189 corporations that Berkshire owns. These are corporations that don’t commerce on the inventory market like GEICO, Precision Castparts, BNSF, Pilot Journey Facilities, Clayton Houses, and Fruit of the Loom.
“Whereas our possession in marketable equities moved downward final 12 months from $354 billion to $272 billion, the worth of our non-quoted managed equities elevated considerably and stays far higher than the worth of the marketable portfolio,” he wrote.
Commentators can learn into Berkshire’s quarterly and annual tweaks nonetheless they like.
However Buffett’s long-term optimism for American enterprise hasn’t modified, which is why he’d quite be invested in shares over bonds or money.
“Berkshire shareholders can relaxation assured that we are going to endlessly deploy a considerable majority of their cash in equities – largely American equities though many of those may have worldwide operations of significance,” Buffett wrote. “Berkshire won’t ever want possession of cash-equivalent belongings over the possession of fine companies, whether or not managed or solely partially owned.”
“Paper cash can see its worth evaporate if fiscal folly prevails,” he added. “In some international locations, this reckless apply has grow to be routine, and, in our nation’s quick historical past, the U.S. has come near the sting. Fastened-coupon bonds present no safety towards runaway foreign money.“
Companies aren’t completely resistant to rising challenges. However historical past has proven repeatedly that they’re fast to adapt and evolve of their relentless pursuit of development. (We mentioned this inlast week’s TKer.)
“Companies, in addition to people with desired abilities, nonetheless, will often discover a approach to deal with financial instability so long as their items or companies are desired by the nation’s citizenry,” Buffett mentioned. “I’ve trusted the success of American companies and I’ll proceed to take action.”
None of that is to recommend shares will solely go up from right here.
In truth, one in all his most bullish essays, a New York Instances op-ed titled “Buy American. I Am,” got here simply earlier than the S&P 500 fell one other 26% earlier than the market bottomed in March 2009.
However the thesis of his piece finally held, and people who purchased U.S. equities on the time did terribly properly within the years to comply with.
The American model of capitalism Buffett promotes isn’t nearly how corporations are in a position to provide you with nice items and companies. Slightly, it’s about how they’re unmatched at overcoming what typically look like insurmountable challenges.
FILE- On this Wednesday, Might 23, 2012, file picture, a brand new residence nonetheless beneath development is seen on the market in Springfield, Unwell. Individuals signed extra contracts to purchase beforehand occupied properties in Might, matching the quickest tempo in two years. The rise suggests residence gross sales will rise this summer season and the modest housing restoration will proceed. (AP Photograph/Seth Perlman, File) ·ASSOCIATED PRESS
There have been a number of notable information factors and macroeconomic developments since our last review:
House gross sales fall. Sales of previously owned homes fell by 4.9% in January to an annualized charge of 4.08 million items. From NAR chief economist Lawrence Yun: “Mortgage charges have refused to budge for a number of months regardless of a number of rounds of short-term rate of interest cuts by the Federal Reserve. When mixed with elevated residence costs, housing affordability stays a significant problem.”
House costs fall. Costs for beforehand owned properties declined from final month’s ranges however have been above 12 months in the past ranges. From the NAR: “The median existing-home gross sales worth for all housing varieties in January was $396,900, up 4.8% from one 12 months in the past ($378,600).”
Homebuilder sentiment tumbles. From the NAHB’s Carl Harris: “Whereas builders maintain out hope for pro-development insurance policies, significantly for regulatory reform, coverage uncertainty and price components created a reset for 2025 expectations in the newest HMI. Uncertainty on the tariff entrance helped push builders’ expectations for future gross sales quantity right down to the bottom degree since December 2023. Incentive use can also be weakening as a gross sales technique as elevated rates of interest scale back the pool of eligible residence patrons.”
New residence development begins fall. Housing begins fell 9.8% in January to an annualized charge of 1.37 million items, in line with the Census Bureau. Constructing permits ticked up 0.1% to an annualized charge of 1.48 million items.
Mortgage charges tick decrease. In line with Freddie Mac, the common 30-year fixed-rate mortgage declined to six.85% from 6.87% final week. From Freddie Mac: “Mortgage charges decreased barely this week. The 30-year fixed-rate mortgage has stayed just below 7% for 5 consecutive weeks and in that point has fluctuated lower than 20 foundation factors. This stability continues to bode properly for potential patrons and sellers because the spring homebuying season approaches.”
Unemployment claims rise. Initial claims for unemployment benefits elevated to 219,000 throughout the week ending February 15, up from 213,000 the week prior. This metric continues to be at ranges traditionally related to financial development.
Card spending information is holding up. From JPMorgan: “As of 14 Feb 2025, our Chase Shopper Card spending information (unadjusted) was 3.3% above the identical day final 12 months. Primarily based on the Chase Shopper Card information by means of 14 Feb 2025, our estimate of the US Census February management measure of retail gross sales m/m is 0.33%.”
From BofA: “Whole card spending per HH was up 0.5% y/y within the week ending Feb 15, in line with BAC aggregated credit score & debit card information. Y/y complete spending within the Midwest appears to have been impacted by snowstorms within the week ending Feb 15. Additionally, there was a unfavorable influence from the Superbowl timing change (2/9/25 vs. 2/11/24), weighing on y/y complete spending.“
Fuel costs idle. From AAA: “Most drivers noticed few adjustments on the pump this previous week, because the nationwide common for a gallon of fuel remained regular at $3.16… In line with new information from the Vitality Info Administration (EIA), gasoline demand decreased from 8.57 million b/d final week to eight.23. Whole home gasoline provide dropped from 248.1 million barrels to 247.9. Gasoline manufacturing additionally decreased final week, averaging 9.2 million barrels per day.”
Shopper vibes tumble. From the College of Michigan’s January Surveys of Consumers: “Shopper sentiment prolonged its early month decline, sliding practically 10% from January. The lower was unanimous throughout teams by age, earnings, and wealth. All 5 index parts deteriorated this month, led by a 19% plunge in shopping for situations for durables, largely because of fears that tariff-induced worth will increase are imminent. Expectations for private funds and the short-run financial outlook each declined virtually 10% in February, whereas the long-run financial outlook fell again about 6% to its lowest studying since November 2023. Whereas sentiment fell for each Democrats and Independents, it was unchanged for Republicans, reflecting continued disagreements on the results of latest financial insurance policies.”
CEOs are extra optimistic. The Convention Board’s CEO Confidence index signaled enhancing optimism in Q1 2025. From The Convention Board’s Stephanie Guichard: “The advance in CEO Confidence within the first quarter of 2025 was vital and broad-based. All parts of the Measure improved, as CEOs have been considerably extra optimistic about present financial situations in addition to about future financial situations — each total and in their very own industries. CEOs’ assessments of present situations in their very own industries additionally improved. (This measure will not be included in calculating the topline Confidence measure). Per an improved anticipated outlook, there was a notable enhance within the share of CEOs anticipating to extend funding plans and a decline within the share anticipating to downsize funding plans. Nonetheless, a majority of CEOs indicated no revisions to their capital spending plans over the following 12 months.“
That is the stuff professionals are fearful about. In line with BofA’s February World Fund Supervisor Survey: “39% of February FMS buyers say a recessionary commerce conflict is the largest ‘tail danger’, overtaking inflation inflicting Fed to hike (31%), and adopted by AI bubble (13%).”
Places of work stay comparatively empty. From Kastle Systems: “Peak day workplace occupancy was 61.2% on Tuesday final week, down 2.1 factors from the earlier week. Winter climate affected employees in Washington, D.C., Chicago, and Philadelphia, as Wednesday occupancy fell 36.1 factors, 22.3 factors, and 13.9 factors, respectively. San Jose reached 64.5% occupancy on Tuesday, hitting a brand new document single-day post-pandemic excessive. The common low was on Friday at 36.4%, up six tenths of a degree from final week.”
Surveys level to cooling exercise. From S&P World’s February Flash U.S. PMI: “The upbeat temper seen amongst US companies firstly of the 12 months has evaporated, changed with a darkening image of heightened uncertainty, stalling enterprise exercise and rising costs. Optimism in regards to the 12 months forward has slumped from the near-three-year highs seen on the flip of the 12 months to one of many gloomiest because the pandemic. Firms report widespread considerations in regards to the influence of federal authorities insurance policies, starting from spending cuts to tariffs and geopolitical developments. Gross sales are reportedly being hit by the uncertainty attributable to the altering political panorama, and costs are rising amid tariff-related worth hikes from suppliers.”
Remember the fact that throughout occasions of perceived stress, gentle survey information tends to be extra exaggerated than precise onerous information.
Close to-term GDP development estimates stay optimistic. The Atlanta Fed’s GDPNow model sees actual GDP development climbing at a 2.3% charge in Q1.
We’re in an odd interval on condition that the onerous financial information has decoupled from the soft sentiment-oriented data. Shopper and enterprise sentiment has been comparatively poor, at the same time as tangible client and enterprise exercise proceed to develop and development at document ranges. From an investor’s perspective, what matters is that the onerous financial information continues to carry up.
For now, there’s no motive to consider there’ll be a problem that the financial system and the markets received’t have the ability to overcome over time. The long game remains undefeated, and it’s a streak long-term buyers can count on to proceed.
