Warren Buffett keeps building Berkshire Hathaway's cash pile because bargains are scarce and he seems worried about the world, Steve Hanke said.
REUTERS/Rick Wilking
Warren Buffett is building a cash pile as he probably can't find anything worth buying, and may be bracing for a tempest to hit, says Steve Hanke.
"Buffett has already picked over the US-listed companies and there isn't much left to whet his appetite," the professor of applied economics at Johns Hopkins University told Business Insider.
Buffett pared Berkshire Hathaway's Apple stake last quarter, fueling a $21 billion rise in his company's pile of cash and Treasury bills to a record $189 billion. He predicted the money mountain would surpass $200 billion by June — roughly double its level two years ago.
The famed investor and Berkshire CEO isn't only in the market for cheap, high-quality stocks — he also wants to make an "elephant-sized acquisition" but years of hunting haven't paid off.
Buffett underscored the dearth of compelling purchases during his company's annual meeting this month: "We haven't seen anything that makes sense, that moves the needle."
Hanke, a former economic advisor to Ronald Reagan, served as the president of Toronto Trust Argentina when it was the world's best-performing market mutual fund in 1995.
He noted that if Buffett wants to buy 5% of a public company's stock, and to deploy at least $10 billion, he's limited to the handful of businesses worth more than $200 billion in which he's not already an investor.
Hanke also underscored that Buffett seeks to bet on companies that are attractively valued and virtually certain to increase their earnings over the next five years.
"My guess is that there are no companies out there that would meet Buffett's size and smell tests," he said.
Hanke added that Buffett is unlikely to invest in the S&P 500 either, as the benchmark stock index is incredibly expensive by historical standards: its Shiller PE ratio is in the top 95% of its monthly readings since 1881.
"That looks like a risky bet, particularly since Buffett seems to see economic and geopolitical storm clouds on the horizon," he said.
"So, cash is king, and given what Buffett is being paid to hold it, the king is not going hungry."
Buffett underlined the appeal of cash when stocks are pricey, global growth is depressed, and conflicts are raging overseas during this month's shareholder meeting.
"When I look at the alternative of what's available, in the equity markets, and I look at the composition of what's going on in the world, we find it quite attractive," he said.
Berkshire's liquid assets are certainly yielding larger returns than in the past, thanks to the Federal Reserve's inflation-busting hikes to interest rates since 2022.
Buffett's company earned $15.6 billion in interest, dividends, and other investment income last year, more than double the $7.5 billion it made in 2021.
Hanke is one of several commentators pointing to Buffett's ballooning cash hoard as a striking and potentially troubling trend for investors.
However, it's worth noting the US stock market and economy have defied crash calls and recession warnings for a few years now.
