In response to a question at Berkshire’s annual meeting, Warren Buffet said:
” Berkshire will never get it in a position where it needs money. And we factor in, like I said, we factor in some things that are not ridiculously unlikely. And I’m not going to spell out scenarios because I, to some extent, you start spelling out scenarios, you may increase the chance of them happening. So it’s not something that we really want to talk about a lot, but our position will be to stay a Fort Knox…
” We don’t need … 130 or 35 billion, but we need a lot of money that’s always available. And that means we own nothing but treasury bills. I mean, we’ve never owned, we never buy commercial paper. We don’t count on bank lines and a few of our subsidiaries have them, but we basically want to be in a position to get through anything. And we hope that doesn’t happen but you can’t rule out the possibility any more than in 1929 you could rule out the possibility that you know you would be waiting until 1955, or the end of 1954, to get even. Anything can happen and we want to be prepared for anything…”
It was clear, not only from his words, but especially from his actions, that he thought things may get significantly worse in the markets before they get better, and he’s choosing to preserve Berkshire’s cash on hand in case that happens. This is perhaps the most cautious he has acted since shuttering his investment partnerships in 1969.
Buffett’s usual optimism about the economy’s inevitable bounce-back from recessions and other short-term setbacks was largely replaced by discussions of past recoveries that are measured in decades, not years. He also made it clear that there will be consequences down the road from the Federal Reserve’s monetary response, though hopefully those consequences will be better than the consequences of doing nothing.
What Buffett perhaps senses is that the longer-term consequences of issues such as record corporate indebtedness have only begun to be felt, and that the upward spiraling double-helix of the federal government’s debt and the Federal Reserve’s balance sheet will eventually have consequences which come to bear heavily on market valuations, just as they have in prior long-term bear markets.
Quoted from Brian McAuley
Chief Investment Officer
Sitka Pacific Capital Management, LLC