Investment mogul Warren Buffett has issued a warning about “runaway inflation” from the consequences of fiscal deficits over the last decade.
In his annual letter (pdf) to Berkshire Hathaway shareholders, Buffett touted his confidence in the U.S. economy.
However, he also warned that “deficits have consequences.”
Buffett, 92, encouraged investors to concentrate on the long-term rather than short-term volatile conditions.
He argues that betting against the United States has never worked out in his nearly six decades running the Omaha, Nebraska-based multi-national conglomerate holding company.
After 80 years of investing, Buffett noted, he still has yet to lose any of his confidence in the world’s largest economy.
“We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned,” he wrote.
“I have been investing for 80 years—more than one-third of our country’s lifetime.
“Despite our citizens’ penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America.
“And I doubt very much that any reader of this letter will have a different experience in the future.”
Echoing the sentiment of Charlie Munger, the vice chairman of Berkshire Hathaway, Buffett purported that the “patient investor” will consistently outperform the “foolish gamblers.”
He took a moment to opine on “disgusting” behavior by money managers, calling out their specific activity “disgusting.”
“Finally, an important warning: Even the operating earnings figure that we favor can easily be manipulated by managers who wish to do so,” he said.
“Such tampering is often thought of as sophisticated by CEOs, directors, and their advisors. Reporters and analysts embrace its existence as well.
“That activity is disgusting,” he added.
“It requires no talent to manipulate numbers: Only a deep desire to deceive is required.”
His famed annual letter was also accompanied by the company’s “good” year-end results, which showcased a record $30.8 billion operating profit and a $22.8 billion annual loss.
At the end of 2022, Berkshire’s cash stockpile totaled close to $130 billion.
Warren Buffett lamented the federal government in his letter, defending corporate buybacks and warning of the consequences of federal deficits.
During his State of the Union address, President Joe Biden proposed quadrupling the tax on corporate stock buybacks to 4 percent.
The tax was initially introduced in the Inflation Reduction Act.
Many Democrats have championed this policy, too, arguing that the revenue-raising levy would diminish tax avoidance for corporations and affluent shareholders.
Critics assert corporations should spend this money to enhance employee benefits and bolster capital expenditures. But supporters explain that buybacks improve earnings per share (EPS) growth.
Buffett contended that buybacks help shareholders as they increase the per-share intrinsic value.
“The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up,” Buffett said.
“Every small bit helps if repurchases are made at value-accretive prices.
“Gains from value-accretive repurchases, it should be emphasized, benefit all owners—in every respect.”
Ultimately, if the public is hearing that buybacks are harmful to investors and shareholders and beneficial to CEOs, then they are “listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” he wrote.
On the subject of taxes and deficits, Buffett has been an advocate for raising taxes on the ultra-wealthy.
According to the so-called Oracle of Omaha, officials at Berkshire “hope and expect to pay much more in taxes during the next decade.”
“We owe the country no less,” he stated.
Despite his enthusiasm for paying more taxes, Buffett alluded to the lack of fiscal management in Washington, noting that the U.S. government received $32.3 trillion in taxes during the decade ending in 2021 while it spent $43.9 trillion.
“Huge and entrenched fiscal deficits have consequences,” he wrote.
He added that Berkshire provides “modest protection from runaway inflation.”
Buffett also noted that if 1,000 taxpayers matched Berkshire’s $32 billion tax payments during the decade, “no other business nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime.”
Buffett and Munger will attend the company’s annual shareholder weekend in early May.
Year-to-date, Berkshire Hathaway Inc Class B shares are down about 2 percent to around $304.