Billionaire investor Warren Buffett sent a stark warning to his shareholders as the Fed’s inflation measure rose to 5.4 percent last month.
In his acclaimed yearbook letter Buffett, 92, warned Berkshire Hathaway shareholders that “massive and entrenched budget deficits have consequences.”
Buffett also seemed to predict that “financial panic or severe global recessions” were on the horizon when he vowed to protect his investors.
Recession fears, fueled by persistently high inflation rates, turned feverish on Friday following news that the Central Bank’s inflation measure is up 0.7 percent year-to-date, sending Wall Street into its worst week of 2023.
Warren Buffett (above) warned investors of inflation and tough economic times ahead
The price index for personal consumption expenditure rose 5.4 percent year-on-year in January, up from 5.3 percent in the previous month, a worrying sign for inflation
The PCE is an alternative measure to the more widely known consumer price index (above), which rose 6.4 percent year-on-year last month
Buffet, known as the “Oracle of Omaha” for his foresight in the world of investing, warned of tough economic times ahead.
“It is our job to manage Berkshire’s operations and finances in a manner that will produce an acceptable outcome over time and maintain the company’s unparalleled resiliency when financial panics or severe global recessions arise,” he wrote.
“Berkshire also offers modest protection against runaway inflation, but this property is far from perfect,” he added, suggesting that everyone would be affected by the recession predicted by other experts this year.
But despite the warning, Buffet, whose net worth is estimated to be around $106 billion, said he is confident the US economy will recover.
“I have been investing for 80 years – more than a third of our country’s lifespan,” he wrote. “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 highly doubt that any reader of this letter will have a different experience in the future.”
Buffett’s letter also criticized corporate greed, suggesting that money managers may try to hide the upcoming rough patch in the US economy and mislead investors.
“Finally, an important caveat: Even the operating profit figure we prefer can be easily manipulated by managers who want to,” he wrote. “Such manipulation is often seen as sophisticated by CEOs, directors and their advisors. Reporters and analysts are also embracing its existence.
“That activity is disgusting. No talent is needed to manipulate numbers: only a deep desire to deceive is required.’
Buffett eventually described this form of deception as “one of the shameful things of capitalism.”
The Dow Jones Industrial Average ended the day 337 points lower, losing 1 percent in the session and down 2.6 percent in the week ending Friday
The S&P 500 also fell 2.7 percent this week
The Nasdaq Composite lost 3.3 percent this week
Buffett’s letter comes as the personal consumption price index (PCE) rose 5.4 percent year-on-year in January, up from 5.3 percent in the previous month, the Commerce Department said Friday.
On a monthly basis, PCE prices rose 0.6 percent from December, the largest monthly increase since June, when prices rose at their fastest pace in 40 years.
The news sent shares plummeting, with the Dow Jones Industrial Average finishing 337 points lower on Friday, losing 1 percent in the session and down 2.6 percent for the week.
It was also the Dow’s fourth consecutive weekly decline, its longest losing streak in nearly 10 months. The S&P 500 and Nasdaq Composite also fell 2.7 percent and 3.3 percent, respectively.
The PCE is an alternative measure to the more widely known consumer price index, which rose 6.4 percent year-on-year last month — more than expected, but still down slightly from the previous month.
January marked the seven consecutive months of falling annual inflation from this summer’s peak of more than 9 percent, though progress may be stagnant
It is a worrying signal that the Fed’s aggressive rate hikes have little impact on inflation.
The core PCE is the measure of the central bank’s target rate of 2 percent and should be the figure that falls the fastest in response to higher rates.
The Fed has aggressively raised its benchmark interest rate over the past year in an effort to curb inflation by raising borrowing costs for businesses and households.
The goal is to cool the economy without sending it into recession, a delicate balance.