Buffet brokerage is US$ 2 billion from its highest value – 05/08/2023 – Market

Berkshire Hathaway’s cash and holdings in short-term Treasuries rose to $147 billion at the end of the second quarter, underscoring Warren Buffett’s faith in the epicenter of global financial markets despite the unstable political climate in Washington.

The sprawling conglomerate – which owns the BNSF railroad and Geico insurance company – increased its holdings by nearly US$17 billion in the second quarter, coming just short of the all-time high of US$149 billion set in 2021. More than US$120 billion of that sum is invested in short-term US Treasury bonds.

The disclosure comes days after ratings agency Fitch stripped the United States of its prized AAA rating. Analysts cited Washington’s repeated stalemate over the debt ceiling, which has pushed Treasury cash balances to dangerously low levels.

Buffett, who has led Berkshire for more than half a century, told CNBC last week that Fitch’s decision would not change the company’s investment strategy and that he is not concerned about the dollar or Treasury markets.

“Berkshire bought $10 billion of US Treasuries last Monday,” he said. “We bought $10 billion in Treasuries on Monday. The only question for next Monday is whether we buy $10 billion in three- or six-month bonds.”

Berkshire has long held cash in short-term Treasuries to give the company the flexibility to pay off catastrophic insurance losses and have reserves ready to spend on multibillion-dollar acquisitions.

“There are some things people shouldn’t worry about,” Buffett, 92, said. “This is a.”

Jim Shanahan, an analyst at Edward Jones, said he predicted Buffett would continue to invest money in Treasuries, given the relatively high returns offered.

“It’s preparing for continued caution in the second half, while some of this evidence of economic slowdown persists and [o] impact of higher rates,” he said. “As long as public company stock prices and Berkshire’s own stock price remain elevated, there will not be much investment activity.”

Berkshire spent $1.4 billion on share buybacks, far less than in the first quarter of the year, when it bought back $4.4 billion of its shares. It continued to lose shares: sales of $12.6 billion exceeded purchases of $4.6 billion.

Investors should wait another two weeks for Berkshire to report individual changes in its holdings, although Saturday’s filing indicates it sold about 9 million shares of Chevron.

Berkshire had a profit of US$ 35.9 billion between April and June, compared to a loss of US$ 43.6 billion in the same period of the previous year.

The numbers are skewed by movements in the value of its massive $353 billion stock portfolio, which includes stakes in Apple, American Express and Bank of America. Berkshire is required by US accounting rules to include these changes in its earnings even if it has not sold the shares.

Excluding those gains, a small number of Berkshire companies reported operating income of $10 billion, up from $9.4 billion a year earlier. Results were driven by the company’s core insurance business, whose underwriting earnings rose 74% to $1.2 billion, as well as its large holdings of cash and Treasuries.

The company, which uses the premiums it earns on insurance policies to finance its investments, has benefited from the Federal Reserve’s move to raise interest rates. Berkshire reported it earned $1.4 billion in interest income in the quarter and just over $2.5 billion in the first half of the year.

“Our investment income will be much higher this year than last year, and that’s built in,” Buffett said at the company’s annual meeting in May. He estimated that the Treasury bond portfolio could earn the company $5 billion annually as interest rates are now above 5%.

Berkshire’s insurance results stood out in an industry that has struggled with higher costs to repair or replace automobiles and a series of catastrophic storms that caused billions of dollars in property damage.

Geico reported a second consecutive quarter of underwriting profits after more than a year of losses. The unit cut advertising spending, raised insurance premiums and said it had significantly reduced the number of customers it was insuring.

Investors have long viewed the company’s results as a reflection of the broader US economy, given the breadth of its holdings. Saturday’s numbers showed signs of slowing US growth and the impact of higher interest rates on consumers and businesses.

The BNSF railroad, with more than 51,000 km of tracks, running from Oakland, California, to Chicago, Illinois, showed a 12% drop in revenues. Profits fell by nearly a quarter to $1.3 billion and the company reported lower demand for freight.

Truck-stop operator Pilot, which Berkshire took a controlling interest in this year, sold less fuel than a year earlier – when many companies still struggled with supply chain issues – and at lower prices, hitting revenues in 32 years. %.

Its real estate brokerage and construction materials companies reported that sales were down, reflecting activity in the real estate sector. The company blamed “significant increases in home mortgage interest rates” for the drop in demand.

There was a bright spot in a unit that has plagued Berkshire: aerospace parts maker Precision Castparts. Its sales rebounded 29% year-on-year to $2.3 billion as global air travel picks up and airline demand for new aircraft soars.

Berkshire was forced to write down $9.8 billion in Precision Castparts during the height of the pandemic; she had acquired the company in 2016 for about $37 billion.

The company detailed the expected losses from forest fires in the United States. Its electric utility PacifiCorp faced litigation over wildfires in 2020 that destroyed thousands of homes and burned more than 200,000 hectares of land in Oregon.

Berkshire warned that the unit faces “probable losses” of $1 billion, noting it could “incur significant additional losses” beyond that amount. Victims of the Oregon fire have filed more than $7 billion in damages, and the company is also defending claims from California residents.

_{Translated by Luiz Roberto M. Gonçalves}