**Buffett Turns Gloomy: The "Incredible Period" For The US Economy Is Coming To An End**
Buffett Turns Gloomy: The "Incredible Period" For The US Economy Is Coming To An End
While Warren Buffett's insights on the economy are traditionally cheerful and uplifting - usually hitting at time of peak pessimism in the form of self-serving NYT op-eds (https://www.nytimes.com/2008/10/17/opinion/17buffett.html)or CNBC vignettes (and usually around the time the Omaha billionaire knows that the government will backstop his TBTF investments, unlike those of pretty much anyone else), on Saturday the head of Berkshire Hathaway had a far more downbeat and gloomy prediction for his own businesses - and the broader economy in general - the good times may be over.
Speaking at Berkshire's annual general meeting in Omaha, Nebraska, the billionaire investor said he expects **earnings at the majority of the conglomerate's operations to fall this year** as the coming economic downturn slows corporate activity further. He made his pessimistic comments even as Berkshire posted an almost 13% gain in operating earnings to $8.07 billion for the first quarter, up from $7.04 billion a year ago.
“The majority of our businesses will report lower earnings this year than last year,” Buffett, 92, said, before crowds of thousands at the event on Saturday according to Bloomberg (https://finance.yahoo.com/news/berkshire-hathaway-boosts-pace-share-121737958.html). During the last six months or so, the “incredible period” for the US economy has been coming to an end, he said.
As Bloomberg notes Berkshire is often viewed as a proxy for economic health owing to the expansive nature of its businesses ranging from railroad to electric utilities and retail. Buffett himself has said Berkshire owes its success to the incredible growth of the US economy over the decades, **but his prediction for a slowdown at his firms comes as upheaval at regional banks threatens to curtail lending as inflation and higher rates continue to bite.**
Buffett’s long-time business partner Charlie Munger, 99, who joined him on stage, said the more-difficult economic environment will also make it harder for value investors, who typically buy stocks that look cheap compared to the intrinsic value of the businesses.
“Get used to making less,” Munger said.
Despite the broader pessimism, Buffett said he expects earnings at its insurance underwriting operations — which are less correlated to business activity — to improve this year. Berkshire already reported higher earnings at those businesses including auto-insurer Geico, which swung to profitability following six quarters of losses.
Geico posted $703 million in earnings as higher average premiums and lower advertising spending contributed to the gain even as claim frequencies fell, Berkshire said in a statement reporting its earnings Saturday. That revival follows a difficult period for the underwriting business as inflation took its toll on the cost of materials and labor.
Geico has been facing particular pressure from rivals including Progressive, which Buffett has called “well-run,” and Allstate which had long used telematics programs to track drivers and encourage better behavior before Geico introduced the offering. Geico’s profit also helped Berkshire’s insurance underwriting businesses deliver $911 million in profit compared with $167 million a year earlier.
Berkshire previously said it expected Geico to return to operating profitability in 2023, after securing premium rate increases. Still, Geico remains an issue for Berkshire, with top line growth in the quarter of less than 1% that “significantly lags peers,” CFRA analyst Cathy Seifert said.
> “ _I suspect rate hikes being put through to offset claim cost inflation is being met with policy cancellations,” she said. “While the loss of unprofitable policies is not always a bad thing- that’s not usually the policies — and policyholders — that leave.”_
Other parts of the conglomerate took a bigger hit, **with after-tax earnings from Berkshire Hathaway Energy falling 46.3% from the same time last year amid “lower earnings from the US regulated utilities, other energy businesses and real estate brokerage businesses.**” Railroad results were also weaker than expected due to a fall in freight volumes and higher operating expenses, according to Edward Jones analyst Jim Shanahan.
But at one of Berkshire’s best known businesses, Brooks Running Co., Chief Executive Officer Jim Weber was skeptical of a steep consumer downturn.
> _“With unemployment being so low, it’s hard to be believing we’re going to fall off a cliff into a recession at the consumer level,” Weber said in an interview on Friday ahead of the meeting. “I wonder if this is going to be an asset-value recession.”_
Among other topics discussed on Saturday were Buffett's succession, the banking crisis, the US debt ceiling crisis, the company's …
https://www.zerohedge.com/markets/buffett-turns-gloomy-incredible-period-us-economy-coming-end