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The Oracle thinks cash is divine.
Berkshire Hathaway’s third-quarter earnings report revealed Saturday how Warren Buffett’s massive conglomerate weathered a three-month period as Wall Street and corporate America came to grips with the reality of “longer interest rates.” The short answer: not great.
Warren’s war chest
Berkshire posted a significant investment loss of $23.5 billion in the quarter, driven by its stake in Apple, which fell about 12% in the quarter, and declines in stakes in American Express, Coca-Cola and Bank of America . Meanwhile, Berkshire remained a net seller of stocks for the fourth consecutive quarter, including a sale of more than 12 million Chevron shares just before the $53 billion Hess acquisition — which, given Chevron’s subsequent stock market meltdown, turned out to be a wise bet to be. . Between the stock sales and investment losses, the value of Berkshire’s portfolio fell to $319 billion from $353 billion at the end of the second quarter.
But the same rising interest rates that roiled Berkshire’s business investments turned out to be a major boon to its insurance business. Berkshire scored $1.7 billion on the interest income it earned on its insurance investments, adding to its total of more than $5 billion in the past year – more than the total interest it earned on the past three years has earned its cash reserves together. Operating income – profit from proprietary companies such as Geico and BNSF Railway – rose to nearly $11 billion, compared to just under $8 billion a year ago.
This allowed Warren and his friends to sit on the largest cash chest in the company’s history:
- The $157 billion built in cash reserves represents a healthy improvement from the $147 billion three months earlier. It also surpasses the record of $149 billion that the company set in the third quarter of 2021.
- That money could soon be put to good use. In an interview last week with The Wall Street JournalBuffet’s longtime partner/buddy Charlie Munger said there’s “at least a 50/50 chance” the pair will complete another major acquisition in the near future.
Sweet relief: For the mere mortals of Wall Street outside Omaha, it was a dizzyingly good week. After central bankers in both the US and the ECB halted their relentless rate hike campaign and Labor Department data showed a slowdown in hiring, investors boosted both stocks and government bonds, driving a nearly 6% rise in the S&P 500 yielded. That’s the best week since November 2022. Despite warning words from Fed Chairman Jay Powell, Wall Street seems confident that “higher for longer” means interest rates will at least stay exactly at the same level. this high, but not higher.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.