Berkshire Hathaway faces investment losses. Is Buffett playing with recession?

Autor: Financial Market
Timp de citit: 2 minute

Warren Buffett’s well-known ‘investment vehicle’, the Berkshire Hathaway fund has had a ‘rough’ quarter, with the fund’s share valuation down more than 20% from its early April peaks. Meanwhile, Warren Buffet is reassuring investors.

Berkshire Hathaway’s operating result was nearly $9.3 billion in profit, up about 40% from Q2 2021 when it was $6.69 billion. This was driven primarily by income from the insurance business, the railroad business (Burlington Northern Santa Fe), the oil market and dividends. The company was helped by a strong dollar.

The shares of companies weighing on the company in the second quarter, including Geico, American Express, Wells Fargo and Citigroup, recovered much of their losses. Apple wiped out declines almost completely.

Chevron and Occidental Petroleum, where Berkshire increased its exposure earlier this month, are also doing better. The oil industry has been losing amid the specter of a global economic slowdown and falling oil prices.

The fund has been slowing down its pace of stock purchases, taking out $6 billion in Q2 compared to an impressive $51 billion in Q1 of the year when Buffett invested record amounts of money in the oil industry.

This likely means that Buffett’s view is that share valuations in Q2 were no longer as encouraging as in Q1 of the year. At the same time, Berkshire is reducing share buybacks.

The fund allocated $1 billion in Q2, compared to $7 billion in Q2 2021 and $3 billion in Q1 2022. Nearly 75% of Berkshire’s cash reserves, which are used by the fund to ‘catch market opportunities’ in Q2, were placed in US Treasury bills.

CITESTE SI:  Non-farm payrolls below expectations roil markets - Will the Fed cut rates?

The legendary investor pointed out that Berkshire’s loss resulted from changes in the stock price of the companies it owns, which in his opinion is a misleading indicator.

The ‘unrealized’ loss on investments in Q2 amounted to $43.76 billion. Now some of the fund’s holdings have rebounded since the end of June, and if the trend continues Berkshire is in for a better result in Q3.

Berkshire Hathaway is one of the companies that aggregate information on the real health of the economy because it combines key stocks of companies in the banking, oil, industrial or food products sectors. Berkshire’s growing operating income indicates that the U.S. economy is still doing relatively well, and Berkshire-owned companies are generally enjoying growing revenues.

Berkshire Hathaway stock price chart, Class B (BRKB.US)

The company’s shares have been in a downtrend since early April 2022, when the market was dominated by fears surrounding a recession in the US economy.

However, declines have slowed near $270 and are currently trading near the 38.2 Fibonacci retracement levels. Potentially, today’s reading of decelerating inflation in the US should help the stock recover some of the losses and climb to levels above $300, where we observe resistance in the form of 23.6 Fibo retracement.

On the other hand, a reading above expectations could point the stock in the direction of support at $240, which coincides with the pre-pandemic year peaks and the 61.8 Fibonacci retracement.

Source: XTB Online Trading