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Warren Buffett, chairman and chief executive of Berkshire Hathaway, hailed the government’s intervention in recent bank failures, saying on Saturday it had averted what could have turned into an even bigger crisis.

Still, he said the US banking system had become too complicated – and he was not surprised that banks had failed. He said he sold bank stocks, first at the start of the pandemic and more recently over the past six months, as banks increasingly face mismanagement and respond to poor incentives. .

“The American public doesn’t understand their banking system — and some people in Congress don’t understand it any more than I do,” Buffett said.

Speaking at the company’s annual meeting of shareholders in Omaha, Nebraska, about the failure of Silicon Valley Bank, Buffett said he believed the government had done the right thing by stepping in to ensure bank deposits beyond the Federal Deposit Insurance Corporation guarantee of $250,000.

“It would have been catastrophic,” Buffett said of a situation where the government failed to act. He added that refusing to guarantee all of the SVB’s deposits risked a “run on every bank in the country” and, by extension, a threat to the global financial system.

Berkshire Hathaway, the Omaha-based conglomerate that owns and invests in companies ranging from Dairy Queen to GEICO, has substantial investments in the nation’s largest banks. At the end of 2022, Buffett’s investments included a 13% stake in Bank of America, a 3.2% stake in Bank of New York Mellon, a 2.8% stake in Citigroup and a 0. 5% in US Bancorp.

The banking sector has been reeling from rising interest rates, which has forced banks off guard to sharply decline in the value of its interest-rate sensitive assets.

Buffett said he was worried about how easy banking had become.

“If people think deposits aren’t sticky anymore, you’re living in another era,” he said, adding that technology has made it “you can run in seconds.”

A new Gallup poll has found nearly half of Americans now say they are worried about the safety of their deposits, the highest proportion since the 2008 global financial crisis.

Yet despite worrying about the ease with which further bank runs could occur — and recounting how his father lost his job in 1931 following a bank run — Buffett said stocks of the US government should have demonstrated that concerns about the security of the repositories were unfounded. .

“Here we are in 2023, and we’re actually seeing the FDIC pay out 100 cents on the dollar to everybody, or make it available to all demand deposits,” Buffett said.

The episode of the banking crisis has led to heightened scrutiny of the commercial property sector, where telecommuting arrangements and soaring borrowing costs are raising concerns about banks lending to the sector.

“The hollowing out of downtown areas in the United States and elsewhere in the world is going to be quite significant and quite unpleasant,” said Berkshire Vice President Charlie Munger, who added that Berkshire itself was not actively exposed to commercial real estate.

Inflation and the dollar

Buffett praised Federal Reserve Chairman Jay Powell, saying no one understands the current economic environment better than he does.

But he also warned there was a limit to the Fed’s control and worried that it had let “the genie out of the bottle” when it came to price growth and money printing eroding the economy. confidence in the US dollar.

“We’re not as well off when it comes to lowering inflation expectations — which are becoming self-fulfilling — we’re not as well off as before,” Buffett said.

Yet even as Buffett acknowledged the uncertainty over the course of the erosion of purchasing power, he dismissed the idea that the US dollar was in danger of losing its status as the world’s reserve.

“I don’t see any option for another currency to be the reserve currency,” Buffett said.

The debt ceiling

Buffett also spoke briefly about the debt limit, noting that he couldn’t imagine the US government allowing “the debt ceiling to throw the world into turmoil.”

Congress and the White House are heading for a June 1 deadline to raise the limit on how much the US Treasury is allowed to borrow, with the “economic and financial catastrophe” of a government default on the line.

Nevertheless, Buffett has expressed widespread concern about the trajectory of US politics.

“The partisanship, it seems, has shifted to tribalism, and tribalism just doesn’t work as well.”

Concerns about AI

The nonagenarians also answered questions about the application of artificial intelligence to investing – and the world at large.

As Wall Street evaluates the use of technology such as ChatGPT to predict stock prices, Buffett said “technology makes no difference” in finding investment opportunities.

Buffett, whose stock-picking reputation built Berkshire, added that “what gives you opportunities is other people doing stupid things.”

Generally speaking, Buffett expressed concern that society cannot “uninvent” future-changing technology, but adamantly said humans remain in the driver’s seat.

“With AI, it can change everything in the world except how people think and behave,” Buffett said, loosely quoting Albert Einstein’s commentary on the invention of the atomic bomb. Munger joked that “old-fashioned intelligence works pretty well”.

The Oracle of Omaha

Known as the “Oracle of Omaha,” Buffett currently ranks fifth on Forbes’ list of billionaires, with a net worth of around $105 billion.

Over his decades in business, Buffett has earned a reputation as one of the world’s smartest investors, while maintaining a relatively frugal lifestyle (he still lives in the house he has bought in 1958 and regularly eats McDonald’s).

Buffett’s strategy is broadly defined as value investing; buy low and only sell when absolutely necessary. Buffett advises holding onto good investments for decades, while ignoring most short-term market moves.

Instead of checking a stock’s price frequently, Buffett said, “you would look to earnings and dividends over the years as determining whether or not you made a good investment. And that’s what people should do with stocks.

“Woodstock for Capitalists”

Berkshire’s annual shareholders’ meeting, dubbed by Buffett and his fans the “Woodstock for capitalists,” saw as many as 40,000 attendees crammed into the largest convention center in Omaha, Nebraska. This will be Buffett’s 59th time chairing Berkshire’s annual meeting of shareholders.

The rally has also become known for its marathon question-and-answer session: Buffett, 92, and Berkshire Vice Chairman Charlie Munger, 99, are expected to take questions from attendees for at least five hours on Saturday.

Like most investors, Berkshire has just had a year of decline, at least on paper: it announced an annual loss of $22.8 billion for 2022. But in its latest annual letter to shareholders, the publication of which is in itself a significant event for investors. calendars – Buffett called the figure “100% misleading” because it includes losses on equity holdings whose “quarterly fluctuations, regularly and mindlessly headlined by the media, totally misinform investors.”

Instead, Buffett said, investors should look at operating profits from Berkshire’s extensive portfolio of companies, which at year-end included American Express, Bank of America, Coca-Cola, Occidental Petroleum and Paramount. Overall. On that basis, Berkshire “set a record at $30.8 billion,” Buffett said.

Additionally, Buffett calculated that Berkshire’s rate of return to shareholders over its 58-year existence was 3,787,464%. He attributed this success to continued savings, “the power of capitalization”, avoiding “major” mistakes and what he called “the American Tailwind”.

“America would have done just fine without Berkshire,” Buffett wrote. “The reverse is not true.”

Berkshire on Saturday announced a 12.6% increase in operating profit between March 31 and the same period last year. But Buffett said a slowing economy would likely lead to a “majority of our businesses” reporting lower earnings this year than last year.