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This past weekend, Berkshire Hathaway held its Annual Meeting. Typically billed the Woodstock of Capitalism, the meeting has routinely served as a great bellwether for the economy and business in general.
Here are some top takeaways from the Oracle of Omaha at this weekend's meeting:
#1. Never Bet Against America.
Although it may take years to assess the full impact of COVID-19 on the country/economy, Buffett remains highly optimistic about the U.S.'s economic future.
In the Civil War, 6% of the prime workforce, males 18-60 died. This is a mortality rate orders of magnitude above that in the current pandemic.
Past crises that have brought brought businesses to their knees have been navigated, and the economic engine has ultimately roared on through.
Bottom Line: Don't bet against American (human) ingenuity. Necessity is the mother of invention - although the landscape has drastically changed, we will get through this and problem-solve it out.
#2. American (Consumer) Psychology may drastically change.
COVID has forced our Government to voluntarily sideline our economy for the health and well-being of every man, woman and child.
The number of Americans unemployed is estimated to be north of 30 million.
It is still unknown when the country can fully reopen and get back into its business cruising speed.
This has been causing massive pain for households, SMB's and their budgets.
The Great Depression's lasting impact was the seismic shift in people's psychology. After the pain of 4,000 bank failures and people losing their lifesavings (due to no FDIC at the time), it took time for confidence in American business to be restored.
It took the Dow Jones over 20 years to make a new high as a result.
Today, we have many more guard-rails. And although the Government and Fed have swooped in with unprecedented support to buttress businesses and households - confidence and spending will take a hit.
Consumer spending represents about 70% of our economy.
Bottom Line: How the consumer spends through and out of this crisis will have a lasting impact on SMB's for years to come. Where the consumer spends will be important to watch to best gauge where certain SMB industries go.
#3. Cash is King (opportunities are yet to come)
Buffett has not yet made any large deals/acquisitions. Instead he's added to the now over $130B cash pile on his balance sheet.
In the last crisis, Warren profited greatly in taking positions in Bank of America and Goldman Sachs to name a couple.
Because of the Fed coming in with so much liquidity early on, this has stolen Berkshire's thunder as lender of last resort.
It has also propped up equity prices.
Warren stated they have not been buyers of anything because they don't see anything that is "attractive enough" yet.
What he means is equity valuations have room to correct as we see the picture continue to develop with corporate earnings.
Corporate earnings over the next several quarters will tell us a lot about consumer spending/psychology.
And consumer spending will tell us a lot about SMB revenues.
Bottom Line: There is still a lot of new information to evaluate while staying in a conservative position. The consumer's wallet is taking a hit. Corporate earnings are expected to continue taking a hit. SMB revenues are expected to continue taking a hit.
But, for how long?
There are many challenges in the environment. Not every SMB is going to make it, but there are those that will.
Human perseverance and ingenuity have prevailed against insurmountable challenges in the past - the very character traits most SMB owners carry.
Happy Mother's Day and stay safe!
-FundingStrategist
https://fundingstrat.com
https://fundingstrat.com/the-oracles-crystal-ball/
