Is Warren Buffett Preparing for a Recession? A Deep Dive into Market Signals

Is Warren Buffett, the Oracle of Omaha, bracing for an economic downturn? And what about Michael Burry, the man who gained fame for his accurate prediction of the 2008 financial crisis? These questions have been swirling around the financial markets lately, especially after Berkshire Hathaway and Scion Asset Management made some intriguing moves. Let’s delve into the details and explore what top economist Steve Hanke has to say about these developments.

Berkshire Hathaway’s Calculated Moves

  • Selling Stocks: Berkshire Hathaway sold a net $8 billion of stocks in the second quarter of this year.
  • Cash Pile: The company’s cash reserves swelled by 13%, reaching a near-record $147 billion.
  • Long-term Strategy: Over the past three quarters, Berkshire has disposed of a net $33 billion of stocks, leading to a $38 billion increase in its cash reserves.

What Does This Mean?

According to Steve Hanke, a professor of applied economics at Johns Hopkins University, these moves are consistent with the anticipation of a recession. Buffett is known for his conservative approach, amassing cash to capitalize on market downturns. Remember the 2008 financial crisis? Buffett struck deals with Goldman Sachs, General Electric, and other companies, demonstrating his knack for seizing opportunities in tough times.

Michael Burry’s Big Short 2.0

  • Bearish Bets: Burry’s Scion Asset Management disclosed put options against the S&P 500 and Nasdaq-100, worth a notional $1.6 billion.
  • Portfolio Size: These bets are significant given that the rest of his portfolio was only worth about $111 million at the time.

A Good Move?

Steve Hanke believes that Burry’s latest big short is a “good move.” Burry has been warning of a stock market crash and recession for some time now, previously betting against high-profile companies like Tesla and Ark Invest.

The Economic Outlook

Hanke, who also served as an adviser to President Ronald Reagan, expects a recession to hit the U.S. economy in the first half of 2024. He argues that stocks look expensive relative to bonds, reinforcing the bearish sentiment.

Concluding Thoughts

Are we on the brink of a recession? If the moves by Berkshire Hathaway and Scion Asset Management are any indication, it seems that some of the brightest minds in finance are preparing for stormy weather. It might be wise for investors to heed these signals and plan accordingly.

Questions to Ponder

  1. Is Your Portfolio Recession-Proof?: How well are you prepared for a potential economic downturn?
  2. The Buffett Indicator: What can we learn from Warren Buffett’s recent moves?
  3. The Role of Economists: How much weight should we give to the predictions of economists like Steve Hanke?
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