Warren Buffett backed away from potential mega-deals after the Fed announced market-saving stimulus efforts
Warren Buffettconsidered making a deal as the coronavirus rocked the US economy, but the Federal Reserve's unprecedented stimulus efforts erased any appealing opportunities.
- The legendary investor stepped in with billions of dollars to help some firms outlive the 2008 financial crisis. Those deals were "intelligent things to do" as Berkshire Hathaway "didn't really have much competition,"
Buffettsaid at his annual shareholder meeting over the weekend.
- The Fed's actions allowed companies that had been calling Berkshire for aid to secure cash "at terms we wouldn't have given," Buffett added.
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Warren Buffett entertained the idea of using some of Berkshire Hathaway's $137 billion cash hoard to make deals amid the weakened economic backdrop. Then the Fed stepped in.
The "Oracle of Omaha" leveraged billions of dollars to help ailing companies during the financial crisis, but the legendary investor has yet to find an appealing opportunity in the coronavirus-battered market. The 2008 and 2009 deals were "intelligent things to do" and came as Berkshire "didn't really have much competition" to offer liquidity, Buffett said during his annual shareholder meeting. The current downturn hasn't presented such value.
"We have not done anything because we don't see anything that attractive to do," Buffett said Saturday. "Now that could change very quickly or it may not change."
Hopes for new deals were quashed in late March, the Berkshire CEO added. The Federal Reserve's historic move into buying corporate bonds lifted credit health stresses and offered a new out for companies struggling through recession-level headwinds.
The widespread stimulus erased any chances of a near-term deal, Buffett said, and companies that had been eyeing Berkshire's cash pile as a lifeline turned to the central bank instead.
"There was a period right before the Fed acted, we were starting to get calls," Buffett said. "And the companies we were getting calls from, after the Fed acted, a number of them were able to get money in the public market frankly at terms we wouldn't have given."
While Berkshire deployed swaths of cash during the 2008 meltdown, the company has lately taken a more defensive stance. The firm liquidated positions in United Airlines, Delta, Southwest, and American Airlines in April as the companies buckled under the coronavirus and its hit to the global travel industry. Buffett has also indicated he'd wait on any stock buybacks even as Berkshire shares sit down 19% year-to-date.
The airline sales represent a different approach for Buffett and investors should take heed, Jeff Gundlach, CEO of DoubleLine Capital, said Sunday.
"Warren Buffett selling all of his airline stocks corroborates the 'economic genie is not going back in the bottle' thesis. In late summer 2007 Warren doubled down on bank stocks (a bad call with hindsight benefit). So this airline bail now is a big deal," Gundlach tweeted.
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