As Buffett builds his "cash fortress" to a record level, Berkshire Hathaway now holds a larger amount of short-term U.S. Treasury bonds than even the Federal Reserve.
According to the company's second-quarter earnings report, as of the end of the second quarter, the Omaha, Nebraska-based conglomerate held $234.6 billion in short-term U.S. Treasury investments, while having more than $42 billion in cash and cash equivalents, including U.S. Treasuries with maturities of three months or less.
By comparison, the Fed owned just $195.3 billion in short-term Treasuries as of July 31. The Fed holds a total of $4.4 trillion in Treasuries, including bills, notes, bonds and inflation-linked securities.
The Fed has been a big buyer of government debt during the pandemic and has been one of the largest holders of U.S. Treasuries as part of its efforts to keep markets liquid.
The 93-year-old Buffett sold a large number of stocks, including Apple, last quarter. This move was surprising but prescient. This week, global stock markets saw a sharp sell-off. Berkshire has sold stocks for seven consecutive quarters, but the selling accelerated in the last quarter. Buffett sold more than $75 billion of stocks in the second quarter.
Many loyal Buffett watchers believe that his decision to sell sounded the alarm for the market, as the "Oracle of Omaha" seemed to be beginning to be pessimistic about the US economy and market.
Buffett has pointed out in the past that in times of crisis, he would buy Treasury bonds directly at auctions. The government sells Treasury bills with maturities ranging from 4 weeks to 52 weeks. Buffett's huge money has been earning a handsome return due to the surge in Treasury yields over the past two years. If $200 billion in cash is invested in 3-month Treasury bills at an interest rate of around 5%, it will generate about $10 billion in income per year, or $2.5 billion per quarter.
The Fed has bought about $5 trillion in Treasurys and mortgage bonds to help boost the economy after the coronavirus pandemic sparked market turmoil. But since June 2022, the Fed has been reducing its asset holdings in a program widely known as quantitative tightening. The Fed seeks to promote maximum employment and stable prices by independently setting monetary policy. It involves buying and selling Treasury bonds held by the public to control the money supply and interest rates.
The article is forwarded from: Jinshi Data