Why Warren Buffett Now Holds More Cash Than the Fed — What That Signals About the Market
Warren Buffett has long been regarded as one of the wealthiest individuals in the world, with a net worth now in the hundred billions. And while other wealthy individuals are worth even more right now, Buffett is among the most stable. He’s regarded in financial circles as smart, wise and worthy of listening to.
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Of course, we expect that the leaders of the United States economy will be just as smart. And yet, as of right now, Warren Buffett currently holds more cash than the United States Federal Reserve.
Now, with the market and the economy fluctuating wildly, we’re left wondering, what does this mean for the U.S. market? Here’s what GOBankingRates found.
Okay, what do we mean by “cash?” He’s obviously not Scrooge McDuck swimming in gold coins in a large basement.
What we mean when we say Buffett is holding cash is that he’s got roughly $314 billion in Treasury bills, according to CNBC. Treasury bills are short-term bills you can buy at a discount that mature in one year or less.
They’re considered “cash” because they’re backed by the full faith and credit of the United States government.
It’s also important to note that when we talk about Warren Buffett here, we’re actually discussing his company, Berkshire Hathaway. He’s the founder, CEO until of end of 2025 and majority shareholder of the corporation.
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Buffett holds so much of his wealth in Treasury bills because they’re easy to access. If he needs to cash out quickly and use the funds for something else, he can. They also offer high interest yields because the government rewards people for essentially loaning it money.
Current interest rates on T-bills hover around 4% and is relatively stable around this rate. This beats holding money in even a high-yield savings account. And, with treasury bills, the U.S. government insures the whole $314 billion, whereas most other storage methods will not insure that much.
With the market fluctuating wildly, it makes sense that Buffett, on behalf of Berkshire Hathaway, would want to have a lot of the company’s holdings liquid.
This enormous investment in T-bills has come in the last year, when the conglomerate doubled its holdings. The move makes sense, according to Buffett, because the market has been fluctuating wildly, and the corporation has seen its operating holdings this year. The stock market just isn’t stable enough to trust with all your money right now.
Plus, Buffett wants to be able to buy interesting, valuable properties and companies when the right opportunity arises. You can’t do that with all your funds tied up in stocks that rise and fall from day to day.
As he said, per Fortune: “If the right deal came along, we’d spend $100 billion.”
Well, now he’s got the cash to do it.
So, what does this mean for the U.S. market?
Buffett has a history of making more cautious moves like this right before big market downturns. And with many other financial advisors predicting a recession at the very least, this shift to liquidity speaks volumes.
In the past, investors have regarded Buffet’s moves as overly cautious, and yet time and again, his company ends up on top while others lose millions. Thus, while Berkshire Hathaway lags the market right now, per Reuters, this could be a signal that the market will take a downturn soon.
Buffett has stated that unrealized investment gains and losses of his company are meaningless in terms of understanding his company.
He has been right about this in the past. He may well be right today.
Honestly, who knows how investors will respond? They’re a tricky, and often fickle, lot. They’ve smirked at Buffett’s signals before. There’s no reason to think some won’t do so again.
Still, investors who follow Buffett’s lead may begin to invest in more T-bills and slow down or halt investing. They may start to become more cautious in their investing, choosing only blue-chip stocks that represent value rather than trends or hype. They may also begin to monitor shifts more closely, paying attention particularly to valuation indicators like the Buffett Indicator and P/E Ratios.
Ultimately, we can’t be certain of much. What we can do, especially with our money, is listen to the wise, experienced people who have come before us.
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This article originally appeared on GOBankingRates.com: Why Warren Buffett Now Holds More Cash Than the Fed — What That Signals About the Market