What's going on?
Warren Buffett hit investors with a home truth over the weekend: the legendary investor said everyone should be worried about rising inflation in this “red-hot” economy.
What does this mean?
When Buffett speaks, investors listen. So they were all ears at his firm’s annual shareholder meeting at the weekend, when the Oracle of Omaha admitted that he thinks the economy is in overdrive. He puts that down to both a faster-than-expected post-pandemic recovery and the US central bank and government’s massive support measures. Combine that soaring growth with ultra-low interest rates, and you get a population with more money in their pockets and a willingness to pay higher prices for goods and services. And that, Buffett says, will only lead to one thing: sky-high inflation.
Why should I care?
For markets: Warren’s got some competition.
Buffett also talked about how his firm, Berkshire Hathaway, ended last quarter with a near-record $145 billion of cash. Turns out the legendary dealmaker’s been struggling to find deals to make, which, he acknowledged, was mostly down to the recent boom in special-purpose acquisition companies (SPACs). Companies looking to raise money, after all, could fetch much higher valuations by merging with the new investor must-have than by selling to a bargain-hunting investor like Buffett.
The bigger picture: Nothing lasts forever – not even SPACs.
Still, Buffett doesn’t think the SPAC craze will go on forever, and he might just be right. For one thing, SPACs are increasingly struggling to raise money from private investors. For another, regulators are increasingly looking to crack down on the frenzy. And finally, investors in SPACs seem to be increasingly running out of steam: shares in companies that went public via a SPAC are down by 40% on average from their highs, according to the Financial Times – and some by more than 80% (tweet this).