Buffett’s warning on banks & bonds, plus his secret crypto play
Investment legend Warren Buffett has stated in his 2021 shareholder letter that the future is “bleak” for retirees and fixed income investors. He compared Sept 1981, when retirees could earn 15.8% on deposits, to the c.1% available now.
Admittedly, inflation was higher in the 1980’s, but even allowing for inflation, the net return to investors was a healthy 5.7%.
Today, US 10-year bonds yield 1.4%, and the official (conservative) US inflation rate is 1.4%. Retirees and fixed income investors now receive 0% returns (negative returns, if allowing for taxes or higher inflation).
Reports indicate that safety nets such as US Social Security funds may run out as early as 2029.
Buffett lamented that some investors seeking higher yields would look to more risky fixed income streams, from higher risk bonds, or overinflated stocks, which could result in large capital losses.
Even one of Buffett’s largest holdings, Coca-Cola stock, has seen its earnings slashed by 30% in the past decade, whilst at the same time, its debt has tripled.
One would expect Coke’s stock to have dropped by around 30% along with earnings, but the price has doubled to unsustainable levels, and could easily drop by half in the near future. Investing into many stocks now could be unacceptable risk for poor returns.
Hinting at some breakouts, Buffett indicated that farms, property and some businesses may do well in future.
Buffett remains bullish on gold, and claims to not like bitcoin, but… Despite decreasing his stake in many large banks, Buffett has increased his ownership in Bank of America Corp (BAC). BAC happens to have almost 100 blockchain patents, more than MasterCard or Paypal, which both allow crypto for their customers.
Hmmmm… is this a sneaky way for Buffett to gain a backdoor investment into crypto, without admitting he was wrong, and without getting his traditional investors offside? We will have to wait and see.