Warren Buffett dumps airline stocks like hot coals even as he defends their Ponzi schemes he gorges on
Warren Buffett’s Berkshire Hathaway has dumped stocks after ‘retail investors’ inflated a grotesque tech bubble with stratospheric valuations. Did the Federal Reserve or US Treasury announce they’re buying?
Each year, 40,000 shareholders make a pilgrimage to hear Warren Buffett speak at the annual shareholder meeting of his mega-conglomerate Berkshire Hathaway, an event famously dubbed ‘Woodstock for capitalists.’ The critical takeaway from Warren Buffett’s four-hour monologue at this year’s virtual meeting was Berkshire’s record hoard of cash, around $145 billion. This uninvested capital should scare the pants off investors. Why? Because in Buffett’s view, the real crisis is yet to come.
The USA has no consumer demand, and all assets are overvalued – a fact that Buffett has come to recognize. For example, realizing that Berkshire’s airline positions were a mistake, Buffett has sold all of the company’s airline stocks. Buffett also has a negative view of government bonds, commenting that they are the worst investment out there.
At current valuations, Buffett’s not buying, I’m not buying and neither should you.
Warren Buffett appears to be a folksy, Cherry Coke-sipping, kindly investor, but appearances can be deceiving. Buffet’s Berkshire business model is to exploit his powerful connections in Washington DC to profit on government-guaranteed bailouts. No one in the universe exemplifies the “do as I say, not as I do” preachy adage more than Buffett.
Remember when Buffett called derivative products the tools of massive financial destruction?
Well, the ukulele-playing Buffett was actively selling massive amounts of derivative products during and after the 2008 credit crisis. The Wall Street, Washington, and Westminster elites crafted a narrative and their tone-deaf, multimillionaire Hollywood stooges began to propagandize and amplify that same narrative.
In 2008, for example, Buffet made huge risk-free profits from the government-backed “bailouts” of Bank of America, Goldman Sachs and Harley Davidson. Berkshire was there with its ladle, ready to skim the cream off the top as the taxpayers suffered.
The business-bankrupting share buyback schemes that airlines, as well as a number of other companies, utilize are another example. Buffett, a long-time airline skeptic, invested when they began paying dividends and doing buybacks. Once the airlines were forced to stop doing share buybacks, Berkshire dumped all of its holdings in airlines. Airlines were not all Berkshire was selling. Buffett has been sitting on at least $145 billion in cash because many stocks have never been more overvalued in history – there’s nothing of value to buy.
Highlight: "The value of certain things have decreased," Warren Buffett says. "Our airlines position was a mistake. Berkshire is worth less today because I took that position... There are other decisions like that." #YFBuffettpic.twitter.com/W1ZqRzsfmv— Yahoo Finance (@YahooFinance) May 3, 2020
The airlines had no appropriate governance. (Read my article on American Airlines here). Airlines should have been strengthening their balance sheets rather than incurring massive amounts of corporate debt. Instead, they participated in a vast legal Ponzi scheme and conducted enormous stock buybacks that pushed stock prices higher and created an illusion of “financial health” by improving earnings per share. For example, Delta funneled dividends to fat cats like Berkshire, which ended up destroying the future value of Delta. And Delta’s not the only one. All of the airlines that participated in buybacks rather than building a sustainable business model are now facing the possibility of bankruptcy.
Buffett actually defends airline CEOs and their Ponzi stock buybacks. Why? Because buybacks are how Buffet’s business model profits so handsomely; it’s almost like insider trading or having a friend in Washington throw you a quasi-guaranteed bailout deal. Buffet likes buybacks because if companies were fiscally prudent, there would be fewer deals for Berkshire to scoop up. It would steal opportunity from Buffett – just like the recent Federal Reserve bailouts did.
A critical thinker may ask why Buffett would say “Now is not the time to bash CEOs who supported stock buybacks and dividend pay-outs.” Is this also true if many of these same CEOs borrowed massive sums to finance these buybacks and dividend payments? I think not. They borrowed from the future to enrich the CEO suites and activist investors by cannibalizing future growth and earnings.Also on rt.com This is your passenger speaking: it’s time for you greedy, overcrowded, budget-obsessed airlines to rethink your lousy service
Buffet’s words ring hollow but his words seem eerily familiar. Who could forget the corporate plunder that took place during the 2008 banking crisis? Remember JP Morgan’s chief executive, Jamie Dimon? He made over a billion dollars during his career at JP Morgan. At Davos Switzerland, he hopped off his private jet and lectured CNBC’s viewers, which included the president of France at the time, that he was fed up with banker bashing. Seriously? Dimon should have just declared, “You are debt-serfs, we are oligarchs – accept the facts, you peasants. We will monitor you on social media, so do not try and resist.”
Over in the UK, ex-chancellor of the exchequer George Osborne said: “It’s time to stop banker-bashing.” Really, George? Your bailouts cost the UK taxpayers dearly – bailouts that have yet to be repaid.
As I wrote in my book ‘Planet Ponzi’ nearly eight years ago, Wall Street needed help in carrying out history’s biggest Ponzi scheme, and they got it in the form of Washington DC and a complicit media that refused to question anything critically.
So where does the folksy old man from Omaha come in? Well, in 2008, the “sage of Omaha” leveraged relationships with Goldman Sachs and Washington DC “to bail out America.” Oddly, ex-Goldman Sachs chairman Hank Paulson was running the Treasury at the time Buffett arranged deals sweeter than a Dairy Queen sundae.
But during his annual shareholder meeting on May 2, Buffet no longer touted “I’m bullish, buy America.” In fact, he’s bearish and has joined the Planet Ponzi camp, believing the Federal Reserve has inflated valuation bubbles in every asset class across the board. Buffet even used a line I have been telling investors since the 1980s – I’m not pessimistic or optimistic, I’m realistic.
Time to get short stocks; things are going to get ugly as markets are likely to make new lows.
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The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.