Buffett's Short-Term US Debt Holdings Surpass Fed's

In light of Warren Buffett's early remarks, it appears that he has begun to take a bearish stance on the U.S. economy and market. As Buffett builds his "cash fortress" to a record level, Berkshire Hathaway now holds a total amount of short-term U.S. Treasury bonds that even exceeds the Federal Reserve.

According to the company's second-quarter financial report, by the end of the second quarter, the conglomerate headquartered in Omaha, Nebraska, held $234.6 billion in short-term U.S. Treasury bond investments and had over $42 billion in cash and cash equivalents, including U.S. Treasury bonds with maturities of three months or less.

In contrast, as of July 31, the Federal Reserve only had $195.3 billion in short-term U.S. Treasury bonds. The Federal Reserve holds a total of $4.4 trillion in U.S. Treasury securities, which includes short-term bonds, notes, long-term bonds, and inflation-linked securities.

During the pandemic, the Federal Reserve was a major buyer of government debt as part of its efforts to maintain market liquidity, and it has been one of the largest holders of U.S. Treasury bonds.

The 93-year-old Buffett sold a large amount of stocks last quarter, including Apple, a move that was surprising but prescient. This week, there has been a sharp sell-off in global stock markets. Berkshire Hathaway has been selling stocks for seven consecutive quarters, but accelerated its sales in the last quarter, with Buffett selling over $75 billion worth of stocks in the second quarter.

Many dedicated Buffett watchers believe that his decision to sell signals a warning for the market, as the "Oracle of Omaha" seems to have begun to take a bearish view on the U.S. economy and market.

Buffett has pointed out in the past that during times of crisis, he would directly purchase U.S. Treasury bonds in auctions. The government sells Treasury bills with maturities ranging from 4 weeks to 52 weeks. Due to the surge in U.S. Treasury bond yields over the past two years, Buffett's substantial funds have been earning considerable returns. If $200 billion in cash were invested in 3-month U.S. Treasury bonds at an interest rate of around 5%, it would generate approximately $10 billion in annual returns, or $2.5 billion per quarter.

After the market turmoil triggered by the COVID-19 pandemic, the Federal Reserve purchased about $5 trillion worth of U.S. Treasury bonds and mortgage-backed securities to help stimulate the economy. However, since June 2022, the Federal Reserve has been reducing its holdings of assets, a plan widely known as quantitative tightening. The Federal Reserve seeks to promote maximum employment and stable prices by independently setting monetary policy. It includes purchasing and selling Treasury securities held by the public to control the money supply and interest rates.