Warren Buffett says ‘American magic’ to overcome coronavirus uncertainty

At Berkshire Hathaway’s virtual annual meeting, Mr. Buffett serves up faith in the economy but reveals conglomerate sold its airline stakes.

  • By Geoffrey Rogow and Jenna Telesca,
  • The Wall Street Journal
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Warren Buffett offered reassurance at Berkshire Hathaway Inc.’s (BRK/B) annual meeting Saturday that the U.S. economy will recover steadily from the coronavirus pandemic.

Speaking onstage at an empty arena in downtown Omaha, Neb., Mr. Buffett said the range of possibilities from the pandemic was wide, but it had significantly narrowed in recent weeks.

He said it now seemed unlikely the world would face the worst possible health and economic scenarios from the novel coronavirus, compared with some of the predictions made earlier this year. Moreover, the U.S. economy will recover with time, Mr. Buffett said.

“We’ve faced tougher problems, and the American miracle, the American magic, has always prevailed,” he said in livestreamed remarks, adding that it would do so again.

Despite Mr. Buffett’s confidence in the economy’s ability to overcome obstacles over time, he said it is hard to factor in an unpredictable event like a pandemic on markets, and he underscored his policy of not using borrowed money for investments.

“You can bet on America, but you are going to have to be careful on how you bet. Simply because markets can do anything,” he said.

Mr. Buffett said Berkshire sold about $6.5 billion of stock in April.

Much of those sales were shares of airline companies, Mr. Buffett said. Berkshire had significant holdings in four of the largest carriers in the country— United Airlines Holdings Inc. (UAL), American Airlines Group Inc. (AAL), Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV) It sold its entire stake in each company.

“When we sell something, we sell our entire stake,” he said.

Mr. Buffett added that the coronavirus crisis has changed the business in a dramatic way through no fault of the companies’ management.

“The airline business has the problem that if the business comes back 70% or 80%, the aircraft don’t disappear,” he said. “The world changed for airlines.”

Mr. Buffett also said he was personally looking forward to flying again, though he “may not fly commercial.”

Inside Berkshire, Mr. Buffett said earnings would be less overall for the company, but the conglomerate’s largest businesses—insurance, railroads and energy—are in decent shape and will continue to produce cash.

Saturday’s meeting was stark in contrast to most years.

Typically, thousands of people flock to Omaha each year for the Berkshire meeting, filling a venue that seats nearly 20,000 and many of the city’s hotels. These Berkshire shareholders come to buy products from the host of companies held in the conglomerate—from Geico and Fruit of the Loom to See’s Candies and Brooks Sports—and hear from Mr. Buffett and Charlie Munger for hours.

But because of the coronavirus pandemic, only Mr. Buffett and Greg Abel, Berkshire’s vice chairman of noninsurance operations, were physically present at this year’s meeting. The two took shareholder questions chosen by a group of handpicked journalists.

Mr. Munger—Berkshire vice chairman as well as Mr. Buffett’s most trusted partner and typical running mate at the meeting—wasn’t in attendance.

“Charlie is in fine shape and will be back next year,” Mr. Buffett said.

In the wake of the pandemic, Berkshire Hathaway has given money to a few of its operating companies, but Mr. Buffett indicated the funding is limited to the short term. “We are not in the business of subsidizing any companies with shareholder money,” he said.

Mr. Abel said none of Berkshire’s fully owned companies received government-issued Paycheck Protection Program loans, which are earmarked for small businesses. Several publicly traded companies returned millions in federal assistance after pressure mounted on them when the program’s initial $350 billion was tapped out in two weeks.

After a quarter in which Berkshire reported a loss of nearly $49.7 billion but also posted higher operating earnings and $137.3 billion in cash, some questions were asked about a lack of deal-making from the firm. For years, Mr. Buffett has lamented the challenge of finding acquisition targets that are large enough to move the needle for Berkshire and are reasonably priced.

Over the last month, the pandemic has crushed the price of a host of assets. And yet, his firm hasn’t made a deal.

Mr. Buffett said the firm wants to do something big, but it hasn’t found the right fit.

“We haven’t seen anything attractive,” he said.

He also said one issue was the Federal Reserve’s quick action in confronting a “freeze” in credit markets in mid-March. Berkshire was getting calls at one point that month from firms that needed help, but those requests were never at prices that made sense for the conglomerate.

When the Fed moved quickly, many companies that might have made a deal with Berkshire got a reprieve, said Mr. Buffett.

Looking to the coming months, Mr. Buffett said the insurance industry is preparing for many potentially costly lawsuits related to the pandemic from companies and individuals.

Berkshire owns Geico—which recently refunded premiums to customers as a sharp reduction in driving due to lockdowns has resulted in fewer accidents—and other insurance companies. He said many corporate policies don’t allow a claim for business interruption due to a pandemic, but companies are preparing to fight back.

“The amount of litigation that is going to be generated…is gonna be huge,” he said.

Even so, he said Berkshire may offer pandemic insurance down the road.

Mr. Buffett said the current crisis is very different from the 2008 financial crisis, in part because the banking industry is in better shape and not the source of the issue. For now, he isn’t particularly worried about banks or Berkshire’s bank investments.

“I don’t see special problems in the banking system, no,” he said.

Late in the evening, Mr. Buffett was asked a question written by actor Bill Murray about what the country can do for the health-care workers on the front lines of the pandemic. Mr. Buffett responded by raising the issue of financial inequality in the country.

“We’re going in the right direction as a country, but it’s been awfully slow,” he said.

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