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Like an Old Lady in Bank CDs, Buffett Suffers From Bernanke’s Policy

Carla Fried

In its year-end filings released last week, Berkshire Hathaway (BRK-B) reported that it closed 2012 with $47 billion sitting in cash. The $12 billion earmarked to pay for Berkshire’s share of the recently announced Heinz (HNZ) buyout will trim that down to $35 billion or so. At least momentarily; as the subsidiaries keep sending earnings back to the mother ship, some invariably ends up sitting in cash. In just the fourth quarter of last year, net earnings came in at $4.5 billion.

Berkshire clearly states in its regulatory filings that all its cash and cash equivalents are invested in “U.S. Treasury Bills, money market accounts, demand deposits and other investments with a maturity of three months or less when purchased.”

So that’s $47 billion been earning bupkes in Treasuries and the like courtesy of the Federal Reserve’s resolve to make saving as distasteful as possible.

3 Month Treasury Rate Chart

Sure, when you’ve got $40 billion plus to throw around you’re going to get a better rate on your cash than the rank and file with $500 to plunk in a bank CD. But even if you doubled, tripled or quadrupled that rate, your still talking just a little bit more than bupkes.

Maybe newly appointed Berkshire Bear Doug Kass, who will be one of the professional interrogators at Berkshire Hathaway’s May annual meeting, will lob a query about the big cash stake.

Warren Buffett has long been on the record that he considers $20 billion to be his target for Berkshire’s cash stake. So after the Heinz purchase, he’s still got at least $15 billion in excess sitting on the sidelines as he and Charlie Munger continue their increasingly difficult elephant hunt.

While $35 billion or so exceeds his own self-imposed target, Buffett slipped a nice reminder into the shareholder letter, that cash has its valuable uses.

“Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100. But we will survive in the 100th while many others fail. And we will sleep well in all 100.”

(The drain in that riff was in reference to Berkshire’s winding down of some derivative contracts. “We have no interest in exposing Berkshire to some out-of-the-blue event in the financial world that might require our posting mountains of cash on a moment’s notice.”)

Maybe the cash-trodden info tech contingent – Microsoft (MSFT), Google (GOOG), Cisco (CSCO) and Apple (AAPL) of the S&P 500 index -- should trot out the sleep-at-night riposte.

BRK.B Cash and ST Investments Chart

And yes, Apple has “only” $40 billion or so in cold hard cash and short-term securities. The $130 billion plus that is the center of much sturm and drang includes $90 billion in “long-term securities” on Apple’s balance sheet.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.

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