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Warren Buffett predicts ‘red hot’ US inflation as economy takes off

Oliver Gill
·4 min read
Warren Buffet - Paul Morigi /Getty Images 
Warren Buffet - Paul Morigi /Getty Images

Billionaire investor Warren Buffett is predicting a “red hot” US recovery from the Covid pandemic, but has warned the economy is being hit by rising inflation.

Mr Buffett, known as the “Sage of Omaha” for his savvy stock picking, said the coronavirus crisis had sparked a highly unusual recession because so many businesses had continued to thrive.

But although he expects a rapid recovery, Mr Buffett also fears that inflation will rapidly pick up in a way that America has not experienced for over a decade.

He said: “This economy right now – 85pc of it is running in a super high gear. We’re seeing very substantial inflation.”

Rapidly rising prices are viewed with concern by investors as they can eat into returns, drive up interest rates and potentially cause long-term damage to the economy and living standards by eroding the value of workers’ wages.

Inflation has not been a challenge in the West since before the financial crisis.

However, speaking as his investment firm Berkshire Hathaway announced $11.7bn in profits, 90-year-old Mr Buffett said that overall the economy is currently in good shape.

He said: “Right now, business really is very good in a great many segments of the economy.”

Berkshire Hathaway has significant stakes in some of the world’s biggest companies, such as Apple and Kraft Heinz.

Remarks made by Mr Buffett, who boasts a net worth of $104bn, are carefully monitored by stock markets around the world for his predictions.

Flanked by Charlie Munger, vice chairman of Berkshire Hathaway, he also joined to a growing number of critics of special-purpose acquisition companies (SPACs), also known as “black cheque” entities.

These businesses raise cash from investors to buy a private company – typically without telling shareholders what the target is. Spacs have been publicised by the likes of tennis star Serena Williams, and it is feared a bubble has built up which could lead to massive losses for some retail investors.

Mr Buffett said: “Spacs generally have to spend their money in two years.

“If you put a gun to my head and said you have to buy a business in two years, I’d buy one – but it wouldn’t be much of one.”

Mr Munger also attacked the growth of cryptocurrencies such as Bitcoin because they are widely thought to be a conduit for money laundering.

He said: “I don’t welcome a currency that is so useful to kidnappers and extortionists and so forth.

“Nor do I like shovelling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilisation.”

Meanwhile, Mr Buffett took aim at trading websites such as Robinhood that allow novice investors to buy and sell stocks for free.

Most people would be better off investing in an index such as America’s S&P 500 rather than betting on individual stocks, he said, adding that the day traders who jumped into the market earlier this year by buying up shares in computer game retailer GameStop were essentially gambling.

Mr Buffett said: “There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future.

“I just want to tell you that it’s not as easy as it sounds.”

Mr Buffett said that the US Federal Reserve had done a tremendous job by propping up the economy and keeping interest rates low. However, he warned that it was hard to know what the long-term fallout of the central bank’s vast stimulus would be.

US Treasury Secretary Janet Yellen appears less concerned about inflation than Mr Buffett, despite President Joe Biden’s plans to spend trillions of dollars on the economy on infrastructure.

Speaking to NBC on Sunday, she said: “I don’t believe that inflation will be an issue. But if it becomes an issue, we have tools to address it.

“It’s spread out quite evenly over eight to 10 years, so the boost to demand is moderate.”