Warren Buffett's Major Stock Moves Set Off Alarm Bells About the US Economy: 'A Recession Is Right Around the Corner'
When the animals start to behave a certain way, it can be wise to expect a storm.
Frogs croak louder when rain is coming; birds get more frenetic as a deluge approaches.
And when it comes to the human animals who keep an eye on the economy, their behavior bears watching, too.
According to Newsweek, billionaire investor Warren Buffett’s Berkshire Hathaway firm spent the first three quarters of 2023 selling off $28.7 billion worth of stock — a sign of what Johns Hopkins University Professor of Applied Economics Steve H. Hanke sees as imminent economic decline.
“[A] recession is right around the corner,” Hanke, who served on President Ronald Reagan’s Council of Economic Advisers, told Newsweek.
Buffett, of course, has developed a reputation as what Newsweek called “one of the greatest investors of all time.” The billionaire’s stock trades, therefore, attract considerable attention.
Hanke cited the behavior of the Federal Reserve as a probable cause of Buffett’s pessimism. After all, “the U.S. money supply has contracted by 3.3 percent” since July 2022.
Curiously, that date coincides with the approximate start of the 2022 midterm campaign season, when President Joe Biden and the Democrats faced mounting criticism over runaway inflation.
In its haste to curb that inflation, did the Federal Reserve doom the country to a severe economic downturn?
“The current monetary contraction is clearly going to lead to precisely what monetary contractions always lead to: A recession,” Hanke said.
The professor, as they say, brought receipts. In fact, according to Newsweek, he cited only four comparable periods of monetary contraction in U.S. history. These occurred in 1920-21, 1929-33, 1937-38 and 1948-49. Each time, a severe recession followed.
“And with the Fed putting the money supply in a nosedive the likes that we haven’t seen since 1933, Buffett is correctly anticipating that troubled economic waters are in the offing,” Hanke said.
Perhaps only specialists will recognize the significance of the earliest and latest of the contraction periods Hanke mentioned.
However, 1920-21 did mark a period of severe economic decline — not merely a recession but a full-fledged depression following World War I. The 1921 U.S. unemployment rate, in fact, nearly doubled that of 1949.
By contrast, all serious students of history know the meaning of the dates 1929-33. And some probably know why Hanke included 1937-38.
In 1932-33 — the worst years of the Great Depression — nationwide unemployment approached a staggering and presently unthinkable 25 percent.
Then, in 1938 — five years after President Franklin D. Roosevelt took office — unemployment again surged to near 20 percent. Thus, contrary to liberal myth, Roosevelt’s New Deal resulted in economic stagnation.
Sometimes, of course, the “animals” behave a certain way because they do not really believe their own lies.
Among elite members of the climate cult, for instance, we count many owners of — or passengers on — carbon-emitting private jets. Their ownership of beachfront properties testifies to how shallow their concerns about rising sea levels really are.
Or, sometimes the “animals” have inside information.
At the beginning of a pandemic, for instance, elected representatives might sell off shares of stock in hospitality industries.
When it comes to predicting recessions, however, serious investors like Buffett need look only to history.
For the rest of us, a look at recent history will provide all the perspective we need. After all, the Biden administration already has produced catastrophes in Afghanistan and Ukraine. Likewise, under Biden, political repression has reached unprecedented depths.
Nothing would befit this administration more than to preside over another depression.
Unfortunately, it’s the rest of the country that will do the suffering.
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