Warren Buffett is shying away from risk at the age of 93. The star investor has significantly increased the cash holdings of his holding company Berkshire Hathaway in recent quarters, and sold shares on a large scale. The „Oracle of Omaha“, whose moves are closely followed by global investors due to his decades long track record, is thus contributing to the subdued sentiment for dividend stocks.

Around the time of the Nebraska-based investment conglomerate's quarterly report at the beginning of August, the main focus was on Buffett cutting his stake in Apple by almost half, to 400 million shares. He also sold 3.8 billion dollars worth of shares in Bank of America over a period of twelve consecutive trading days in July. Analysts at financial services firm Edward Jones are „concerned about Buffett's outlook for the markets and the economy as a whole“ - and point to the „incredible“ growth of Berkshire's positions in money market securities.

In the first six months of 2024, the conglomerate purchased US government bonds with a maturity of up to one year (T-bills) and other fixed-income instruments with a volume of 230 billion dollars. In the previous four years amounts of around 100 billion dollars were more typical. Berkshire disposed of short-dated securities worth only 15 billion dollars, while 120 billion dollars in bonds matured, bringing in re-investable cash. In the first half of 2023, Buffett actively disposed of T-bills and other fixed-income securities totalling 40 billion dollars. In 2022, sales in the same period amounted to 55 billion dollars.

As of 30 June 2024, Berkshire Hathaway's cash and cash equivalents amounted to a record 277 billion dollars, the majority of which was accounted for by T-bills at 234.6 billion dollars. „Under the current conditions, I don't at all mind increasing the cash position,“ Buffett commented at the Annual General Meeting in May. „When I look at what's available on the equity markets and what's going on in the world, I think cash is pretty attractive.“

Fixed income strategists at J.P. Morgan point out that Berkshire Hathaway already controlled 3% of the entire T-bill market at the time of the AGM. Most recently, the holding company's position even exceeded that of the Federal Reserve. This makes Buffett an anchor investor for the US government, and in view of the exploding budget deficit, the government can certainly use this support.

The record-high government spending on economic programmes such as the Inflation Reduction Act is largely debt-financed, and the market is also struggling with the consequences of last year's budget dispute. Because the government's coffers were already empty in the first half of 2023 following the political conflict over the debt ceiling, the Treasury had some catching up to do in its auctions.

A flood of issues hit the markets: According to the capital markets association SIFMA, the volume of outstanding T-bills soared to over 6 trillion dollars this year, compared with 4 trillion dollars a year ago, and less than 1.5 trillion dollars ten years ago. At the end of June, T-bills with a volume of around 5.8 trillion dollars were in circulation, almost 30% more than in the same month last year.

In recent months, there have been concerns that the huge new supply would overwhelm market participants. However, while the Treasury actually struggled at times with shortfalls in its long-term auctions, and the banks involved as primary dealers had to take record proportions of the bonds issued onto their own balance sheets, the T-bill market repeatedly proved to be more receptive.

As a result of its balance sheet reduction, the Federal Reserve no longer took on the role of the main anchor in the market; money market funds acted as a buffer. In the course of the monetary policy contraction from 2022, they had parked large cash holdings in the central bank's overnight facilities, which they then pumped into Treasury bill auctions. However, the liquidity cushion in the Fed's overnight reverse repurchase facility has shrunk considerably following the massive government bond issues since mid-2023.

Meanwhile, J.P. Morgan sees the market remaining receptive, also partly thanks to Buffett's appetite for cash. Although interest rates on one, three and six month Treasuries have fallen recently, at 5.311%, 5.202% and 4.942% respectively – as of 13th of August – they are disproportionately attractive compared to those at the long end of the curve from the perspective of many investors. Market participants were keen to buy at Treasury bill auctions because they want to secure high yields ahead of the Fed's expected interest rate cut in September. Berkshire Hathaway, for example, was well on the way to earning risk-free interest income of around 12 billion dollars per year on its T-bill positions at the most recent levels.

The question for analysts is how the holding company will utilise its cash position after the expected Fed interest rate turnaround. In other words, whether it will „flow into new investments, be used for share buybacks or serve as collateral“, as analyst Jean-Paul von Oudheusden from the trading platform eToro puts it. Over the past five years, Berkshire Hathaway has taken 10% of its own shares off the market through buybacks, supporting the A-shares, and the B-shares which are accessible to a broader investor base, through the supply shortage.

In the past, Buffett has repeatedly stated that buybacks at adequate price levels are the best use of liquid funds for companies.

With regard to Berkshire Hathaway's future strategy, observers are also concerned about the approaching change of leadership at the holding company. Buffett was emotional at the end of the most recent Annual General Meeting, and expressed his hope that he would still be present at the next shareholders' meeting – his long-time business partner and board vice chairman Charlie Munger died in November at the age of 99.

The general view on the markets is that the designated new strongman at the top of Berkshire, Greg Abel, does not have the charisma of the „Oracle of Omaha“, but nonetheless can be expected to continue the culture at the holding company. Buffett sees his success as a typical American success story. The soon-to-be 94-year-old is therefore proud to be able to support the US Treasury not only with T-Bill investments, but also with billions in tax payments on the sale of Apple shares.