Warren Buffett's $168 billion cash pile signals he expects stocks to slide and a recession to strike, says top economist Steve Hanke

• Warren Buffett's company boosted its cash pile by $60 billion in 15 months to a record $168 billion.
• The investor may be expecting stocks to dive and a recession to hit, top economist Steve Hanke said.
• Buffett hit out at rank speculation and gambling on stocks, and Hanke voiced similar concerns.

Warren Buffett's massive war chest signals that he expects stocks to tumble and the economy to tank, Steve Hanke says.

The famed investor's Berkshire Hathaway grew its mountain of dollars, Treasury bills, and other liquid assets to a record $168 billion at the end of December — a nearly $60 billion increase in 15 months.

Buffett and his team have clearly struggled to find compelling purchases, and want to have plenty of dry powder to deploy once valuations plunge, Hanke told Business Insider this week.

"Buffett doesn't think there's much out there that's worth buying, and that in these circumstances, cash is king," the professor of applied economics at Johns Hopkins said.

Hanke, a former advisor to Ronald Reagan and the president of Toronto Trust Argentina when it was the world's best-performing mutual fund in 1995, has taught a class on Buffett-style valuation for decades.

The veteran economist and trader agreed with Buffett's cash hoarding, noting the US money supply has shrunk by 4.5% since March 2022, and each of the last four periods of sustained contraction was followed by a recession.

"With recessions, the stream of free cash flow dwindles down to a trickle, multiples plunge, and what were pricey stocks become bargains," Hanke said.

"Classic Buffett" tactics

He anticipates an eventual slide in stocks and an economic slump, in contrast to many Wall Street experts who expect cuts to interest rates this year to extend the current boom and forestall a recession.

After Berkshire's cash pile hit a then-record high in the third quarter, Hanke told BI that it was "classic Buffett" to squirrel away money, as the stock picker "loves to fish in troubled waters."

Indeed, Berkshire stepped into the breach when credit dried up during the financial crisis. Buffett struck lucrative deals with Goldman Sachs, General Electric, Dow Chemical, Harley-Davidson, and other ailing companies at that time.

Hanke echoed Buffett's complaint in his latest shareholder letter about the rise of reckless speculation and casino-style gambling on stocks. More and more young people see the stock market as a route to "easy money," Hanke said, not a way to own pieces of businesses and claim a share of their future cash flows.

"For them, it's all about the latest app and the latest fad," Hanke continued. "In short, the latest thing they've sourced from the financial talking heads or social media that's 'going to the moon.'"

The financial guru also pointed out that Buffett's shareholders seem perfectly happy with his cash accumulation and ostensibly bearish outlook. After all, they've boosted Berkshire's stock to record highs this year, and it now trades at the steepest premium to its net assets in a decade.