Warren Buffet Issue's Dire 2021Inflation WARNING

we finally got what we were looking for the 2021 annual berkshire hathaway shareholders meeting with the great warren buffett and charlie munger the yahoo broadcast is over five and a half hours long but in today's video we're just gonna cover one specific clip concerning inflation probably the most anticipated question that people were dying to ask buffett and charlie is inflation a concern and should we be worried here for your viewing pleasure 90 year old mr buffett answering the question of the decade i will ask this question from chris freed from philadelphia and whoever wants to take this on stage from raw material purchases by berkshire subsidiaries are you seeing signs of inflation beginning to increase let me answer that thing greg can get more we're seeing very substantial inflation it's very interesting i mean we're raising prices people are raising prices to us uh and it's being accepted i mean it's not uh if we get well you know take home building i mean you know the cost of we've got nine home builders and in addition to our manufactured housing and then uh operation which is the largest in the country so we really do a lot of housing and the costs are just up up up as you can tell buffett is very in tune with the pricing pressures facing his various businesses specifically his very own home builder clayton holmes which as of 2021 is the nation's largest framing if you didn't know makes up about 20 of a homes price and is largely dictated by the cost of lumber if you take a look at the graph of lumber prices you will realize why buffett sounds so concerned the price is shooting up at exponential pace going from about 785 dollars per 1000 board feet to 1500 in less than one year since 2016 there's been a 600 increase according to analysis done by the nahb the surgeon prices in last year alone has added 36 000 to the price of an average new single-family home some home builders are even slowing production despite massive demand due to exorbitant costs that rise by the day single family starts were up 41 in march year over year but builders are obviously having serious issues adding to the supply cheryl palmer ceo of taylor morrison was even quoted saying this in a recent cnbc interview we have seen over the last four or five months what i have never seen in my career before lumber has moved to uncharted territory these substantial pricing pressures are being seen not just in housing but in other commodities like steel take a listen to buffett continue his analysis steel costs uh you know just every day uh they're they're going up and that they're there hasn't yet been because the wage the wage stuff follows i mean if the the uaw writes a three-year contract we got a three-year contract but if you're buying steel at general motors or someplace you're paying more every day so it's it's an economy really it's red hot i mean and we weren't expecting it i mean all our companies when they they thought when when they were allowed to go back to work you know what uh uh for various operations they we closed the furniture stores i mentioned you know if they were closed from six weeks or so on average and they didn't know what was going to happen when they when they open up and you know that they can't stop people from buying things and we can't deliver them but they say well that's okay nobody else can deliver them either and we'll wait for three months or something to sort but the backlog grows and then we thought it would end when the 600 payments ended and i think you know around august of last year it just kept going and it keeps going and it keeps going and it keeps going and i get the figures every week i call her bumpkin calls me and we go over day by day what happened at three different stores in chicago and kansas city and dallas and and it just won't stop uh people have money in their pocket and and they pay the higher prices and and when carpet prices go up in a month or two you know we announced the price increase for april our costs are going up supply chains all screwed up you know for all kinds of people but it's a bike it's almost a buying frenzy except certain areas you can't buy it you can you know you really can't buy international air travel and there's so the money is being diverted from a little some a piece of the economy into the rest and everybody's got more cash in there just like lumber steel costs are also seeing an exponential rise in price just last year in april one ton of steel rebar cost about thirty five hundred dollars now that same time goes for five thousand four hundred dollars that's a fifty four percent increase in just one year and if we go back to 2016 that same ton was 1600 or about three times less than today's prices week after week these jumps in pricing are causing massive headaches for companies around the world which as buffett explains are being passed down to consumers who are willing to pay and even wait months for products to arrive in fact if you take a look around the world the price of the stuff that makes literally everything is surging raw materials of all types are skyrocketing and the upward trajectory looks to continue as the world economy roars back to life from steel and copper to corn and lumber commodities started 2021 with a bang surging to levels not seen for years the rally threatens to raise the cost of goods from the lunchtime sandwich to gleaming skyscrapers is this the signal for an inflation disaster buffett continues with this it it is not a price sensitive economy right now in the least and uh i don't know exactly how when it shows up in different price indices but there's there's more inflation going on than quite a bit more inflation going on than people would have anticipated of just six months ago or thereabouts yeah there's one very intelligent man who thinks it's dangerous and that's just the start you probably are in a good position to come yeah when i think you touched on it when we look at steel prices timber prices any petroleum input you know fundamentally there's pressure on those uh raw materials i do think something you've touched on one and it it goes really back to the raw materials there's a scarcity of product right now of certain raw materials it's impacting price and the ability to deliver the end product but you know that scarcity factor is is also real out there right now as as our businesses address that challenge and it may be the some of that's contributed or arisen from the storm we previously discussed in texas when you take down that many petrochemical plants in one state that the rest of country is very dependent upon it we're seeing it flow through both on price but overall in scarcity of product which obviously go together but uh there's there's challenges that's for sure dangerous that's the word monger uses to describe what's happening out there and he lets future ceo greg abel finish the rest of the question by discussing the possibilities and reasons for these price points and their acceptance while able offers us a potential source for these price surges monger's delivery is instrumental in getting a true look on what berkshire thinks is happening out there in the underbelly of the economy abel takes the fed version of the story saying that the man has surged post pandemic and supply has been constrained and that this is temporary inflation that we're seeing temporary until the supply surges back this is what the fed likes to call transitory inflation or base effects basically surge in prices that will stop once economies here and around the world stabilize and factories are able to match consumer demands but there is also an alternative way to look at this answer and it starts with buffett's initial reaction to the question it seems to me that he's not very convinced that these effects are temporary you see a large part of inflation is human psychology if for an example house prices begin to rise month after month and more and more people start to think that this is part of an infamous cycle of price surges they go out and rush housing feeding into this cycle this phenomenon can get very dangerous as eventually prices shoot up so fast that people lose trust in the currency and you get what we all think the united states is immune from hyperinflation now that's not to say that buffett thinks the end of america is coming clearly if you listen to the entire broadcast he's very optimistic about the united states long term but in the short term based on some of his answers it seems to me that he's hinting at an interest rate increase the fed will have to do something significant to relax these pressures and an early interest rate hike would be the go-to answer an answer that will also cause the markets to react negatively pushing down stock prices and potentially causing a giant correction thank you guys for watching and as always please make sure you hit that subscribe button if you enjoyed

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Length: 9min 21sec (561 seconds)

Published: Mon May 03 2021