With a cash reserve as high as $350 billion, what is Buffett worried about?

The Berkshire Hathaway Annual Shareholders Meeting has concluded. Apart from the topic of Buffett's retirement, the most concerning core issue in the market is its continuously rising cash reserves. Currently, the company's cash and cash equivalents have reached as high as $350 billion.

Buffett reiterated the investment concept that "cash is the ultimate liquid asset" in an exclusive interview with CNBC. However, this still fails to dispel the market's doubts. It is an open fact that Berkshire has been continuously increasing its cash holdings.

In this article, we will try to interpret the above - mentioned phenomenon from the perspective of liquidity. The core viewpoints are as follows:

Firstly, Buffett has hoarded cash on a large scale five times in his professional career, and four of these times were precursors to crises.

Secondly, currently, judging from the trend of U.S. Treasury yields, the liquidity in the U.S. financial market is tightening. The balance - sheet reduction plan after Warsh takes office as the Chairman of the Federal Reserve may exacerbate this process. Once the market inflection point appears, the short - term U.S. Treasuries hoarded by Buffett will yield huge returns.

Thirdly, the emergence of new investment targets such as shadow banks and gold is diluting the regulatory ability of the Federal Reserve. This is also what Buffett is vigilant about and a phenomenon that we need to think about calmly.

Signs Before the Crisis

So far, there have been five large - scale cash hoardings in Buffett's career, which are as follows:

1) 1969: Liquidated the partnership fund and held almost all in cash.

Background: There was a speculative frenzy in the "Nifty 50" stocks in the U.S. stock market, and it was hard to find cheap stocks.

Operation: Dissolved the partnership fund, cleared the stock positions, and held about $100 million in cash.

Subsequent: There was a major bear market from 1973 - 1974, and the Dow Jones Industrial Average dropped by about 45%. Then, he bought The Washington Post at a low price.

2) 1987: Significantly increased the cash ratio before the stock market crash.

Background: The U.S. stock market was in a continuous bull market, and the valuations were relatively high.

Operation: Berkshire's cash increased significantly, reaching about $1.8 billion.

Subsequent: On "Black Monday" (October 19, 1987), the Dow Jones Industrial Average plummeted by 22.6% in a single day. In 1988, he heavily invested in Coca - Cola.

3) 1999: At the peak of the Internet bubble, the cash level was high.

Background: Technology stocks were going crazy, and the valuations of the NASDAQ were extremely high.

Operation: Rejected technology stocks and had cash reserves of about $15.5 - $20 billion.

Subsequent: The bubble burst from 2000 - 2002, and the NASDAQ dropped from 5,000 to 1,100 (-78%). He bottom - fished General Re and PetroChina.

4) 2007: On the eve of the subprime mortgage crisis, there was a huge amount of cash.

Background: There was a carnival in the real estate market and with leverage, and the market was extremely optimistic.

Operation: The cash reached $44.3 billion, accounting for about 25 - 29% of the total assets.

Subsequent: During the 2008 financial crisis, the S&P 500 dropped by about 57% at its maximum. He injected capital into Goldman Sachs, General Electric, and Bank of America, and acquired BNSF Railway at a low price.

5) 2023 - 2026: The current fifth time (cash > stocks)

Background: The U.S. stock market has been in a long - term bull market, the valuations are at a high level, and interest rates are fluctuating.

Operation: Continuously net - sold stocks. In Q1 2026, cash accounted for 58.2%, and for the first time, cash significantly exceeded stock holdings.

The above four operations have all "come true", so the market is particularly concerned about the current situation. In this article, we will focus on studying the two financial crises in the United States after entering the new century.

As the saying goes, there is nothing new under the sun. The Internet bubble in 2000 and the subprime mortgage crisis in 2008 showed amazing consistency in the liquidity evolution process.

A long - term low - interest environment - pushed up asset prices (the Internet concept stocks soared in 2000, and the U.S. real estate market skyrocketed in 2008) - the Federal Reserve started to raise interest rates to cool down the market and recover liquidity - the asset bubble was pricked, and a financial systemic crisis was formed - the U.S. government stepped in, and relevant departments jointly supported the asset prices (such as the government taking over Fannie Mae and Freddie Mac in 2008).

In the above chart, we can also find that the yield of U.S. short - term Treasury bonds showed a sharp downward trend after the crisis. The main reasons are as follows:

1) Short - term Treasury bonds have excellent liquidity and are the best asset to cash in during a crisis. The influx of safe - haven funds pushed up the price of short - term bonds and depressed the yield. While the yields of medium - and long - term bonds such as 10 - year U.S. Treasuries remained stable, which reflected the market's risk - aversion sentiment of deliberately avoiding long - term risks.

2) Buffett hoarded short - term bonds mostly before the crisis (bottom - fishing at a low price). Once the crisis broke out, investors would rush to buy short - term bonds to avoid risks, and he could profit from bond investments at that time.

After a brief review of the past, where are we now?

From 2020 to 2022, the Federal Reserve launched a large - scale easing cycle. It not only lowered the benchmark interest rate to zero but also continuously injected liquidity into the market through unlimited QE, which directly promoted the significant increase in the prices of various assets such as U.S. stocks and commodities.

After 2022, the Federal Reserve started the interest - rate hike process to combat the increasingly serious inflation problem, which led to severe fluctuations in the stock market that year. However, after 2023, with the arrival of the large - model industry, the U.S. stock market boomed again. The market sentiment and risk appetite quickly reversed, breaking the original trend.

In March 2026, with the intensification of the geopolitical situation in the Middle East, the oil price rose rapidly, leading to a resurgence of inflation in the United States. As a result, the yields of 10 - year and 2 - year U.S. Treasuries increased to varying degrees. In contrast, the yield of short - term Treasury bonds (3 - month) remained relatively stable.

The market generally attributes the increase in the long - term bond yield to the expectation of interest - rate hikes, but the short - term bond trend did not move in sync. The essential reason lies in the shift of the capital's risk appetite: the market sold long - term U.S. Treasuries and increased short - term U.S. Treasuries. The differentiated trend in terms implies that the market liquidity has quietly tightened.

Warsh's Balance - Sheet Reduction: May Accelerate the Arrival of the Liquidity Inflection Point

As a typical old - school value investor, Buffett has adhered to the Graham investment framework throughout his life, screening undervalued assets based on fundamental indicators such as price - to - earnings ratio and price - to - book ratio. Due to this conservative logic, he has missed many growth tracks. Whether he couldn't understand Tesla in the early years or explicitly avoided AI investments in a recent CNBC interview, it's all the same.

In addition, Buffett believes that the vulnerability of the current U.S. financial system is increasing and emphasizes that "cash is king" is the only safe strategy.

Due to space limitations, we will only discuss the "new situation" in the U.S. financial system here. In the above chart, we can clearly see the high correlation between the U.S. Treasury yield and the U.S. dollar index (this is also common knowledge in all financial textbooks). That is to say, when interest rates increase, global capital flows into the United States through the bond market, and the U.S. dollar becomes strong due to high demand.

After the beginning of 2025, the two lines in the above chart began to diverge. In other words, U.S. Treasuries can no longer determine the strength of the U.S. dollar.

There are many reasons for this, such as:

Under the petrodollar system, the oil price is highly correlated with the strength of the U.S. dollar. In the past few years, the Brent crude oil price has remained at a low level of $60 per barrel for a long time, which has continuously suppressed the U.S. dollar.

In addition, we must face a problem: The golden age that Buffett was in was also an era when U.S. Treasuries and U.S. stocks were the largest investment targets. Now, for various reasons, gold and cryptocurrencies have obtained an important investment share.

In other words, in the past, market funds only flowed between stocks and bonds to complement each other. Now, gold and cryptocurrencies have become new capital pools, forming a "quasi - liquidity system" independent of the Federal Reserve. Coupled with the capital flow of shadow banks, the Federal Reserve's control over the financial market is continuously weakening.

Recently, Warsh is about to take office as the new Chairman of the Federal Reserve. According to his previous "governance program", he is likely to promote the balance - sheet reduction process after taking office: The large - scale bond purchases by the Federal Reserve in the early stage have led to the excessive expansion of the balance sheet and the distortion of market pricing. The balance - sheet reduction optimizes the balance sheet by reducing U.S. Treasury holdings, leaving room for subsequent monetary policy regulation.

In this way, it seems to be back to the "prelude" of previous crises: the Federal Reserve starts to recover liquidity (including but not limited to interest - rate hikes and balance - sheet reduction). Currently, the global geopolitical situation is complex. If Warsh operates improperly and encounters a black - swan event, the liquidity in the U.S. market will quickly tighten (the value of cryptocurrencies and gold cannot withstand selling), which will reignite the demand for short - term U.S. Treasuries.

At the age of 95, Buffett has experienced multiple bull - bear cycles, and his prediction of systemic risks has always been accurate. This article reviews his logic of cash hoarding from the perspective of liquidity, trying to understand the deep - seated considerations behind his current layout. The views in this article are for reference only, and we welcome everyone to correct and communicate.

This article is from the WeChat official account "Speculative Research". Author: Tong Zhibin. Republished by 36Kr with permission.