A UVstocks.io member sent me a headline about the U.S. Government’s credit rating getting downgraded by Moody’s from triple A to Aa1. It’s the third agency to do so. The other two previous downgrades took place in 2011 by S&P Global Ratings and in 2023 by Fitch Ratings. The reason for the Moody’s downgrade was due to growing budget deficits which indicates that U.S. government borrowing will accelerate. Over the long term, this will push interest rates up. Last week I talked about The Oracle of Omaha, Warren Buffet, after he announced that he will stepdown as CEO of Berkshire Hathaway by year end. So it made we think about how Buffet has always been “long America” despite this country’s persistent and rising debt burden. This clearly runs contrary to how a value investor would look at a company with a strong balance sheet.
How does he square up this dichotomy in order to stay optimistic about America’s prospects?
I’d say Buffett's "long America" stance is likely based on his belief in the long-term productive capacity and growth potential of the U.S. economy as he sees this country as a fundamentally strong "company" at its core, possessing a highly-skilled workforce, tremendous resources and having a track record of resilience. Buffet maintains an unwavering faith in our ability to continually innovate, driving up the market and fueling capitalism, which over time would tend to offset the negative effects of government stewardship. No doubt Buffet’s confidence in U.S. economic growth netting out ahead of political dynamics comes from the fact that he’s witnessed numerous periods of economic challenge and recovery over the decades.
And though debt is not ideal, Buffet might see the U.S. economic engine as sufficiently powerful—where it is able to effectively manage and perhaps even reduce debt over the long run in a meaningful way. Plus, the U.S. Government can generate revenue through taxes and issues debt in its own currency—which it can print—unlike a fundamentally sound undervalued company that can actually run out of cash. Even still, treasuries are still seen as safe, liquid assets across the globe. Which I don’t see changing anytime soon.
Finally, Buffet’s enduring bullishness can be seen in Berkshire’s holdings, consisting of numerous American companies across many sectors. The investments are an intentional bet on the long term growth, success and profitability of the U.S. economy. The thinking is that well-run American businesses that maintain strong fundamentals will inevitably continue to thrive and generate value despite America’s perpetual budget deficit…and more recently, not so good credit report.
"We're always in the process of change, and we'll always find all kinds of things to criticize in the country. But the luckiest day in my life is the day I was born, because I was born in the United States." — Warren Buffet
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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