While everyone from the average Joe to the worldโs second richest man has been feeling the squeeze imposed by rising interest rates, thereโs a silver lining for legendary investor Warren Buffett and his equally legendary conglomerate Berkshire Hathaway.
According to Insider, the Oracle of Omahaโs operation is on track to earn US$3.7 billion (AU$5.5 billion) from interest and other non-dividend income from US Treasuries and โsimilar betsโ this year.
For reference, thatโs more than double what was earned from the same stream back in 2022 and over six times higher than the US$600 million (AU$900 million) recorded back in 2021.
โBerkshireโs income from Treasuries has soared largely because of the sharp rise in interest rates over the past 12 months,โ explained Insiderโs Theron Mohamed.
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โIn a bid to curb historic inflation, the Federal Reserve has hiked its benchmark rate from virtually zero to over 4.5%, and pencilled in further increases. Higher rates have translated into larger yields on government bills and bonds.โ
Mohamed added: โBerkshire also benefited from the completion of its Alleghany acquisition last year, as it gained ownership of the insurerโs interest-generating assets.โ
โThere is no doubt that Berkshireโs investment income has benefited from rising short-term interest rates,โ said James Shanahan, senior equity research analyst at Edward Jones.
But it ainโt all upside. Shanahan has also noted the surging interest rates have negatively impacted revenues and profits in several Berkshire Hathaway verticals, namely the real estate brokerages, homebuilders, building product companies, as well as auto dealers; the full extent of which is currently unclear.
Canโt win โem all, I suppose.
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