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- Warren Buffett and Michael Burry may be expecting a market downturn and recession, Steve Hanke says.
- Berkshire Hathaway sold a net $8 billion of stocks and added to its cash pile in the second quarter.
- Burry's Scion firm placed bets against the S&P 500 and Nasdaq-100 worth a notional $1.6 billion.
Warren Buffett and Michael Burry have rattled financial markets with bearish disclosures this month. Steve Hanke says the Berkshire Hathaway CEO and the investor of "The Big Short" fame are likely preparing for trouble.
Berkshire sold a net $8 billion of stocks and slowed its pace of buybacks last quarter, sparking a 13% rise in its money pile to a near-record $147 billion.
The sprawling conglomerate has now disposed of a net $33 billion of stocks over the past three quarters, fueling a $38 billion increase in its stash of cash, cash equivalents, and Treasury bills during that time.
Buffett's second-quarter moves "are consistent with the anticipation of a recession and the fact that stocks are currently pricey," Hanke told Insider.
"It's also consistent with his long track record of piling up cash in anticipation of storm clouds ahead with the capacity to pounce on bargains once the storm hits," the professor of applied economics at Johns Hopkins University added.
Hanke is also known for serving as the president of Toronto Trust Argentina when it was the world's best-performing emerging market mutual fund in 1995.
Buffett prides himself on conserving plenty of cash to ride out tough periods and capitalize on stock-market downturns and economic malaise. For example, he struck deals with Goldman Sachs, General Electric, Harley-Davidson, Mars, and other cash-hungry companies in the depths of the 2008 financial crisis.
As for Burry's Scion Asset Management, it disclosed put options against S&P 500 and Nasdaq-100 index funds with a notional value of $1.6 billion at the end of June. Placing the bearish wagers would have only cost Burry a fraction of that figure, but they still represent a big bet given the rest of his portfolio was only worth about $111 million at the time.
Burry has been warning of a stock-market crash and recession for a while, and has previously bet against high-flyers such as Elon Musk's Tesla and Cathie Wood's Ark Invest.
"It looks to me like Burry has made a good move," Hanke said about the Scion chief's latest big short.
The veteran economist and former adviser to President Ronald Reagan recently told Insider that stocks look expensive relative to bonds, and he expected a recession to strike the US economy in the first half of 2024.