Warren Buffett tries to tell us something about the economy based on Berkshire Hathaway’s earnings and $147 billion in cash on hand

Warren Buffett isn’t finding bargains like he used to. On Saturday, Berkshire Hathaway reported that its cash holdings hit $147 billion, while second-quarter operating income rose 7% year over year to $10 billion.

That’s a solid performance, but the growing cash stash, which is nearing record levels, is an ongoing “problem” for the Oracle of Omaha — albeit a nice one. This suggests his conglomerate is struggling to find bargains in acquisitions or the stock market given high valuations.

Berkshire has countered this by conducting more aggressive share buybacks, which the company completed of $1.4 billion in the second quarter, up from $4 billion in the previous quarter. But as Berkshire’s stock price has risen, this strategy — which Buffett once avoided — has become less attractive.

As for the many businesses under Berkshire’s umbrella — including insurance, railroads, and utilities — Buffett warned at his annual meeting in May that most of them could falter this year due to higher prices. In the second quarter, however, most of them saw profits increase, with the exception of BNSF Railway.

He also forecast in May that earnings at Berkshire’s insurance business would improve, and in fact, earnings there rose 74% to $1.25 billion in the second quarter. Geico, which struggled with unprofitability last year, posted positive results for the second straight quarter, helped by higher average premiums and lower advertising expenses.

In the first half of this year, Berkshire net sold over $18 billion of stock, while it made net purchases of $34 billion last year. Buffett and his team bought $5 billion in stock during the quarter while selling nearly $13 billion in stock. The reduction in the exchange portfolio also contributed to the increase in cash holdings.

As for Fitch’s downgrade of the US credit rating from AAA to AA+ this week, for which the company has been widely criticized, Buffett indicated that it won’t change the way Berkshire runs its business.

“There are some things that people shouldn’t be worried about,” he told CNBC on Thursday. “This is one. The dollar is the world’s reserve currency and everyone knows it.”

He added: “Berkshire bought $10 billion worth of U.S. Treasury bonds last Monday. We bought $10 billion worth of government bonds this Monday. And the only question for next Monday is whether we’re going to buy $10 billion in three months or six months.”

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