At the Berkshire Hathaway annual meeting this past weekend, CEO Warren Buffett downplayed recent market volatility as “really nothing.” Such may be the case from his perspective of 70+ years investing, but tens of millions of investors are feeling otherwise. Based on the most recent developments and data, inflation is tame, the labor market is adding jobs, AI capex spending is firm, the level of tariffs is being negotiated down, earnings are coming in above forecasts and bond yields have declined.
This has all occurred quite suddenly, triggering forced buying — forced covering by short sellers that made the “sell America” trade back in early April. President Trump’s sweeping tariff policies created widespread uncertainty in financial markets, with mainstream media floating reports that foreign entities were pulling out of U.S. assets, which lead to volatility in stocks and bonds. However, JPMorgan analysts later suggested that hedge fund activity was the primary driver behind the downturn, not short sellers.
If you had set sail on a cruise Jan. 1 and disembarked on May 2, your S&P 500 fund would be down just 3.3% year to date, so there’s not much damage. But from its high set in February, the S&P 500 is down 8.3%, and — somewhat more relevant to most investors — the swings were very wide. The Magnificent Seven were down 34.4% from peak to trough, getting fully flushed on the front end of April. But, according to Mr. Buffett, it was “really nothing.” The rearview mirror brought this clarity to Omaha last weekend.
If I were there, I might ask Mr. Buffett, “If you were so relaxed about the market pullback, why didn’t you deploy some of your firm’s record $347 billion in cash to buy some leading stocks, some of which were down as much as 50%?” Mr. Buffett sounded a cautiously optimistic note, urging investors to focus on long-term stability, whereas in fact, his Berkshire was a net seller of stocks for the 10th straight quarter.
The answer (to my question) is in the Berkshire shareholder letter: They simply can’t forecast how costs, demand or supply chains will shift under this Trump-era trade policy turbulence. Considerable uncertainty remains, the letter emphasized, pointing to a business climate moving faster than Berkshire is used to. But Berkshire stock is still up 19% year to date and, for its shareholders, that is all that matters.
I think it is quite evident that Mr. Buffett believes that the market also carries a rich valuation, and that deep value will materialize for stocks he has on his “end-of-career” short list (Buffett turns 95 in August).
Maybe the Sage of Omaha is even more concerned with the runaway federal debt than the market. He has not emphasized deficits much at previous annual gatherings, but he spoke about debt multiple times at the 2025 shareholder meeting. He warned that U.S. government spending is unsustainable, and the country is operating at an annual deficit level that could become uncontrollable. He emphasized that while past Fed leaders like Paul Volcker helped manage risk well, the current situation requires serious corrective action.
Buffett has often stated that the United States will never default on its debt because it issues bonds in its own currency, meaning it can always print more money to pay its obligations. However, he acknowledged that excessive debt could lead to inflation and reduced purchasing power. Back in 2011, Buffett stated that he could fix the deficit in five minutes: pass a bill that proposes to eliminate the deficit by passing a law that if the deficit exceeds 3% of GDP, all sitting members of Congress should be ineligible for reelection.
In 2011, the federal debt stood at $14.8 trillion. In August of 2011, Congress faced a debt-ceiling crisis, where it debated raising the borrowing limit, leading to the passage of the Budget Control Act of 2011. The crisis caused significant volatility and resulted in the first-ever downgrade of the U.S. credit rating by Standard & Poor’s, cutting Treasury Bond ratings from AAA to AA+, where it stands today.
Knowing full well that Congress has no appetite to impose any personal accountability, much less term limits, while annual deficits approach 7% of GDP and the federal debt is hurtling towards $40 trillion, a report by Penn Wharton was drafted recently that shows a policy outline that would accelerate economic growth while slowing the growth of the national debt. It doesn’t stand a chance in today’s Congress, but is worth a look, since it is likely a harbinger of things to come, when we are forced to face reality.
“A common misunderstanding is that serious debt reduction must come at the expense of economic growth or the social safety net. We show this is incorrect,” the PWBM’s analysts wrote. “The reforms herein produce sustained debt reduction, grow the economy, reduce carbon emissions, almost fully close current gaps in working-age health-care coverage and reduce poverty among retirees.”
Penn Wharton’s tax model would replace the standard deduction and personal exemptions with a partially refundable tax credit and lower the top income tax rate from 37% to 28% with no marginal rates above that. This plan smacks of a hybrid flat tax agenda proposed by Dick Armey, former U.S. Representative from Texas, back in the 1990s, which resulted in four balanced budgets. It takes into account the top 10% of income earners in the United States, who bring in the vast majority of personal tax revenue. In 2023 the top 10% of earners — those making at least $169,800 per year — paid 76% of total federal income tax revenue.
The report recommends raising the age for full Social Security and Medicare benefits, requiring all legal immigrants to obtain private health care insurance that reduces moral hazard and expanding the insurance pool with younger, healthier individuals to substantially decrease private health care premiums.
While these proposals sound far-fetched, it is good to know that at least one Ivy League school is drafting a plan to reduce the debt spiral and maintain economic integrity. At least it moves the dialogue forward when we haven’t heard a thing about cutting the federal debt, the long-ignored elephant in the room.
