The shift in public behaviour following the COVID-19 outbreak was lightning fast. That’s the observation from Warren Buffett, who says the ripple effects of the coronavirus pandemic will continue to reverberate throughout the economy.
Markets remained jittery on Friday as countries in Europe and North America come to grips with still-rising rates of COVID-19 infection.
The peak seems to have now come and gone for China, the first to report high numbers of infections, while in the United States case numbers surged past 10,000 earlier this week and Canada is now inching toward 1,000 cases.
As well-known head of Berkshire Hathaway, Buffett has reportedly taken to working from home while joking that he’s drinking more Coca-Cola to ward off the virus. But all kidding aside, the Oracle of Omaha thinks the economy will feel the impact of the pandemic.
“Things have changed a lot. The actual airline figures have changed a lot. There are all kinds of ripple effects and that’s the nature of an economy. People aren’t flying,” Buffett said in conversation with Yahoo Finance on March 13.
With investments across the board, Berkshire has been particularly active in the airlines of late, a trend which hasn’t slowed down with the onset of the pandemic. Earlier this month, the company dropped $45 million more on Delta Air Lines after the airline’s share price fell 20 per cent. The purchase puts Berkshire at an 11.2 per cent stake in Delta which has now lost about two-thirds of its value in a little over a month, not unlike the rest of the sector. Air Canada, for instance, has lost 69 per cent of its value since February 20.
Buffett said the numbers from Berkshire subsidiary and auto insurer Geico have told the tale of the new normal for Americans.
“I can tell you one thing, it’s kind of interesting, we’ve seen the in last two weeks, for example, fewer accidents reported now,” Buffett said. “[Through Geico] we get 20,000 accident reports a day or something like that so we know when people are driving. People just haven’t been driving as much and it’s noticeable. So people have changed their behaviour.”
“And of course the airlines, I think they announced they’re running about 25 per cent down. [Southwest Airlines CEO Gary Kelly] was on CNBC and he said it was kind of perfectly normal up to about the last week of February and then it’s just like somebody blew a whistle,” Buffett said. “And that’s what I’ve seen, evidence of same sort of awakening or whatever it may be. The public, they’ve changed their behaviours substantially.”
As for Berkshire’s future activities vis a vis the current crisis, a decade ago in the fallout from the 2008 financial crisis the company was busy propping up businesses left and right. Buffett put in $5 billion to support faltering Goldman Sachs, a move that was particularly profitable a short while later.
The same went for General Electric, Bank of America and, to the tune of $303 million over five years, Harley-Davidson.