My opinion on Buffett’s selling out of airline shares.

It’s self-contradictory to say that someone is optimistic about the long-run future economy of the US but pessimistic about the airline industry. The number of the airline passengers is positively related to the GDP growth.

The economy shutdown caused by the governments, not the pandemics, is temporary.

There were two serious nova influenzas in 1957 and 1968 spreading in the US and had caused equivalent deaths more than separately 230,000 and 165,000. Comparing to these records, the Covid-19 has costed 57,000 lives. Yes, the number would increase, however, the damage to the economy has been much worse than the two flu had caused.

According to the Fisher’s interest theory, the wealth equals to the accumulation of the future discounted incomes. If the impact is temporary, how come the wealth of the airlines is half priced now?

Considering the monetary distortion created by the Fed due to its massively increase of the M0 after 2008, the retreat of the stock market in the beginning of 2020 is actually a kind of rebalance of the nominal prices and the intrinsic values of the true productivity.

People who are familiar with economics know that the crazy monetary policies that have been adopted by the Fed will cause hyper-inflation after all. And we all know it’s more damaging to holding cash during inflation.

However, the amount of cash Berkshire holds just climbs up to the historical peak. I am wondering if Mr. Buffett has plan B or there existing some other constraints I don’t know, like the legal requirements of its risk-bearing abilities of his re-insurance companies.

As long as he sold out all of the airline shares Berkshire had owned, then there is no concern of interest conflicts. I will not be surprised if any agreement comes between Berkshire and some of the airline companies involving special debt-stock schemes that benefit Berkshire more than purchasing the stocks from the market.

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