Warren Buffet is widely recognised as one of history’s greatest investors. His investment company Berkshire Hathaway is sitting on a record $339.8bn in cash. Over the last few years, its major investments have been in healthcare and gold stocks – traditionally safe-haven assets. Why is the greatest investor of all time being so conservative, as the US stock market continues to hit new highs?
Paying attention to what Buffet is doing makes a lot of sense. Investors are currently paying $30 for every dollar of earnings, far above the average of $17.9. Markets are pricing in either significant reductions in the cost of production, or significant increases in production. Buffet is betting that neither is going to happen ― at least not enough of it ― and it’s easy to see why.
Donald Trump is doing everything in his power to pump the AI and crypto bubbles. Largely through social media and deregulation, Trump has pumped crypto currencies to all-time highs. His family released a series of Trump-branded cryptos ― on the face of it a kind of Ponzi scheme which has thus far enriched the Trumps by a further billion dollars.
He has (extremely irresponsibly) ensured that regulation on AI development is all but absent. Trump is providing enormous tax breaks to multi-trillion-dollar companies, further pumping their stock prices. This is funded in part by cutting Medicaid to 11-million Americans (while simultaneously increasing their fiscal deficit by $3.5-trillion), and ending USAID – a scheme that helped developing countries around the world with pressing public health issues.
OpenAI, the company behind ChatGPT, is admittedly achieving extraordinary things, and no doubt their technology has the potential to improve business efficiencies. But large language models cost a huge amount of money to run.
OpenAI, despite impressive revenue of $3.7bn, is running at an unsustainable loss of $13.5bn a year (for context, that’s approximately South Africa’s entire annual health budget in losses). This is compounded by enormous capital expenditure in the hundreds of billions.
Currently, OpenAI is kept afloat by speculative private investors and strategic partnerships, but OpenAI cannot continue to operate (at least in this way) for very long. Eventually it will run out of other people’s money.
If and when it does, it will affect all those companies with financial interests in OpenAI: Microsoft, Nvidia, Oracle, AMD and many others. These are major components of the US stock market, and in all likelihood, we will see round two of the dot.com bubble.
The recession to come will extend far beyond the US. It may not be tomorrow, or even this year ― but the bubble will burst. Warren Buffet seems to think so anyway.
Why does all this matter, and how does it relate to South Africa?
First, it highlights the dirty side of capitalism. Trump’s policies don’t simply benefit the billionaires – they benefit the billionaires at the expense of everyone else. One can be certain that institutional investors will find a way to sell the stocks near the highs, and it will be the pensions/401Ks of the masses that get destroyed.
Second, the policies that have driven the AI bubble are not “free”. The tax breaks come at the expense of healthcare benefits to the poor and huge increases in healthcare insurance for everyone else. So not only is Joe Public’s retirement fund decimated, but he’s paying far more for healthcare.
Rather than investing in human capacity through education and healthcare, Trump is gambling with Americans’ futures through over-investment in highly speculative assets. This is entirely consistent with his history as a “business mogul”.
His Taj Mahal casino, for example, was so expensive that it could never make enough money to pay its debts. That business went bankrupt, like his airline and many of his other businesses. While this didn’t affect Trump too much, there were many victims – all of whom were less privileged than Donald Trump.
Third, while there’s nothing illegal about setting up a “alt coin”, the Trump coins are a kind of legal Ponzi scheme. They are propped up by nothing but Trump’s name. Investors will eventually lose all their money, and it will be taken by the rich and powerful. It’s just another way to transfer money from the many to the few.
Trump is not, in fact, a wonderful businessman ― but he is great at PR. He thrives on populism and this guides his economic and healthcare policy. Not what’s best for the people, but what’s best for his ratings.
His appointment of RFK as health secretary is another example. The absurd, unevidenced claims of RFK’s (and now Trump’s) that vaccines and Tylenol cause autism are driven by populism, but the reality is that RFK and Trump will very likely cause serious public health crises in the US moving forward, in addition to the health crises USAID withdrawals are adding to, globally.
Ultimately, Trump’s policies prioritise the top 1% over everyone else ― and exactly the same thing happens in South Africa.
When a politician can rock up to parliament from his eight-figure mansion in a Gucci suit, why would he want to change the status quo?
Money meant for healthcare, as we are finding out with the Tembisa Hospital scandal, gets diverted to the rich. The tender system is such that when hundreds of millions (sometimes billions) of rand are set aside for public services, a huge proportion of that (sometimes all of it) ends up buying mansions and Lamborghinis for the politically connected tenderpreneurs, and often the politicians themselves. This is nothing new. The Cholera crisis in Hammanskraal was caused by the same phenomenon.
It’s fairly standard for populists to construct an enemy to blame. For Trump, it’s immigrants. The same is true in South Africa. Operation Dudula is blaming Zimbabweans for lack of access to healthcare and education, while reports of R2bn disappearing from Tembisa Hospital floods the news cycle.
If Operation Dudula was remotely interested in service delivery, they should be targeting those responsible for diverting resources away from public infrastructure, not (illegally) preventing poor children and pregnant women from receiving healthcare.
The next big global financial crisis is right on the horizon, and the lesson we can learn from Trump’s tenure is simple: don’t do what he’s done. Do not divert resources to the rich and politically connected away from service delivery. Use them to build human capacities and provide healthcare, education, water and sanitation.
Procurement processes need to be completely revised to prevent billions being stolen. Tax avoidance and evasion must be eradicated and wealth inequality dealt with.
Finally, do not blame immigrants for problems entirely of our own making ― that sows seeds of division and violence, and diverts blame from where it really belongs.
Like our own politicians, Trump seems to be entirely immune from the consequences of his actions. Thirty-four felony offences, as well as being implicated the Epstein Files scandal, and the man is free. The same is true in South Africa. The politicians implicated in State Capture still sit in parliament, today. That, too, must end.
The sad reality is, however, that many of those benefitting from the existing policies and failures of the state are the country’s lawmakers. When a politician can rock up to parliament from his eight-figure mansion in a Gucci suit, why would he want to change the status quo?
Prof Benjamin Smart, co-founder of the Centre for Philosophy of Epidemiology, Medicine and Public Health, University of Johannesburg
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.