Investment Tycoon Charlie Munger Warns A Storm Is Brewing In US Commercial Property Market And The Golden Age Of Investment Is Over

This weekend, Berkshire Hathaway’s annual shareholder meeting will be held grandly in Omaha, Nebraska, the United States. Investors all over the world are also expected to once again turn their attention to the two 90-year-old investment giants Buffett and Munger. As the countdown to this grand event approaches, a series of "warm-up" reports and interviews are being released one after another. The British media released an exclusive interview with Munger last weekend.

And in this interview, the closest partner of Buffett also issued a stern warning about the status quo of the commercial real estate sector under the US banking crisis...

Munger warned that a storm is brewing in the U.S. commercial real estate market, and U.S. banks are "flooded with bad loans" as real estate prices fall.

The collapse of Silicon Valley Bank and Signature Bank in March sparked concerns about the banking sector, especially regional ones, and investors withdrew their deposits. The collapse of Silicon Valley Bank has brought to light the potentially painful losses of trillions of dollars in commercial real estate loans on banks' books.

Munger, now 99, said, "It's not as bad as it was in 2008. But the troubles in the banking industry are like troubles elsewhere. During the good times, you develop bad habits...and when the times get tough, people lose everything. "

Munger was interviewed at his home in Los Angeles. The TV screen in his home was playing CNBC on the plight of First Republic, the nation's 14th largest bank, which had just collapsed last Sunday and was bought by JPMorgan Chase & Co.

Berkshire has a long history of supporting Bank of America during times of financial uncertainty. The sprawling industrial and insurance behemoth invested $5 billion in Goldman Sachs during the 2007-08 financial crisis and a similar amount in Bank of America in 2011.

But so far, the company has been on the sidelines amid the current round of banking turmoil. Although there have been rumors in the market, the Biden administration team flew to Omaha during the bankruptcy of Silicon Valley Bank to have a conversation with Warren Buffett.

In response, Munger said, “Berkshire has made some bank investments that have worked out well for us. But we are not optimistic about the banks. Running a bank wisely is not easy, and the temptation to make mistakes is many. "

Buffett and Munger's reticence may partly stem from potential risks in the banks' vast portfolios of commercial real estate loans.

“A lot of real estate is not in that good shape anymore, we have a lot of problematic office buildings, a lot of problematic shopping centers, a lot of other real estate that is really problematic. There's grief out there," Munger said.

He noted that banks were already reducing lending to commercial developers. "Compared to six months ago, every bank in America is tightening up on real estate lending now. They all seem to be in big trouble. "

Other highlights from Munger's latest interview

It is worth mentioning that in addition to warning about the situation of commercial real estate in the United States, Munger also talked about many other interesting topics in the latest interview.

Munger also warned that the golden age of investing is over and investors will need to contend with a period of lower returns. Munger said, "It's very difficult to get the same returns now as in the past."

He noted that as interest rates rose, investors were chasing bargains and finding inefficient companies. He figuratively said, "Just when this game is getting more and more difficult, more and more people want to play this game."

At Berkshire shareholder meetings in the past few years, Buffett has emphasized and told Berkshire shareholders: "Never short the United States", while Munger is relatively more cautious.

"I don't think we can take it for granted that American democracy will always thrive. But I think we'll still be able to stumble through it for quite some time. "