Warren Buffett’s loyal following of value investors is about to hear from the legend himself, at a crucial time when interest rates have soared and recession fears are raging.

The 92-year-old chairman and CEO of Berkshire Hathaway is slated to release his annual shareholder letter Saturday morning, along with the conglomerate’s latest quarterly earnings. The letter from the ”Oracle of Omaha” has been required reading for investors for decades, and this year’s message is particularly anticipated given the changing investing landscape.

Notably, there’s been a sea change in Treasury yields, which have surged to the highest level since the Global Financial Crisis amid the Federal Reserve’s aggressive rate hikes. Six-month and one-year yields have both surpassed 5% for the first time since 2007, while the benchmark 10-year Treasury yield sits just below 4%. After more than a decade of near zero interest rates, the sharp rise in yields could dent the appeal for equities and hurt asset prices, Buffett said previously.

“Interest rates are to asset prices, you know, sort of like gravity is to the apple,” Buffett famously said at Berkshire’s annual meeting in 2013. He believed that when interest rates are high, it could be a major “gravitational pull” on values.

“We have a roughly 15-year period of abnormally and historically low interest rates. The short term rates we have now are more normal,” said David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business. “Interest rates are the main determinant of equity prices, to quote Buffett, so I think I’m looking for and expecting a discussion on interest rates.”

Perhaps that explained why Berkshire was likely a net seller of stocks in the fourth quarter. The conglomerate dumped a significant portion of Taiwan Semiconductor, a chip stock it had just bought in the third quarter. Berkshire also slashed its shares in Bank of New York Mellon and US Bancorp last quarter.

Meanwhile, thanks to rising rates, Berkshire’s mountain of cash — nearly $109 billion at the end of September — has contributed meaningful earnings to the conglomerate, which held $77.9 billion in U.S. Treasury bills.

“One comment Buffett may make in his letter is that it’s not so painful to be sitting in cash. There is an alternative now and it’s called Treasury bills, or short term Treasuries,” Kass said.

More deals?

The rising-rate environment could also benefit Buffett’s famous deal-making. Not only due to falling asset prices, but because he also has ample liquidity to tap into, whereas his competitors such as private equity firms have to borrow to make deals.

“Private equity and others who are thinking of making acquisitions would have to go into the market to borrow [at] higher interest rates. This would confer a competitive advantage back to Berkshire,” Kass said.

Berkshire bought insurance company Alleghany for $11.6 billion in cash last year, its biggest deal since 2016.

Big energy bets

Buffett continued to boost its position in Occidental Petroleum over the past year, with Berkshire’s stake in the oil giant topping 21%. In August, Berkshire received regulatory approval to purchase up to 50%, spurring speculation that it may eventually buy all of Houston-based Occidental.

Many are eager to find out if Buffett has an appetite for still more Occidental shares, given the oil and gas producer’s underperformance in 2023. The stock is down about 6% this year, trading below $60 after more than doubling in 2022.

“He’s been demonstrating a lot of discipline here as it relates to buying OXY shares in the open market,” said James Shanahan, a Berkshire analyst at Edward Jones. “There’s only a couple of occasions that he spends more than $60 a share to acquire Occidental stock.”

Meanwhile, Chevron remained Berkshire’s third largest equity holding at the end of 2022, behind only Apple and Bank of America.

Geico’s weakness

Investors are also interested in any updates on Berkshire’s operating businesses in light of a looming recession.

“As a shareholder, what I’m most excited about is an update on the underlying operating business,” said Bill Stone, CIO at Glenview Trust and a Berkshire shareholder. “We’ve already seen the publicly traded portfolio. I’m frankly more interested in how well the underlying businesses are operating and his view of the strengths and weaknesses.”

Berkshire’s auto insurance company Geico has been under pressure lately with consecutive quarters of underwriting losses.

“What (if any) corrective actions is Berkshire taking to remedy this situation? Many of GEICO’s peers are grappling with the same issues and have raised premium rates to counter the adverse claim trends,” Catherine Seifert, CFRA’s Berkshire analyst, said in a note.

Buybacks

Buffett watchers are also looking for his commentary on buybacks.

Berkshire’s pace of share repurchases slowed last year, having bought a total of $5.25 billion through the end of the third quarter. That was markedly slower than the pace in 2021, when Berkshire bought back a record $27 billion of its own shares as Buffett found fewer outside opportunities in the midst of a sky high bull market.

Buffett himself told shareholders at its annual meeting last year that he prefers buying stakes in other companies rather than repurchasing his own shares.

“If we have the choice of buying businesses that we like, or buying back stock — the controlling factor’s how much money we have — we’d rather buy businesses,” Buffett said in April in Omaha.