The total market value of stocks traded across the globe hit a record $74.7 trillion at the end of April, helped by the gusher of money flowing into financial systems under monetary stimulus by major central banks.
Combined global market cap, based on data from the World Federation of Exchanges and stock indexes worldwide, roughly matches the size of the world economy for 2015, or $74.5 trillion, estimated by the International Monetary Fund.
Monetary easing has propelled stock prices to historic highs in Japan, the U.S. and Germany. Lately, Chinese shares are surging in light of additional easing measures.
The global stock market cap peaked at $64 trillion in October 2007 and declined before setting a new record in November 2013. The market cap topped GDP in 1999 during the dot-com bubble and again during 2006-2007, before the financial crisis.
The percentage of total market cap relative to the world’s GDP is seen as an indicator of market overheating. Closely followed by U.S. investor Warren Buffett, it is also known as the “Buffett index.”
The kind of stock craze seen before is absent in the current market, says Yoshinori Shigemi of J.P. Morgan Asset Management. But concern is mounting over stock market rallies led by easy money policy.
On a day full of exultation for The Oracle of Omaha, we could not help but see the irony of Warren Buffett losing yet another bet and not paying up…
Now where have seen this before? Rolfe Winkler explains… Buffett’s Betrayal… (from 2009)
When I was 14, Warren Buffett wrote me a letter.
It was a response to one I’d sent him, pitching an investment idea. For a kid interested in learning stocks, Buffett was a great role model. His investing style — diligent security analysis, finding competent management, patience — was immediately appealing.
Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company’s annual meeting. I was hooked. Today, Buffett remains famous for investing The Right Way. He even has a television cartoon in the works, which will groom the next generation of acolytes.
But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.
Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.
To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. (Click chart to enlarge in new window)
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Berkshire Hathaway’s CEO Warren Buffett on CNBC
- Says the country is still doing well
I don’t think anyone can argue with the rates line. The other comment is open to question
Posco, the South Korean steelmaker, announced unexpectedly good results on Tuesday, while sounding an upbeat note on the recent drop in Chinese steel prices.
Posco reported an operating profit of Won731bn on sales of Won15tn in the first quarter on a consolidated basis.
The company said its operating profit margin slightly improved to 4.8 per cent thanks to increasing sales of high-margin products such as auto steel sheets and gas production in Myanmar.
While steel prices remain weak, Posco, the world’s sixth largest steelmaker, benefited from the low price of iron ore.
The company said China steel prices would bottom out in the second quarter as demand from the construction sector is expected to recover, while demand from the auto industry remains strong.
Shares of Posco fell 0.78 per cent to close at Won253,000, while the benchmark Kospi index was down 0.09 per cent.
On Monday, The World Steel Association said it expected global steel demand to remain broadly flat in 2015 at some 1.54bn tonnes.
“We’ll (Berkshire Hathaway [BRK.A][BRK.B]) never buy a company when the managers talk about EBITDA. There are more frauds talking about EBITDA. That term has never appeared in the annual reports of companies like Walmart (WMT), General Electric (GE) or Microsoft(MSFT). The fraudsters are trying to con you or they’re trying to con themselves. Interest and taxes are real expenses. Depreciation is the worst kind of expense: You buy an asset first and then pay a deduction, and you don’t get the tax benefit until you start making money. We have found that many of the crooks look like crooks. They are usually people that tell you things that are too good to be true. They have a smell about them.”
The education of any business person is incomplete if it doesn’t include a thorough reading of Warren Buffett’s annual letters to shareholders. I often say that I have learned more from reading his annual letters than I have reading anything else. And I spend much of my days reading! That said, this year’s letter was no different than usual. In fact, it was even more jam packed than normal because Buffett spends more and more time these days focusing on Berkshire AFTER Buffett. So his life lessons are more widely discussed than ever.You should go read the letter yourself, but in case you don’t have the time I’ve jotted down some of the key takeaways:
Macro Matters. As much as Buffett focuses on the micro (specific companies) he’s always mindful of the macro. And he certainly understands that his success couldn’t have happened without riding the biggest macro wave of the last 100 years – the amazing growth of the US economy:
“Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita US output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.”
As I always say, it’s easy to look like a great swimmer if you can figure out the direction of the current. Figure out the macro and the micro more easily falls in place.
Accounting, accounting, accounting. If you read a Buffett letter you’ll notice that it’s filled with accounting tables. I’ve stated in the past that the language of economics is accounting. It is the way we communicate the health of our economy, our institutions and our people. Buffett knows this. Buffett’s a masterful businessman because he understands the language of economics. If you’re not well versed in accounting do yourself a favor and spend more time learning the language of economics – accounting. >> Read More
I’m poring over the just-release 2014 annual letter to Berkshire Hathaway shareholders today and, as usual, I’m finding nuggets of wisdom on every single page.
One really interesting bit I wanted to pass on concerns a crucial benefit that their conglomerate structure offers. In countering the idea that Berkshire should break itself up or spin off some businesses to “unlock shareholder value”, Warren Buffett explains a key advantage that his collection of companies offers – beyond the obvious ability to self-fund.
He reminds his shareholders that being able to channel capital across opportunities and be willing to walk away from a dying industry is critical to the corporation’s longevity. He laments the twenty years between 1965 and 1985 that he allowed the legacy New England textile assets to decay before finally pulling the plug. He talks about the conflicts that a more singularly-focused corporation might have when its central line of business goes into secular decline.
One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative. Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our obsolete textile mills for far too long. A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job even if he or she was inclined to undertake it…
…At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.
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27 February 2015 - 10:30 am
No doubt readers have set aside a few hours this coming Saturday to digest Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which this year weighs in at a record 20,000 words.
It is the Golden Anniversary edition, with musings not just on the past year but also on what the next 50 might hold. We are promised a little reminiscing, too — which prompted us to look back to the time when Mr Buffett assumed control of an ailing New England textile manufacturer and set out on his most extraordinary journey.
Fifty years ago, the Omaha oracle was running an investment fund, the Buffett Parternship, for which Berkshire was just the latest in a number of positions. The annual letter covering 1965 is recognisably Buffett; you can tell from the LBJ joke at the very beginning.
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25 February 2015 - 19:28 pm
Warren Buffett may detail succession plan in letter
Warren Buffett will celebrate the 50th anniversary of Berkshire Hathaway with an extra-large letter to investors on Saturday. It will be around 20,000 words, rather than the usual 14,000.
Bloomberg details what might be included from the 84-year old CEO:
- Buffett could use the letter to help shareholders understand what returns are possible in the decades ahead.
- He may outline a succession plan
- He could spell out the model for acquisitions ” The idea is to make Berkshire the buyer of choice for people who want to sell to a long-term owner.”
01 February 2015 - 23:50 pm
Investors awaiting Warren Buffett’s annual letter will get three for the price of one this year. The founder of Berkshire Hathaway is planning a special “golden anniversary” publication, marking 50 years since he took a controlling stake in the company.
Mr Buffett and his business partner, Charlie Munger, are independently writing their views of Berkshire’s extraordinary journey during the past five decades — and what they expect for the next five. Neither is changing a word of the other’s commentary. Readers will be able to compare the two sets of reflections and predictions, in addition to the regular annual letter.
By writing about the next 50 years, the two men, who have a combined age of 175, will be attempting to shape the future of Berkshire — and their legacy — amid an intensifying debate about what this unusual company will look like when they are gone.
They took an ailing New England textile business and turned it into one of the most successful investment vehicles in history, through a combination of acquisitions in insurance and other industries and a portfolio of equity investments in American icons such as Coca-Cola, McDonald’s and American Express. Over the past generation, as shareholders at other companies have demanded a focus on a core business, Berkshire has only diversified more. >> Read More