Having digested the latest monetary policy decision from the US and Japan, investors turn their attention to Berkshire Hathaway’s shareholder meeting and the latest jobs print in the US.
Here’s what to watch for in the coming days:
The pace of job creation in the US is expected to have slowed slightly in April. Economists expect the US added 203,000 jobs, compared with 215,000 in March. The unemployment rate is expected to remain unchanged at 5 per cent, while average hourly earnings are projected to have climbed by 2.4 per cent from the previous year, compared with the 2.3 per cent growth registered in March.
“There may be a payback in manufacturing jobs after two sizeable declines in February and March, but the early manufacturing survey data have been mixed,” economists at Bank of America noted. The strength in the US dollar and a drop in crude prices have weighed on hiring in the manufacturing sector.
Buffett shareholder meeting
Berkshire Hathaway will hold its annual shareholder meeting in Omaha, Nebraska on Saturday and for the first time, the meeting will webcast on Yahoo Finance, a US-based business news site.
Warren Buffett’s Berkshire Hathaway Inc on Saturday said fourth-quarter profit rose 32 percent, helped by improved results in its insurance operations and higher gains from investments and derivatives.
Net income rose to $5.48 billion, or $3,333 per Class A share, from $4.16 billion, or $2,529 per share, a year earlier.
Quarterly operating profit rose 18 percent to $4.67 billion, or $2,843 per share, from $3.96 billion, or $2,412 per share.
Analysts on average had forecast operating profit of $2,814 per share, according to Thomson Reuters I/B/E/S.
Warren Buffett thinks more and more companies are faking it, and Wall Street is helping them do it.
In his annual letter to shareholders, which was released on Saturday morning, the Berkshire Hathaway CEO took other executives to task for telling their shareholders to ignore what Buffett thinks are very real expenses. In addition, Buffett criticized Wall Street for endorsing and passing along those inflated financial figures to investors.
“Wall Street analysts often play their part in this charade, too, parroting the phony, compensation-ignoring ‘earnings’ figures fed them by managements,” Buffett writes.
Buffett says it’s possible that the offending analysts “don’t know better.” But more likely, Buffett says, the analysts go along with the phony numbers because they fear losing access to management, which is key to a Wall Street analyst’s job these days. Buffett also says analysts may be swept up by a herd mentality and go along with these inflated financials because everyone else is doing it. None of these reasons lets them off the hook, Buffett says.
“Whatever their reasoning, these analysts are guilty of propagating misleading numbers that can deceive investors,” Buffett writes.
Warren Buffett isn’t an investor in Yahoo, but the company will be hoping to get a bounce from the billionaire investor’s decision to webcast Berkshire Hathaway’s annual gathering of shareholders for the first time.
Yahoo Finance, the US-based business news website, will webcast the meeting which takes place on April 30 in Omaha, Nebraska.
The meetings capture the attention of investors across the globe who hope for some inights from the billionaire investor famous for his long-term approach to stock-picking.
Business publications and media networks compete to bring investors behind-the-scenes details from the event, which also showcases Berkshire’s many subsidiaries, such as See’s Candy and Borsheims Fine Jewelry.
It’s amazing, but nearly a year into the Trump campaign the pundits still don’t get it: the louder established members of the broken, crony capitalist status quo rail against Trump, the higher his popularity. And there are few more entrenched crony capitalists than the partner of Barack Obama’s “tax advisor”, the person who singlehandedly crushed the Keystone XL pipeline project so it would generate more profits for his oil trains, Hillary’s number one supporter (perhaps tied with Lloyd Blankfein), Warren Buffet’s sidekick Charlie Munger.
Earlier today Munger, the vice chairman at Berkshire Hathaway Inc., dismissed Republican Donald Trump’s qualifications to be president, during the annual meeting of his Daily Journal Corp. As reported by Bloomberg, Munger, 92, responded to a question whether a person who couldn’t make money in the gaming industry would be a good fit for the top office in the U.S.
“Well, he did make money for quite a while,” Munger said. “My attitude is that anybody who makes money running a casino is not morally qualified.”
The refernce, of course, is to Trump’s several corporate bankruptcies. What was omitted is any discussion of how bankrupt Munger, Buffet and/or Berkshire Hathaway would have been had their extensive financial stakes not been bailed out by the US taxpayer during the financial crisis, something profiled by Reuters in 2009.
Investment guru Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11 per cent with two more trading days to go.
The underperformance comes in Mr Buffett’s Golden Anniversary year at the helm, when he told investors for the first time that they should judge his record based on Berkshire’s share price, rather than just the book value of the company, which had been his preferred yardstick for decades.
Mr Buffett urged them to make that judgment based on the long term, rather than on a single year, reflecting investing mentor Benjamin Graham’s view that the stock market may be a “weighing machine” in the long run, but in the short term it is a “voting machine”.
But in 2015, the market has been voting negatively on Berkshire’s prospects for weathering the decline in commodity prices, according to Jim Shanahan, analyst at Edward Jones.
Although Berkshire has no oil and gas subsidiaries, its railroad business transports oil, coal and agricultural products, and its manufacturing arm sells products to the shrinking oil industry. Weak results from Berkshire’s insurance divisions in the middle of the year may also be due to lower oil prices, Mr Shanahan said, since lower petrol prices mean drivers and truckers are on the road for longer and having more accidents.
We’re still three days away from the Federal Reserve decision and it already feels like speculation has gone on for months.
“It’s too close to call,” El-Erian said today on CNBC. “And the big question is not whether they are going to hike or not. The big question is why are we so obsessing over a single hike? And that says a lot about how codependent markets and central banks have become.”
If you want to be Warren Buffett and ignore the Fed in favor of a 5-10 year investment horizon then that’s a great argument. But if you’re worried about the next 300 pips in the US dollar then it holds much less water.
Another way to look at the Fed
The question about a hike or not has been beaten to death. There’s no analysis left to do except for watching the news and economic data, like tomorrow’s US retail sales data.
Where there is valuable insight are the secondary questions. Here are three still worth asking:
Does the Fed really want to tighten financial conditions to control inflation, or do they just want to get off the floor
If they Fed hikes, when will they hike again?
Can the Fed meaningfully push rates up with $2.5 trillion parked in cash at the Fed
The Fed is proud of its data dependence and not telegraphing a rate rise but they might have been better served by pre-committing and giving markets more of a chance to focus on questions like this.
It’s been a tough month for investors. As of yesterday, roughly half of the stocks in the S&P 500 have fallen into bear markets, with declines greater than 20%. International stock markets have fallen dramatically, with the losses accelerating on the heels of the latest Asian currency “event”.
We’ve seen stuff like this before. There is a worthwhile lesson in considering how a pair of history’s greatest investors have dealt with this kind of thing in the past.
On the surface, Warren Buffett and David Tepper don’t have a lot in common. One runs a diversified conglomerate and reinvests the insurance premiums into both long-term common stock positions and outright acquisitions of great companies. The other manages a hedge fund and aggressively trades in the markets each day.
But they have something in common that is worth considering today: Both Warren Buffett and David Tepper know that volatility is where returns come from and the losses of today set up the outsized gains of tomorrow. They’ve “lost” some money on the way to earning tons of it.
In the summer of 1998, there was a currency crisis that originated in the far east and eventually wound its way around the globe, culminating in the devaluation of the ruble and the blow-up / bailout of the first systemically risky hedge fund in history, Long Term Capital. Both Buffett and Tepper took quite a beating during this so-called “Asian Contagion” event.
As Nick Murray explains, Warren Buffett was down quite a bit that summer.
A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?
It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market?
The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.
Warren Buffett has found himself the corporate elephant he’s been hunting.
Berkshire Hathaway, the conglomerate run by the billionaire investor for the last half century, has agreed to buy Precision Castparts Corp (PCC), a US engineering company, for $37.2bn.
Under the terms of the deal, Berkshire is paying $235 a share in cash for PCC, and the $37.2bn valuation of the deal includes PCC’s debt.
The acquisition of the Oregon-based company is Berkshire’s biggest yet, eclipsing the $26bn paid for a controlling stake in Burlington Northern Railroad in 2009.
Mr Buffett said:
I’ve admired PCC’s operation for a long time. For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports. Berkshire’s Board of Directors is proud that PCC will be joining Berkshire.
South Korean steelmaker Posco could scrap plans for a $12-billion project it had agreed to set up in Odisha a decade ago, following a new law that makes it costlier to source iron ore for the plant, a company spokesman said.
The 2005 project to set up a steel plant was billed as India’s biggest foreign direct investment at that time but it has encountered a series of delays. The company waited about a decade to acquire land for the proposed 12-million-tonnes-a-year steel plant, owing to opposition from local tribal groups.
Due to a mining law enacted in March, the company will now also have to buy a mining licence in an auction. Initially, the Odisha government had promised to help the company secure the licence for free.
The new law could raise costs for the company at a time when a global steel glut is depressing prices. “We will have to see how our costs will be, whether it will be viable,” said Posco’s India spokesman, I G Lee. “We will take a final call only after the auction details are out.”
Asked whether the company could skip the auction and withdraw from the Odisha project, Lee said: “Yes.”
Through the past two years, Posco and ArcelorMittal, the world’s largest steelmaker, have scrapped a number of other projects in India, citing difficulties in acquiring land and mines. Another withdrawal by Posco could dent Prime Minister Narendra Modi’s ‘Make in India’ manufacturing push.