Equifax CEO Resigns

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Sep 262017

I am quoted in a Washington Post article about the CEO of Equifax resigning.

“The CEO should be held accountable, and the chief executive officer is also the chief risk officer, and clearly this company took on risk that resulted in its hacking problem,” said David Kass, a professor of finance at the University of Maryland. “I think the market and investors will be pleased with this decision. A new CEO coming in hopefully will be more security-conscious, with major experience in this area.”

 Posted by at 9:06 pm

Berkshire Hathaway Class A Shares at $1,000,000 in 16 Years?

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Sep 232017

At a recent celebration of the 100th Anniversary of Forbes Magazine, Warren Buffett predicted that the Dow Jones Industrial Average (DJIA) will reach 1,000,000 in 100 years. Since the DJIA is currently at 22,350, this would require a compounded annual return of 3.9% over this time period.

If the DJIA will reach 1,000,000 in 100 years, then how long will it take for Warren Buffett’s Berkshire Hathaway (class A) shares to reach $1,000,000?  At their closing price of $273,139 on September 22, 2017, these shares will reach this target price in 16 years if Berkshire matches its compounded annual gain in its price per share of 8.5% that it has achieved over the past 10 years.  If its growth rate matches that of the S&P 500 with dividends included over the past 50 years of 9.7%, Berkshire will reach $1,000,000 in 14 years.

Berkshire’s compounded growth rate in share price over its 52 year history has equaled 20.8% per annum.  Since this performance has more than doubled that of the S&P 500 over this time period, it is not unreasonable for Berkshire to continue to outperform this index and reach $1,000,000 per share sooner.

Berkshire Hathaway’s assets are largely comprised of over 90 largely autonomously managed companies in numerous industries.  Its businesses are well-managed as is its portfolio of common stocks. With $100 billion in cash on its balance sheet and generating over $1 billion in free cash flow per month, Berkshire is likely to make major additions to both its stable of companies as well as its common stock portfolio. These additional investments will provide a steady source of growth in earnings as well as to its share price over time.

Warren Buffett’s magic number of 1,000,000 will be achieved for Berkshire’s common stock long before it is attained for the DJIA.

(Note 1:  Berkshire Hathaway class B shares closed on September 22, 2017 at $181.86.  Since they are valued at 1/1,500 of each class A share, their price when Berkshire class A shares reach $1,000,000 would be $666.67 per class B share.)

(Note 2:  This blog post has been published by Investing.com and ValueWalk.)


 Posted by at 6:47 pm

Changes in Monetary Policy at the Federal Reserve

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Sep 192017

I am quoted in the Washington Post with respect to upcoming changes in monetary policy at the Federal Reserve.

“The stock market has essentially been expecting this for a while,” said David Kass, a professor of finance at the University of Maryland. “It will be a gradual unwind of the Fed balance sheet and has been incorporated into current prices.”

Kass said that so far, the Federal Reserve has straddled a careful line and fulfilled its twin goals of price stability and maximum employment. Now the central bank wants to begin easing back and let the economy run on its own.

“In terms of interest rates, the goal is to get back to a level before quantitative easing,” said Kass, referring to the Fed’s strategy of buying government bonds, which helped keep interest rates low. Kass said he expected interest rates to gradually rise to around 3 percent. Rates are between 1 and 1.25 percent currently.

 Posted by at 6:49 pm

U.S. Support for Free Trade Endures in Trump Era, Poll Shows

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Sep 172017

I am quoted in a Morning Consult article about a poll for the Bloomberg Global Business Forum that indicates U.S. support for free trade in the Trump era.

“Even one basic economics class shows that free trade is a way to maximize consumer welfare for all,” David Kass, professor of finance at the University of Maryland School of Business, said in a phone interview Friday. “There are always winners and losers, of course. But I think the majority of people have seen the benefits of free trade over recent years and decades.”

But American consumers are still likely to favor free trade since it largely leads to lower prices, according to Kass.

Americans “are able to purchase goods from other countries that may be less expensive than those produced here,” he said. “This would result in increased purchasing power for the consumer and an increase in standard of living.”

 Posted by at 12:21 pm

Amazon Seeks Second Headquarters

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Sep 082017

I am quoted in a Washington Post article about Amazon seeking a second headquarters in North America.

But some say opening a sprawling new headquarters could help the tech giant win over local lawmakers.

“It would create a very favorable political environment wherever they located, such that the congressmen and senators where they locate would be supportive of the company if issues came up in Congress with antitrust,” said David Kass, a professor of finance at the University of Maryland. He added that if Amazon were to choose a location represented by both Democrats and Republicans, “they would be creating friends in Congress in both parties.”

He added that the Washington area, where Bezos recently bought a $23 million house, could be a likely contender. The area has a highly educated population and a growing pool of young workers. Plus, he said, keeping Amazon’s headquarters in the United States could help ease relations with the president, who has in the past been critical of the company.

“Amazon would be scoring many points with the president by saying, ‘Look, we are creating 50,000 American jobs,’” Kass said. “I think the president would appreciate that.”

 Posted by at 8:55 pm