Apr 082020
 

COVID-19 is a once in a century event that the world has not experienced since the Spanish Flu of 1918. Fortunately for the United States, we have entered this public health crisis with a strong economy and banking system. The stock market and the economy will start to recover as soon as the number of new cases declines sharply and we can see the light at the end of the tunnel with the likely development of therapeutic treatments by the end of the summer. Only when we have a vaccine, which is estimated to be one to two years away, can the economy fully recover. This Great Health Crisis is similar to a natural disaster such as an earthquake that has temporarily shut everything down,

The Federal Reserve, Treasury Department and Congress are providing the necessary financial resources to permit the economy to survive until it is safe for economic activity to resume.  This may take several weeks or months. The duration of this public health crisis is not known. But The Great Health Crisis is definitely not another Great Depression that lasted 12 years nor The Great Recession which were financial crises resulting from a weak banking system.

 Posted by at 2:40 am
Apr 072020
 

Recently there has been criticism by elected officials and others of company policies of buying back their stock and paying cash dividends, especially in the current environment of the public health crisis faced by this country and the rest of the world.

Former Federal Reserve Chairman Ben Bernanke was interviewed today at Brookings and addressed these and other issues. He stated that, in general, stock buybacks and dividends are good as capital not needed in one sector of the economy (or company) is returned to shareholders who then reinvest or reallocate this capital to other sectors (or companies) where it is needed. Thus, excess cash that cannot profitably be invested by one company is reinvested elsewhere in the economy.

With respect to the issue of whether the government should receive equity stakes in companies such as airlines that receive grants to help them recover from the virtual shutdown resulting from the coronavirus, Bernanke responded that there is a delicate balance between enabling these companies to survive in the future and allowing taxpayers to earn a return on these grants. Equity stakes could take the form of warrants that would be convertible into the common stock of the company receiving the grant.

 Posted by at 8:34 pm
Apr 042020
 

Becky Quick stated on CNBC that Warren Buffett would not speak publicly until the Berkshire Hathaway annual meeting on May 2. Therefore, he will not explain until then why he sold some of Berkshire’s shares in Delta Airlines and Southwest Airlines on April 1 and 2. Neither will he discuss, until May 2,  what purchases and sales of equities Berkshire has made during the stock market crash since February 19.  Berkshire’s next SEC 13F filing, which will reveal its portfolio as of March 31, 2020, will be filed on May 15.

 Posted by at 9:41 pm
Mar 252020
 

Former Federal Reserve Chairman Ben Bernanke was interviewed on CNBC this morning.  Bernanke was Fed Chairman during the Financial Crisis of 2007-2009 and is an expert on the Great Depression.

(1) Former Federal Reserve Chairman Ben Bernanke expressed optimism about the longer-term picture for the U.S. economy.

(2) He sees a ‘very sharp’ recession, followed by a ‘fairly quick’ rebound (Sharp short recession in next quarter or two.)  (Sharp recovery in 4th quarter 2020 and 1st quarter 2021)

(3) Interest rates declining for the past 40 years and likely to stay low as a result of a global gut in saving.

(4) Whether or not economy will snap back depends on the course of the virus, and whether we can keep the economy healthy or at least functioning throughout this shutdown period

(5) This is a very different animal from the Great Depression … this has some of the same feel, some of the feel of panic, some of the feel of volatility. But it’s much closer to a major snowstorm or a natural disaster than to a classic 1930s style depression

(6) “We don’t want to put people back to work when the public health situation is still in bad shape,”. “It is important before we put everybody back to work that we feel like we have the public health situation under control.

(7) This is not similar to the Great Depression of the 1930’s which lasted 12 years.  The financial system is strong.

(8) There will be a “very sharp” recession in the next quarter or two, former Fed Chair Ben Bernanke says. “You’re going to see some really scary numbers.”

(9) “Low interest rates are something we’re going to have to live with for a while.

(10) “The infection–so to speak– is going in the other direction from the economy to the financial system (as compared to the Financial Crisis of 2007-2009). “The good news is we came into this with a much stronger banking system.”

 

 Posted by at 10:13 am
Mar 202020
 

I am quoted in this Yahoo Finance article:

“One of those airlines would certainly be affordable and doable” for a Berkshire purchase, David Kass, a University of Maryland finance professor who once ran a Warren Buffett blog, told the Dallas paper. “But then the question is, would Buffett really want to do that?”

(Note: Contrary to this quote, I am still running this Warren Buffett blog.)

 Posted by at 7:45 am
Mar 122020
 

I was interviewed in Smith Brain Trust (Robert H. Smith School of Business, University of Maryland).

EXPERT OFFERS ADVICE IN A VOLATILE MARKET WEEK

Mar 12, 2020
Finance

SMITH BRAIN TRUST – For investors concerned about market uncertainty invoked by the coronavirus: Don’t touch your face and certainly don’t touch those stocks.

In what has been a volatile trading week on Wall Street amidst coronavirus fears with the Dow Jones entering bear market territory marking the end of an 11-year bull market run, investors may feel like they need to get out.

Maryland Smith’s David Kass says while the pandemic is serious, investors must keep calm and carry on.

“For people who are currently invested in the market, just don’t do anything and don’t panic,” says Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business. “You need to ignore the volatility and keep a long term outlook of several years.”

If you can afford it, Kass says, the stock market is still a good bet when it comes to growing funds at a rate faster than inflation. But everyone’s financial situation is different, he says, and investors should assess their own degree of risk tolerance. Aside from playing the long game, Kass says that a good rule of thumb for investors is to put as much money as they feel comfortable into the market.

“There’s no one answer for everybody,” says Kass. “But there is an old expression that if you’re losing sleep over your investments, you should sell down to your sleeping point. I think that that’s sound advice for seasoned and inexperienced investors alike.”

New investors who believe now is the moment to jump in may want to reconsider too, says Kass. With so many variables at play, it is hard to predict exactly how the markets are going to respond to breaking news. Any losses suffered early could be disheartening for new investors and may dissuade them from investing later on down the road, he says.

“Although it never hurts to get your toes wet when it comes to investing, waiting for the markets to stabilize is your best bet,” Kass says.

When it comes to short-term moves, Kass recommends putting aside adequate funds in a safe place for things you might need in the coming year like food, rent or education payments.

“You might consider safe investments such as insured certificates of deposit, money market funds, and Treasury bills” says Kass. “But anything you know you will need in the next year, do not put that in the stock market.”

 Posted by at 9:58 pm
Mar 122020
 

I am quoted in Bloomberg on Warren Buffett and Occidental.

Occidental’s dwindling market value has raised speculation over whether Buffett would ever buy the company outright. While Buffett has the funds, any eventual purchase would depend on his outlook for the oil market and other variables, said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.

“It’s certainly well within the $128 billion that Buffett has to spend,” Kass said. “But would the risks far outweigh the expected reward?”

 

 

 Posted by at 9:52 pm
Mar 112020
 

I am quoted in the Baltimore Sun on the University of Maryland conducting all classes remotely because of the coronavirus.

David Kass, a finance professor at College Park, said he’s canceled an annual trip to Charlottesville, Virginia, with his students. He’s been practicing how to conduct his classes online, and said that’s where university instruction was headed even before the outbreak.

He still prefers to teach in person, and wonders how he will be able to gauge class reactions.

“I read the body language in the room and I can react,” he said. “I look to see if a student is confused. I can sense if they’re engaged.

“But obviously, I have 50 students in each class,” Kass said, “I can’t see how they’re reacting in 50 different remote locations.”

 Posted by at 8:30 am