The U.S. Treasury yield curve is NOT inverted. The yield on the 3 month U.S. Treasury Bill is 2.44% and the yield on the 30 year U. S. Treasury Bond is 2.88%. The U.S. Treasury yield curve is flat between 3 months and 10 years (2.44%), but upward sloping from 10 years to 30 years.
Recession fears appear to be premature despite a flat yield curve (3 months vs. 10 Year Treasuries.) All previous U.S. recessions since World War II were preceded by the Federal Reserve raising interest rates too far and too fast from much higher levels. The Great Recession of 2007-2009 was also caused by subprime mortgages and too much debt in the housing market. With the Federal Reserve not planning to raise short term interest rates in the near future, interest rates near historically low levels, and inflation stable at 2% which is the target of the Federal Reserve, there appears to be little likelihood of a recession later this year or in 2020.
I am quoted in a Bloomberg article: “Buffett’s Course Reversal on Airlines Sparks Talk of Acquisition”.
Last year, the famed investor said he wouldn’t rule out owning a carrier, prompting talk about which one he’d grab. “One of those airlines would certainly be affordable and do-able” if Berkshire wanted to buy, said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business. “But then the question is, would Buffett really want to do that?”
StoneCo Ltd. (STNE), a financial technology company in Brazil, is up 20% in extended hours trading at $41.44 on higher than expected earnings. It is now 70% above the IPO price of $24 paid by Todd Combs of Berkshire Hathaway in October, 2018.
StoneCo Ltd. is a financial technology company based in Brazil, the fourth-largest payment processor by volume in that country. Brazil is the fourth-largest market for non-cash transaction volumes in the world, which gives the company a lot of scope for growth. Todd Combs of Berkshire Hathaway invested $340 million in the company’s initial public offering, buying about 11 percent of the company. Berkshire had not previously invested in an IPO in decades.
On March 6, I was interviewed for about 30 minutes on Wharton Business Radio (SiriusXM 132) on issues at Kraft Heinz.
In an SEC Filing today (Proxy Statement for Annual Meeting of Shareholders), Berkshire Hathaway revealed that Vice Chairmen Ajit Jain and Greg Abel each received $18 million in compensation in 2018. In previous years, prior to their promotion to Vice Chairmen, their compensation had not been revealed.
In an SEC Form 4 filing, Berkshire Hathaway revealed that it added $250 million to its $3 billion stake in Delta Airlines last week at about $49 per share. It currently owns a 10% stake in Delta Airlines.
Today is the 10th Anniversary of the stock market bottom of March 9, 2009. From October 9, 2007 through March 9, 2009 (17 months), the Dow Jones Industrial Average declined by 55%, with the S&P 500 declining by a similar percentage. The Great Recession officially began in December, 2007 and ended in June, 2009. Over the past 10 years, both the S&P 500 and Dow Jones Industrial Average have quadrupled.
Although the S&P 500 (with dividends included) declined by 37.0% in 2008, it rose by 26.5% in 2009, 32.4% in 2013 and 21.8% in 2017. This index rose in each year from 2009 through 2017, but declined by 4.4% in 2018.
Over the 54 year period of 1965-2018, the S&P 500 (with dividends included) rose in 80% of the years, while declining in the other 20%. (The 54 years were comprised of 43 up years and only 11 down years for the S&P 500 with dividends included.) During this time period, the S&P 500 (with dividends included) achieved a compounded annual gain of 9.7%.
Warren Buffett was interviewed on CNBC today from 6 – 9 a.m. ET. The 10 highlights were:
(1) Berkshire overpaid for Kraft Heinz which is losing pricing power and market share to private label brands such as Kirkland (Costco). Berkshire is not planning to either buy or sell shares in Kraft Heinz.
(2) Ajit Jain and Greg Abel each received $18 million as compensation in 2018. Todd Combs and Ted Weschler each manage $13 billion, are slightly underperforming the S&P 500, but assist with acquisitions and are outperforming Buffett.
(3) If 30 year U.S. Treasury bonds continue to yield only 3% for the next 10 years, then stocks are undervalued.
(4) He prefers lower prices for Apple so they can buy back more shares with their $130 billion in cash.
(5) Berkshire’s average cost of Apple = $141 per share and would buy additional shares only at lower prices than the current price of $174.
(6) Banks and financials are good businesses selling at attractive prices. He praised Bank of America and JP Morgan Chase.
(7) The inequality gap is widening and needs to be addressed, but we should not do anything to the goose laying golden eggs.
(8) He would support Mike Bloomberg for President. Howard Schultz should not run as an independent since he would more likely take votes from the Democrat since his views are closer to that party. We should have just two major candidates for President (Democratic and Republican parties).
(9) The decision to buy and sell Oracle was Buffett’s since he felt he did not understand the business and cloud well enough.
(10) He is not big fan of IPO’s.
These are 5 quotes from Warren Buffett’s Letter to Shareholders:
(1) “2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster.”
(2) “Certain shareholders will simply decide it’s time for them or their families to become net consumers rather than continuing to build capital. Charlie (95) and I (88) have no current interest in joining that group. Perhaps we will become big spenders in our old age.”
(3) “Most of our major holdings use a portion of their retained earnings to repurchase their shares. We very much like that: If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage.”
(4) “Rational people don’t risk what they have and need for what they don’t have and don’t need.”
(5) “Berkshire’s value is maximized by being a single entity. This arrangement allows us to seamlessly and objectively allocate major amounts of capital, eliminate enterprise risk, avoid insularity, fund assets at exceptionally low cost, occasionally take advantage of tax efficiencies and minimize overhead. At Berkshire, the whole is greater – considerably greater – than the sum of the parts.”