Tag Archives: Berkshire Hathaway

“The Costs Are Up, Up, Up. We’re Seeing Substantial Inflation” Admits A Surprised Warren Buffett As Powell, Yellen See Nothing, by Tyler Durden

This is a pretty good summary of this weekend’s Berkshire Hathaway annual meeting and Warren Buffet’s words of wisdom for those who don’t have a day to sit through the video. Note well Buffet’s words on inflation, there’s nobody with a better view of the entire economy. From Tyler Durden at zerohedge.com:

We already touched on two of the more colorful exchanges from Saturday’s Berkshire annual videoconference, both of which incidentally starred the traditionally far more outspoken Charlie Munger, who first crushed a generation’s monetary dreams saying that today’s Millennials will have “a hell of a time getting rich compared to our generation”, and then infuriated tens of millions of cryptofans and diamond hands (such as Dan Loeb) when he said that “the whole damn development” of crytpocurrencies “is disgusting and contrary to the interests of civilization.”

Yet while those two incidents may prompt the most Monday morning watercooler talk, what was most relevant from a macro and markets standpoint was Buffett’s observation of something the Fed and Treasury are terrified to admit: that a tidal wave of inflation has been unleashed upon the US and it’s only getting worse.

Speaking to Berkshire’s millions of shareholders on Saturday, Buffett said that he was surprised by the “red hot” US economic rebound and warned the company was being hit by inflationary pressures.

“We’re seeing very substantial inflation,” the 90-year-old billionaire who apparently does not have a Fed charge card, said in his nearly 6 hour long address to investors. But it’s what he said that was especially ominous:  “It’s very interesting. We’re raising prices. People are raising prices to us and it’s being accepted.”

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Warren Buffett isn’t buying. Why should anyone else? by Simon Black

Perhaps you’re long and strong on the stock market, maybe even leveraged, because deep down inside, you know you’re a better investor than Warren. Good luck with that. From Simon Black at sovereignman.com:

Over the weekend on Saturday morning, amid its usual fanfare and attention, Warren Buffett’s company Berkshire Hathaway released its annual report to the public.

This is a pretty big deal each year. Investors and financial reporters typically wait with baited breath to hear what the Oracle himself has to say in his legendary annual letter.

Buffett’s topics in previous letters have covered a lot of ground– the state of the US economy, value investing education, why Wall Street is so deeply flawed, commentary on financial markets, etc.

This year’s letter was, as usual, quite interesting… but primarily because of what Buffett said about his own business.

Berkshire Hathaway is an enormous enterprise; it’s essentially a $500 billion holding company that owns dozens of smaller businesses, all of which collectively generate tens of billions in free cash flow.

Buffett’s primary mission is to acquire more businesses and expand Berkshire’s portfolio… and then ensure that each of those subsidiaries has top quality management to grow the cashflow.

And that’s what was so interesting about this year’s letter: Buffett couldn’t really do his job.

According to Warren Buffett himself:

In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.

Now, consider that Berkshire Hathaway’s cash pile rose to an astonishing $116 billion at the end of 2017.

With that much money on hand, very few companies are out of Buffett’s reach.

Specifically, $116 billion would have been enough money to acquire any one of 465 out of the 500 largest companies in the United States– including Nike, Starbucks, UPS, Netflix, and Ford.

To continue reading: Warren Buffett isn’t buying. Why should anyone else?

Why Buffett Pulled Back: Companies Overvalued after “Purchasing Frenzy” Fueled by “Cheap Debt”, by Wolf Richter

When Warren Buffett pulls back for an extended period, stock market bulls may want to reconsider. From Wolf Richter at wolfstreet.com:

Warren Buffett explains in his annual letter to Berkshire Hathaway shareholders why he made only one large deal in 2017 (the 38.6% stake in Pilot Flying J) though his investment vehicle is sitting on a huge pile of cash, and why it will continue to sit on this pile of cash, rather than invest it. This “recent drought of acquisitions,” as he says, came down to this: Companies are overvalued.

He blames the “purchasing frenzy” by deal-crazy CEOs, “cheap debt,” and other factors, including those CEOs’ promises of “synergies” that then rarely or never materialize.

Buffett goes through it step by step. One of the four “key qualities” for acquiring stand-alone businesses is a “sensible purchase price,” he said:

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.

“Why the purchasing frenzy?” Buffett asks and then shows how that frenzy happens:

  • “In part, it’s because the CEO job self-selects for “can-do” types.”
  • “Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase.”
  • “Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size.”
  • “Investment bankers, smelling huge fees, will be applauding as well.”
  • “If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.”

Then there’s the central-bank aspect – the effects of their experimental emergency monetary policies that have now endured for nine years. In the corporate credit market, these policies have pushed the cost of borrowing, even for risky companies doing highly leveraged deals, to ludicrously low levels:

The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity. After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed.

At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities).

We also never factor in, nor do we often find, synergies.

To continue reading: Why Buffett Pulled Back: Companies Overvalued after “Purchasing Frenzy” Fueled by “Cheap Debt”

Warren Buffett’s mobile home empire preys on the poor, by Daniel Wagner and Mike Baker

If even half of the allegations in this article are true, the “people’s billionaire” Warren Buffet’s professions of concern for the poor ring hollow. From Daniel Wagner and Mike Baker on an article jointly reported and written for The Center forPublic Integrity and The Seattle Times, on public integrity.org:

Denise Pitts walked into the pawn shop not far from where she bought her mobile home in Knoxville, Tennessee, and offered up her wedding rings for $100. Her marriage wasn’t over, but her husband was battling cancer and, Pitts said, her mortgage company told her the only way to keep a roof over his head would be to sell everything else.

Across the country in Ephrata, Washington, Kirk and Patricia Ackley sat down to close on a new mobile home, only to learn that the annual interest on their loan would be 12.5 percent rather than the 7 percent they said they had been promised. They went ahead because they had spent $11,000, most of their savings, to dig a foundation.

And near Bug Tussle, Alabama, Carol Carroll has been paying down her home for more than a decade but still owes nearly 90 percent of the sale price — and more than twice what the home is worth.

The families’ dealers and lenders went by different names — Luv Homes, Clayton Homes, Vanderbilt, 21st Mortgage. Yet the disastrous loans that threaten them with homelessness or the loss of family land stem from a single company: Clayton Homes, the nation’s biggest homebuilder, which is controlled by its second-richest man — Warren Buffett.

Buffett’s mobile home empire promises low-income Americans the dream of homeownership. But Clayton relies on predatory sales practices, exorbitant fees, and interest rates that can exceed 15 percent, trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance, an investigation by The Center for Public Integrity and The Seattle Times has found.

http://www.publicintegrity.org/2015/04/03/17024/warren-buffetts-mobile-home-empire-preys-poor

Spokeswomen for Berkshire Hathaway and Clayton ignored repeated requests for comment.

To continue reading: Warren Buffett’s mobile home empire preys on the poor