It’s been a tough few days for Warren Buffett.
Last week, a relatively unknown day trader gained national fame. This trader tweeted “There’s nobody who can argue that Warren Buffett is better at the stock market than I am right now. I’m better than he is. That’s a fact.”
Now, the Financial Times has published an article that seeks to answer the question – has Mr. Buffett lost his touch?
The article points out that Buffett, through his ownership of Berkshire Hathaway, had his worst performance in the last decade compared to the S&P 500 in 2019, and “2020 is shaping up to be nearly as bad.”
The article continues, “Instead of taking advantage of the coronavirus crisis that hit markets in March, Mr. Buffett was a casualty. Instead of highlighting Berkshire’s balance sheet strength, the crisis exacerbated longstanding concerns over the company’s direction.”
Cathy Seifert, an analyst at CFRA Research who covers Berkshire Hathaway, says two deals in particular stand out. The first is the $3 billion write-down of its investment in food producer Kraft Heinz, and the second is the $10 billion invested in oil producer Occidental Petroleum. That company is no longer paying a dividend and Berkshire’s 80 million stock warrants look worthless with the stock now trading below $2 per share.
“Those two things, I believe, have really tarnished Berkshire’s reputation for dealmaking,” Seifert said, adding that the Occidental deal “was an unmitigated disaster.”
Then of course there is Buffett’s selling of all US airline stocks, where Berkshire took a $50 million loss. Buffett made the announcement at the annual Berkshire meeting in early May. After this, shares of American, United, Delta and Southwest plunged. Since then, airline stocks have recovered with American up 86%, Delta up 52%, United up 76% and Southwest up 38%.
James Shanahan, an analyst with Edward Jones said “I am nervous that he may have missed this whole rally. If the rally started in late March and he was a net seller in April, it seems like . . . he missed it all. That’s frustrating. A lot of retail investors were ploughing money into the market and doing better than professional investors. I think you can include Buffett in that.”
Even Bill Ackman, the founder of Pershing Square, who has been a longtime admirer of Warren Buffett, sold his Berkshire shares. He did so believing that he can be more nimble and generate higher returns elsewhere.
Is that value investing – Buffett’s preferred style of investing – is no longer viable in today’s markets? Perhaps, says Christopher Rossbach, chief investment officer of J Stern & Co, a longtime Berkshire stockholder.
“If Berkshire is to have the prospects of generating the value it has in the past, it has to adapt by buying these companies that will generate significant value over the next 25 years,” said Rossbach, adding, “Both Warren and Charlie (Munger) have acknowledged that they have missed Amazon and that they should be looking at these companies but they have also said they don’t understand them. They have kept them in the box that Warren has on his desk that says ‘Too hard’. What will it take for them to take these stocks out of the box?”
At least one investor believes that Buffett may have the last laugh, should the country face a second round of economic troubles due to the coronavirus pandemic. In that instance, Buffett’s caution could be viewed in a more positive light.
Thomas Russo, a managing member of Gardner Russo & Gardner, says “Berkshire Hathaway remains designed to reward investors over time but not on time. “It is one of the reasons we say to people, ‘Don’t be in a hurry to spend that money. If you rush it, he could make a mistake.’”
US Billionaires Got Richer During Pandemic by $845 Billion
US billionaires got richer during the pandemic by a tune of $845 billion. This represents a 29% increase from the time the Covid-19 lockdowns started until now. While the stock market crashed during the early days of the pandemic, it has since recovered. Along with recovery are net worth increases for America’s billionaire. Among the pandemic’s big winners of 2020 were Jeff Bezos, Elon Musk, and Mark Zuckerberg. Also in the list were investor Warren Buffett, Oracle CEO Larry Ellison, and ex-NY Mayor Michael Bloomberg.
RELATED: Jeff Bezos Is Now Worth $200 Billion
In a report released Thursday, the Institute for Policy Studies and the Americans for Tax Fairness (ATF) said the total net worth of 643 of the nation’s richest people rose from $2.95 trillion to $3.8 trillion.
This is equal to a 29% increase between March to September. The report based the numbers on Forbes’ annual billionaire’s report and real-time data.
Jeff Bezos, the founder, and CEO online retail giant Amazon is now the world’s richest man. The pandemic forced people indoors and played right into Amazon’s online strategy. As millions switched to online shopping, demand for Amazon’s services skyrocketed. Amazon shares zoomed along with 40% in 2020, as the company racked up billions in orders. People bought groceries, medicine, household products, and entertainment items on Amazon’s sites. As the company grew richer, so did its CEO and majority stockholder. On August 19, as stock prices of Amazon went up, his net worth exceeded $200 billion. As of September, Amazon stock has fluctuated and Bezos’ current worth is $184 billion.
Another rich guy that got even richer was Tesla’s founder and CEO Elon Musk. Tesla’s value grew five times its January price. By August, the company’s stock split pushed his personal shares to $104 billion. This allowed him to join the coveted centibillionaire club. Compared to his March net worth of $24.6 billion, he’s now over four times that. As of September, with Tesla dropping value, Musk’s worth has dropped as well to $88 billion.
Facebook’s Mark Zuckerberg, who was worth $107.6 billion in August (now down to $93.7 billion). Facebook stock rose from $209 in Jan to $303 in August, making his 13% stake worth over $100 billion. Like Musk, he also joined the centibillionaire club this year.
“COVID crisis supercharges inequalities”
Chuck Collins, director of the Institute for Policy Studies’ Program on Inequality, and co-author of the report said he was somewhat shocked by the figures. He added that the COVID crisis is “supercharging America’s existing inequalities.” He said, “I would have thought maybe six months into this that things would have shaken out – that everybody would take a hit.”
“The difference is stark between profits for billionaires and the widespread economic misery in our nation. It sort of dramatizes the unequal sacrifice and profiteering element of the wealth accumulation at the top.”
Meanwhile, Covid-19 infected 6 million Americans and killed more than 200,000. As businesses collapse, the economy outside of Wall Street is in recession. More than 50 million jobs vanished in the pandemic. At present, 14 million Americans remain unemployed. Even those lucky enough to still have jobs got hit. Average work income fell by 4.4.%, per Bureau of Labor Statistics data. Outbreaks are still prevalent, even as a vaccine remains under development.
As such, the economy’s reopening remains slow.
Even local governments are feeling the pressure. States and cities are hamstrung with crippling deficits. California declared a $54 billion deficit, while New York City is looking at a $9 billion loss in revenue. From now until 2022, state budgets face a $555 billion deficit. This is according to the Center on Budget and Policy Priorities.
COVID-19’s unique effect made those with better plans during the pandemic fares better than most. In the case of Amazon, people flocked to their site when going out posed safety issues. For the others, the rise in stock reflected more on how they handled their business during the crisis. Some people are just quicker to seize on opportunities, even those coming from a crisis.
Watch this as Bloomberg reported last July 2020 on how billionaires got $637 billion richer during the pandemic:
Should we begrudge the rich getting richer, especially at a time like this? Do they deserve this success? Let us know what you think by leaving your thoughts on the comment section below.
Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed
The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.
Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”
“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.
Uncertainty and the Stock Market
However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.
“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”
“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”
Stimulus and Economic Recovery
Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.
“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”
Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.
Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce
Yesterday we had the first part of a recent interview by Kitco News with Pierre Lassonde, who retired as chairman of the board at Franco-Nevada earlier this year.
In today’s article, we highlight Lassonde’s comments on gold and why he thinks the Dow/gold ratio could hit 1:1 parity.
Lassonde says that retail interest in the gold market is evident by the record inflow into the GLD gold ETF this year, which has already set a record.
“If you look at gold itself, just look at the gold ETF. Look at GLD. GLD is up over 900 tons this year alone. They’ve had more inflow of money in the first 9 months of this year than any year in the past 16 years. It’s been public since 2004. It’s a record inflow of money into GLD and that’s also a precursor to what’s happening in the equity sector.”
He also says that gold prices will move higher should Democratic nominee Joe Biden win the November election. Lassonde says all the money that will be printed to finance all the new spending.
“If Biden gets in and they decide to do the kind of medicine we have in Canada, the costs are just going to blow out, they are going to have to print more money, all of that is going to fuel the gold price up.”
How high the price will rise is anyone’s guess, but Lassonde says he expects that at some time in the next 5-10 years, we will see the Dow/gold ratio to reach parity at 1:1.
When asked if that means gold will climb or the Dow will fall, Lassonde says he expects a combination of the two, but mostly a slight Dow correction with a massive increase in gold prices.
“It’s hard to see the Dow going down to 10,000 or 12,000. Could it happen? Yes, but I find it very difficult. Could it go down to 20,000? Very possibly. 17,000? Yes, 15,000? Could the gold price go up to $15,000? Absolutely. That’s what I’m talking about, but I don’t think it’s tomorrow morning. I think it’s sometime in the next 5 to possibly as long as 10 years.”
Lassonde says there have been two instances of the Dow/gold ratio reaching 1:1, and both times it occurred for different reasons. This time, he thinks we get to 1:1 due to all the money printing by the Federal Reserve.
“It’s instructive to look at the past. Because twice when it’s happened, it’s happened for very different reasons. Back in 1933, the Dow lost 90% of its value between 1929 and 1933. It went from 360 to 37. The gold price went from $20 to $36. So the gold price almost doubled but the Dow itself went down 90%. In 1980, the Dow had gone down from essentially 1000 to 600 from 1966 to 1980, it came back up to 800, but the gold price as we all know, went from $35 to $800, which is 24x from the beginning. So very, very different responses to different times.”
“The ratio has been 1:1 twice in the past. It takes a 40-50 year period if you look at 1930, 1980, well we are now at 2020, so 40 years, so sometime in the next 5, 10 years I think we are going to see 1:1. But I didn’t know how we were going to get there. With COVID, I think we’ve seen the answer in a sense that if you look at our neighbor to the south, the Federal Reserve, they are printing $3 trillion, they are talking about another package in the $1 trillion to $2 trillion.”
Lassonde does caution that if we see 1:1 parity, we shouldn’t expect $15,000 or $20,000 an ounce gold to stick around for very long. He said based on history it might only be a day or two, or a few weeks at most.
“The key question here is how long is it going to be there? Don’t forget in 1980 the gold price was $800 for less than a day. If you look at the entire quarter the gold price was $675 and if you average out for the year it was less than $600. So yes, it did go to $800, but it was there literally for a day. In 1933 though it went on a little longer than that but it was certainly less than a year, I think it was probably closer to three months or something like that. So the key question is how long will that ratio be 1:1. How long are we going to see the gold price at these crazy numbers. And then what will be the inflation? What’s the dollar going to be worth? I don’t know.”
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