S&P 500: Using Comparison Analysis For An Edge

Multi timeframe, as well as comparison analysis, have many benefits. As traders, we tend to utilize the shorter-term time frames to enter our trades and place our stops. But the BIG money is made from gleaning information from the longer-term charts. We would classify long term as monthly or weekly while short term would be a daily or 4-hour time frame.

Comparison analysis can be done by comparing different time periods or we can see how our market is trading vs another highly correlated market.

Since we have a lot of subscriber interest in stocks, we thought it might be time to compare the current chart of the SPY to the S&P 500 index during the 2002-2009 period. The S&P 500 weekly chart experienced a nice bull market with several buy points from 2002 up to 2007.

S&P’s 2007 top occurred at its 2.0 or 200% extension of its 2002 high vs low. Then about 5-months later sold off a little over -20%. After hitting the key -20% psychological end-of-bull-market area the S&P rallied for several weeks up to its 1.618 overhead resistance. Then after turning back down at the 1.618 the S&P lost approximately -50% of its value. The complete drop occurred over a 17–18-month period from peak to trough.

2002-2009 SPX • S&P 500 Index CFD • Weekly • Tradingview

Comparison analysis SPY

Spy Vulnerable to Another -8% Down Before Staging a Dead-cat Bounce!

The SPY is down approximately -12 to -13% from its peak for 2022. It is feasible the SPY could fall another -8% or reach -20% before it stages some type of rally into late summer or early fall. If this scenario plays out, we should then prepare for what could be a significant drop or bear market in the 4th quarter of 2022 that could extend into 2023 and beyond.

The 2007 top of the S&P 500 index occurred at 2.0 or 200% of its previous major high-low swing low. The 2022 top for the SPY also occurred at 2.1618 or 200% of its Covid high-low swing low.

The potential exists for the SPY to pull back -20% from its peak before staging a temporary rally to a lower distribution top.

2020-2022 SPY • SPDR S&P 500 ETF TRUST • 4-Hour • Tradingview

Comparison analysis SPY

USD Continues to Move Higher

We are now seeing that major economies (US/UK/Japan) are not immune from global deleveraging and inflation. Investors have been seeking safety in the US Dollar and this may eventually trigger a broader and deeper selloff in U.S. stocks. As the USD continues to strengthen corporate profits for US multinationals will begin to disappear.

Especially in times like these, traders must understand where opportunities are and how to turn this knowledge into profits. Part of what we do at www.TheTechnicalTraders.com is to distill price action into technical strategies and modeling systems. These assist us in understanding when opportunities exist in the US stock market and specific sector ETFs. Our core objective is to protect our valuable capital while identifying suitable risk vs reward opportunities for profits in new and emerging trends.

A Canary in the Coal Mine – Berkshire Hathaway

Around 1911, miners would carry canaries into coal mines to give them an advanced warning of danger. This phrase or analogy is also utilized by traders in the financial markets. Our canary or canaries would simply be a market or stock that might give us an indication that there is a problem with the overall market or that the global equity markets are shifting from a bull to a bear.

Berkshire Hathaway BRK.A (NYSE) founded and operated by famed Warren Buffet is a diversified holding company that owns subsidiaries that engage in insurance, freight rail transportation, energy generation, and distribution, services, manufacturing, retailing, banking, and others. It is a good candidate for “a canary in the coal mine”, in our case the stock market.

Berkshire is down approximately -9% from its 2022 peak but remains up +10% year-to-date. BRK’s stock price reached 200% as its shares traded above 2.618 and 2.666 for a few days before selling off. From its Covid low on March 23, 2020, to its 2022 high on March 29, 2022, BRK rallied 2 years and 6 days from trough to peak.

If BRK were to lose -20% from its peak or give back all its 2022 gain in the stock price we should prepare to sell the rally that follows if we have not done so already. Note: TTT subscribers are already safely in cash awaiting trade instructions for select alternative or inverted ETFs.

BRK.A • Berkshire Hathaway INC. • NYSE • Daily • Tradingview

Berkshire Hathaway Chart

Understanding Price Is a Game-changer

Our models continually track price action in a multitude of markets and asset classes as we track global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Successful trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe.

We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Best Computer Hardware Stocks To Buy Now

Key Insights

  • Computer hardware stocks are trading at attractive valuation levels. 
  • Markets are worried about demand after the end of the pandemic. 
  • However, some stocks have already started to rebound as they look too cheap to ignore. 

The computer hardware segment has been under pressure since the beginning of this year as traders were worried that PC demand would decline after the pandemic. Indeed, analyst estimates for the stocks in this segment have started to move lower in recent months. However, some stocks are trading at reasonable valuation levels and may attract speculative traders.

HP

HP   stock has recently attracted traders’ attention after Berkshire Hathaway reported an almost 10% stake in the company.

Analyst estimates have been mostly stable in recent weeks. Currently, HP is expected to report earnings of $4.27 per share in the current year and earnings of $4.39 per share in the next year, so the stock is trading at roughly 8 forward P/E, which looks cheap in the current market environment.

The key question is whether analyst estimates start to move lower due to the worries about the health of the global economy. If earnings estimates remain stable, HP stock may get more support.

Western Digital

Western Digital stock is down by more than 20% year-to-date. Analyst estimates have been moving lower in recent weeks, and the company is expected to report earnings of $8.97 per share in the fiscal 2023. Thus, the stock is trading at less than 6 forward P/E, which is certainly cheap.

The company’s valuation looks attractive, and the stock has started to rebound despite the general market sell-off. This rebound would continue in case the company’s quarterly report, which is scheduled to be released on April 28, exceeds market expectations.

For a look at all of today’s economic events, check out our economic calendar.

HP Is Up By 17%, Here Is Why

Key Insights

  • Berkshire Hathaway buys a stake in HP. 
  • The stock rallies as Buffett’s purchases typically provide significant support to stock in the near term as other investors rush to buy shares. 
  • In the longer run, traders will focus on post-pandemic dynamics of demand for HP products.

HP Stock Rallies After Buffett’s Berkshire Hathaway Discloses A Stake In The company

Shares of HP  gained strong upside momentum after Berkshire Hathaway revealed that it had purchased an almost 10% stake in the company.

Buffett’s purchases typically move markets, so it’s not surprising to see that HP shares are up by more than 17% in today’s trading.

It should be noted that the stock has found itself under material pressure at the end of March after it was downgraded by Morgan Stanley. Analysts believed that hardware budgets would be cut in 2022, while demand would slow down as the world recovers and gets back to normal life after two years of the pandemic.

However, Buffett is not worried about short-term challenges, and he is ready to bet that HP would show growth in the years to come.

What’s Next For HP Stock?

Currently, analysts expect that HP will report earnings of $4.29 per share in 2022 and earnings of $4.43 per share in 2023, so the stock is trading at 9 forward P/E. The expected earnings growth does not look impressive, which explains the cheap valuation of the stock.

However, Warren Buffett and his team at Berkshire Hathaway are famous for taking a long-term view, so they are certainly not worried about near-term fluctuations of the company’s earnings.

Buffett’s purchases are followed by an army of investors who would also buy the stock, so HP may continue to move higher in the upcoming trading sessions. However, it remains to be seen whether the impulse from Buffett’s purchase will be sufficient enough for sustainable upside momentum in the near term as the risks from declining demand are real.

For a look at all of today’s economic events, check out our economic calendar.

Volatility Retreats As Stocks & Commodities Rally

The CBOE Volatility Index (VIX) is a real-time index. It is derived from the prices of SPX index options with near-term expiration dates that are utilized to generate a 30-day forward projection of volatility. The VIX allows us to gauge market sentiment or the degree of fear among market participants. As the Volatility Index VIX goes up, fear increases, and as it goes down, fear dissipates.

Commodities and equities are both showing renewed strength on the heels of global interest rate increases. Inflation shows no sign of abating as energy, metals, food products, and housing continues their upward bias.

During the last 18-months, the VIX has been trading between its upper resistance of 36.00 and its lower support of 16.00. As the Volatility Index VIX falls, fear subsides, and money flows back into stocks.

VIX – Volatility S&P 500 Index – CBOE – Daily Chart

VIX

SPY Rallies +10%

The SPY has enjoyed a sharp rally back up after touching its Fibonacci 1.618% support based on its 2020 Covid price drop. Money has been flowing back into stocks as investors seem to be adapting to the current geopolitical environment and the change in global central bank lending rate policy.

Resistance on the SPY is the early January high near 475, while support remains solidly in place at 414. March marks the 2nd anniversary of the 2020 Covid low that SPY made at 218.26 on March 23, 2020.

SPY – SPDR S&P 500 ETF TRUST – ARCA – Daily Chart

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Berkshire Hathaway Record High $538,949!

Berkshire Hathaway is up +20.01% year to date compared to the S&P 500 -4.68%. Berkshire’s Warren Buffet has also been on a shopping spree, and investors seem to be comforted that he is buying stocks again. Buffet reached a deal to buy insurer Alleghany (y) for $11.6 billion and purchased nearly a 15% stake in Occidental Petroleum (OXY), worth $8 billion.

These acquisitions seem to be well-timed as insurers and banks tend to benefit from rising interest rates, and Occidental generates the bulk of its cash flow from the production of crude oil.

As technical traders, we look exclusively at the price action to provide specific clues as to the current trend or a potential change in trend. With that said, Berkshire is a classic example of not fighting the market. As Berkshire continues to make new highs, its’ trend is up!

BRK.A – Berkshire Hathaway Inc. – NYSE – Daily Chart

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Commodity Demand Remains Strong

Inflation continues to run at 40-year highs, and it appears that it will take more than one FED rate hike to subdue prices. Since price is King, we definitely want to ride this trend and not fight it. It is always nice to buy on a pullback, but the energy markets at this point appear to be rising exponentially. The XOP ETF gave us some nice buying opportunities earlier at the Fibonacci 0.618% $71.78 and the 0.93% $93.13 of the COVID 2020 range high-low.

Remember, the trend is your friend, as many a trader has gone broke trying to pick or sell a top before its time! Well-established uptrends like the XOP are perfect examples of how utilizing a trailing stop can keep a trader from getting out of the market too soon but still offer protection in case of a sudden trend reversal.

XOP – SPDR S&P Oil & Gas Explore & Product – ARCA – Daily Chart

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Knowledge, Wisdom, and Application Are Needed

It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and somewhat surprisingly, we entered five new trades last week, four of which have now hit their first profit target levels.

Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Furthermore, successfully trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe.

We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

Warren Buffett’s Berkshire Hathaway Stock Tops $500,000

A subscriber asked us recently where he should be putting his money and how to limit losses in his retirement portfolio. He expressed frustration as he watched Buffett’s Berkshire Hathaway stock going up, but at the same time, the stock indices going lower and many of his previously favored stocks experiencing substantial losses! This conversation naturally piqued our curiosity. We decided to look into this for him and, at the same time, share our findings with our subscribers.

Berkshire Hathaway stock traded at an all-time record high price of $520,654.46. At a stock price of $512,991, Berkshire’s market capitalization is $756.23 billion. Last year, Berkshire generated a record $27.46 billion of operating profit, including gains at Geico car insurance, the BNSF railroad, and Berkshire Hathaway Energy.

Berkshire Vs. S&P 500 Benchmark

Warren Buffett, age 91 (known as the ‘Sage of Omaha’), is the chairman and CEO of Berkshire Hathaway. He is considered by many to be the most successful stock investor in the world and, according to Forbes Real-Time Billionaire List, has a personal net worth that exceeds $120 billion USD.

Very few can compete with his long-term track record. Since 1965, Berkshire has provided +20% average annual returns, almost double the +10.2% average annual returns for the S&P 500 Stock Index benchmark. The 2022 year-to-date comparison is:

BRK.A Berkshire Hathaway +14.53%; SPY SPDR ETF -6.36%; FB Facebook -35.64%

However, according to Buffett’s own humility, he has endured years of underperformance and has had his share of bad stock picks. When Buffet was asked about drawdowns at one of Berkshire’s annual meetings, he stated, “Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market.” According to yahoo, the five biggest percentage losses for Berkshire have been:

1974 -48.7%, 1990 -23.1%, 1999 -19.9%, 2008 -31.8%, and 2015 -12.5%.

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What Can We Learn From the ‘buffett Indicator’?

The Buffett Indicator, as dubbed by Berkshire shareholders, is the ratio of the total United States stock market valuations (the Wilshire 5000 stock index) divided by the annual U.S. GDP. The indicator peaked at the beginning of 2022 and remains near all-time highs even though many stocks are well off their record levels.

This historical chart of the Buffett Indicator was created by currentmarketvaluation.com. Doing quantitative analysis, we learn that the indicator is more than 1.6 standard deviations above the historical average, which suggests the market is over-valued and, in time, will fall back to its historical average.

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Berkshire Hathaway At Fibonacci Resistance!

On March 18, 2022, Berkshire hit an all-time high price of $520,654. The Fibonacci resistance level of 2.618 or 261.8% of the March 23 low of $239,440 is $520,196. As shown on the daily chart, Berkshire also met resistance at the 2.618 standard deviations of the quarterly Bollinger Band.

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THE BENCHMARK: S&P 500 SPY ETF

The S&P 500 Index is the industry standard benchmark when comparing investment returns. It’s worth noting that as Berkshire reached the Fibonacci 2.618 resistance, the SPY found support at the Fibonacci 1.618 of the SPY March 23, 2020 low.

Central banks have begun to tighten credit by raising interest rates for the first time since 2018, attempting to bring fast-rising energy, food, and housing prices under control. More time is needed to determine the full impact that rising global interest rates will have on current markets.

However, on the chart below, we can see that the SPY put in a major top around 480 and, for the time being, has found support around 420 (the Fibonacci 1.618 level). Considering the increased market volatility and that we are now entering a cycle of higher interest rates, it would not surprise us to see the SPY eventually break below 420.

It is worth noting that when a market makes a top after a prolonged bull-market, we usually experience distribution. Distribution with volatility results from large institutions beginning to liquidate their holdings while smaller retail investors are trying to buy stocks on sale. In other words, the retail investors are buying the dip hoping to get a bargain, while the institutional investors are selling the rally hoping to be liquidated and/or go short. It is a battle that retail investors will eventually lose!

It is important to understand we are not saying the market has topped and is headed lower. This article sheds some light on some interesting analyses that you should be aware of. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades with subscribers to our newsletter, and surprisingly, we have just entered five new trades.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Graphical user interface, chart Description automatically generated

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

GET READY, GET SET, GO – We invite you to learn more about how my three ETF Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

Charlie Munger Describes Crypto as a “Venereal Disease”

There are some people that are constantly sharing their bearish and negative thoughts on crypto, especially on Bitcoin, such as Peter Schiff, Nouriel Roubini, Warren Buffett, and Charlie Munger.

Yesterday, Charlie Munger, the 98-year-old American investor commented about crypto at the Daily Journal shareholder annual meeting in Los Angeles, saying that:

“I certainly didn’t invest in crypto. I’m proud of the fact that I avoided it. It’s like some venereal disease.”

Charles “Charlie” Munger is an American billionaire investor and philanthropist. He graduated from Harvard Law School, and he is the Chairman of the  Daily Journal and Vice Chairman of Berkshire Hathaway. He is known as Warren Buffett’s right-hand man.

Charlie Munger’s Other Comments About Crypto During the Q&A Session

Also, he discussed how he supports China’s ban on cryptocurrencies, while the U.S. takes a different stance. He said: “I admire the Chinese for banning it. I think they were right and we were wrong to allow it”.

Additionally, he talked about the U.S. having its own digital currency, and he commented:

“The Federal Reserve could have a currency if they want one…we’ve got a digital currency already, it’s called a bank account. The banks are all integrated with the Federal Reserve system”.

Can Charlie Munger’s Thoughts Affect Crypto?

Over the last 24 hours, the entire crypto market is down 1.89%. Cryptocurrencies like Bitcoin and Ethereum are down 1.76% and 2.04%, respectively.

It’s not the first time Munger talked negatively about crypto. In December of 2021, he called crypto “crazier than dot-com era”, according to the Sydney Morning Herald.

Last year, at the Berkshire Hathaway annual meeting in May 2021, he commented  “Of course I hate the Bitcoin success,” and he was along with his partner Warren Buffett. Around that time, Bitcoin was about $57,800 and fell around 50% until July 2021, when it began to recover. It reached an all-time high of almost $69,000 in November 2021.

Let’s not forget what Munger’s partner Warren Buffett said in 2018 about Bitcoin being a “probably rat poison squared,”. Bitcoin was trading around $9,500, then it dropped to $3,250 in December that year, and then three years later in December 2021, it surpassed its previous all-time high of $19,800.

Buffett appears to be changing his mind after all these years as Berkshire Hathaway recently invested $1 billion in a Brazilian bank that offers crypto services.

History shows that after negative comments by Buffett or Munger, a new Bitcoin high is reached at some point in the future. As crypto mainstream adoption continues, let’s see what happens.

Billionaire Buffett’s Berkshire Invests in Crypto-Friendly Bank

Warren Buffett’s Berkshire Hathaway (BRK.A) has bought $1 billion worth of stock in a bank that focuses on crypto assets, so it appears that Bitcoin is not rat poison after all.

Earlier this week, the investment firm made a filing to the U.S. Securities and Exchange Commission (SEC) revealing that it had purchased stock in Nubank, a Brazilian digital bank and the largest of its type in Latin America.

The bank operates outside of the traditional finance system and is called a ‘Neobank’ according to reports. It allows customers to invest in Bitcoin (BTC) and crypto exchange-traded funds (ETF) which is a sector that Buffett and company have largely shunned.

Buffett’s Crypto U-turn

It is not the first time Berkshire has invested in the bank with it having already purchased a $500 million stake in Nubank last year. Buffett’s investment company is the seventh-largest in the world with a market capitalization of just over $700 billion according to CompaniesMarketCap.  This is equivalent to about a third of the entire cryptocurrency market capitalization at the moment.

Berkshire has also been dropping investments in traditional finance with $3 billion in shares of Visa and Mastercard dropped according to the SEC filing.

Warren Buffett gained infamy in crypto circles for calling Bitcoin ‘rat poison squared’ in early May 2018 when the asset was trading at around $9,000 after falling from its December 2017 peak of $20,000.

Earlier this week, it was reported that Berkshire bought shares of gaming giant Activision before Microsoft announced its takeover.

Crypto: A ‘Venereal Disease”

Buffett’s partner, billionaire investor Charlie Munger, also has a deep-seated loathing for digital assets. This week, the 98-year-old vice chairman of Berkshire Hathaway labeled crypto as a ‘venereal disease’ according to Reuters. He stated that he was proud that he has avoided it adding:

“I just regard it as beneath contempt. Some people think it’s modernity, and they welcome a currency that’s so useful in extortions and kidnappings [and] tax evasion.”

Bitcoin has gained almost 400% in value since Buffett first called it rat poison so, as investments go, both were completely wrong.

The firm also believes in crypto, especially where it has invested in Latin America. The region is one of opportunity due to its large populations and poor banking services.

Better to Get Chinese Stock Exposure Through the iShares MSCI Emerging Markets ETF Instead of MCHI

At $62.9 per share, iShares MSCI China ETF (MCHI) is more than 70% under its February 2021 high. In contrast, the one-month gain of 3.4% shows that there has been a regain of interest by investors for this ETF which mainly provides exposure to the Chinese consumer cyclical, communication, financial, and tech sectors. In comparison, the iShares MSCI Emerging Markets ETF (EEM) which includes about 34% of Chinese assets is up by 3.8%.

Source: Trading View

My objective with this thesis is to understand the reason for this timid rise in the value of MCHI and whether there could be a more sustained upside. I first start with China’s central bank actions which could be beneficial to the ETF’s financial sector holdings.

China’s central bank actions

The People’s Bank of China (PBOC) which had previously taken a restrained approach to monetary stimulus, appeared to change its stance on December 25, when it pledged greater support for the real economy, stating that monetary policy will be more forward-looking and targeted. One of the intended aims would be to “promote the property sector’s healthy growth as well as work to better meet housing demand”. By that time, MCHI shares had reached their lowest point, and the PBOC’s statement did produce a temporary relief for investors.

Interestingly, the central bank’s more recent announcement about lowering interest rates by 10 basis points to 2.85% on Jan 17 constitutes a more concrete step and may preclude other such actions as Chinese authorities try to mitigate the effects of the Omicron variant, and address the downturn in the property sector.

Now, the fact that the PBOC is easing monetary policy despite China’s GDP expanding by 8.1% in 2021, supposes that the economy still faces headwinds. At the same time, the U.S. and the rest of the world are looking more towards tightening. Thus, the PBOC may have a narrow window of opportunity to provide stimulus before it has to start tightening again. Hence, while there are near-term positives for MCHI’s bank and industrial holdings, the longer-term picture looks more uncertain.

Some big investors favor China for investment

Now, REITs constitute just 4% of MCHI’s holdings and the ETF provides exposure to giants like Alibaba (BABA), also referred to as the “Chinese Amazon (AMZN)”. Interestingly, Charlie Munger, the vice-chairman of Berkshire Hathaway (BRK.B) controlled by Warren Buffett has augmented his stake in Alibaba during the recent months. Now, Berkshire is considered as the “epitome of value”, and for this matter, MCHI’s uptrend also somewhat coincides with the rotation from growth to value stocks which has been gaining momentum from the beginning of this year.

Source: iShares.com

Along the same lines, billionaire investor Ray Dalio, who has reportedly raised $1.3 billion for its third China fund according to the Wall Street Journal is highly optimistic that the Asian country is winning the economic race against the U.S.

Now, Dalio’s remarks have sparked some controversy. To this end, those who have invested in Chinese tech and educational technology companies know something about the propensity of authorities in that country to bring in abrupt regulations, such as those implemented as from July last year. These quickly decimated the valuations of stocks operating in these sectors.

Exploring further, Dalio’s remarks are reminiscent of the 2005-2006 period when the U.S. had dropped from 4th to 13th position in the global rankings for broadband internet usage, all at the benefit of Japan and South Korea. At that time some Wall Street gurus predicted that this drop would result in the U.S. losing in productivity and innovation. Eventually, these predictions never materialized and twenty years later, the U.S is home to the biggest tech companies the world has ever known.

Thus, basing an investment solely on the moves of big investors makes no sense and anyone investing in China should be aware of the risks.

The risks

First, the delisting fears whereby NYSE and NASDAQ listed Chinese firms will be all removed and relisted in Hong Kong appear overblown as even if a stock delists from the U.S., possibly as a result of Chinese authorities stepping up supervision, it would eventually be converted to Hong Kong Stock Exchange shares, so one still owns the company. This was the case with ride-hailing group Didi Global (DIDI) at the start of December last year, but news about the event still trimmed some percentage points off MCHI’s share price.

Second, both the US and China are heavily invested in each other as the two countries’ supply chains are highly interdependent. On the one hand, with American citizens depend to a large extent on consumer items from China, and on the other, the latter’s factories depend on capital goods like semiconductor producing equipment from the U.S. Now, semiconductors remain highly sensitive items and the U.S. has brought in legislation which limits the type of chips which can be exported to China, out of fear that the Chinese military may use these to produce sophisticated weapons. These could be used against Taiwan, one of America’s strategic allies in the region.

Better to go for partial exposure through EEM

Therefore, in addition to economic and regulatory uncertainty within China itself, there are geopolitical risks that can impact the country’s trade with the U.S. This can result in MCHI becoming highly volatile. However, China remains the second largest economy in the world and value investors like Charlie Munger and venture capitalists like Ray Dalio have been in the game since a long time. Consequently, from the balanced risk perspective, partial exposure to Chinese stocks, either individually, or through an ETF start to make some sense.

Thus, for those wanting exposure to some of the specific Chinese tech names like Tencent (TCEHY) and Alibaba which are significantly undervalued with respect to their western counterparts, there is the EEM alternative, which is also diversified in Taiwanese, South Korean, Indian stocks as well as other countries. The ETF’s holdings should benefit from record high U.S. inflation favoring cheaper alternative products from emerging economies. This said EEM has a slightly higher expense ratio of 0.68% compared to MCHI’s 0.57% but has shown a better one-month performance.

Value Investing Has the Upper-Hand but ARKK’s Holdings Have Profitability Potential

First, contrarily to what some believe, Cathie Wood’s ARK Innovation ETF’s (ARKK) woes started before the rotation away from the tech sector which has been underway since the first week of December, with the momentum being somewhat perturbed by the Santa Claus rally. As shown in the chart below, the innovation ETF started to underperform Berkshire Hathaway (BRK.B) from mid-February of 2021. I selected Berkshire as it represents the epitome of value or focusing on the profitability metric, whereas Cathie Wood is perceived as prioritizing disruptive “growth at all costs”.

https://static.seekingalpha.com/uploads/2022/1/7/49663886-16415565743224356.png

Source: ycharts.com

Next, looking at the reasons for ARKK’s underperformance, nearly two-third (36 out of the 56 stocks) in the flagship innovation fund did not generate any profit in 2020 and the year before. This did not matter much in the era of low-interest rates and cheap money, but with the economic recovery being on track and jobless numbers falling according to expectations, the probability of the U.S. Fed incrementing interest rates moving higher as from the first quarter of 2021. This brought the profitability metric to the fore.

Thus, ARK’s reliance on a mixture of imagination and discounted cash flow models based on near-zero interest rates to justify the high valuations of its holdings was put into question, even with their great potential and capacity to lead their respective industries.

Still, Cathie Wood is far from being a speculator and some of the stocks in her portfolio have delivered impressive growth, as part of the digital transformation secular trend accelerated to some extent by Covid in 2020.

Looking at ARKK’s holdings’ capacity to generate operational profits, I start by analyzing their gross margins, which provides an indication of the efficiency of their platforms or production systems at delivering services. As shown in the chart below, gross margins have either been maintained or even increased despite inflation increasing in the U.S. throughout 2021.

https://static.seekingalpha.com/uploads/2022/1/7/49663886-164155657435072.png

Source: ycharts.com

To further make my point, I take the example of Unity Software (U) which delivered an operating profit margin of -44.3% in Q3-2021 or operates at a loss. On the other hand, its gross margins, at 77.82% are even higher than mighty Microsoft’s (MSFT) 68.9%. This means that, with some “innovative” adjustments in its R&D and sales expenses, Unity can change its operating loss status. For this matter, Tesla which is the fund’s top holdings turned to profits in the second quarter.

Trying to get some insights as to a possible change in ARKK’s strategy which consists of concentrating on innovators and disruptors of the future, I came across an interview of Cathie Wood by Bloomberg TV dated December 10. Here, I noted that she is not selling the stocks in ARK’s holdings, even if other fund managers are doing so in the name of diversification and portfolio concentration risks reduction. She also re-iterated her five years’ time horizon, with projections for an annual return rate of 40%, up from 15% in February, based on work by ARK’s research team.

My take is that ARK’s founder and CEO’s current strategy is having market participants stop and scratch their heads, while investors continue to dump shares of the innovation ETF, now as part of the wider tech selling momentum. Thus, it should further drop before bottoming. Furthermore, given that ARKK has a focus on long-term growth, short-term profitability remains in the rear, but its main holdings’ relatively high gross margins show potential, either to switch to profits or increase profitability.

Finally, this is a fund that has already delivered above-45% five-year returns. Consequently, the longer-term potential is there and a small cautious buy at around the $80-82 range makes sense.

Situation on Major US Stocks

Apple climbs higher after another symmetric triangle pattern.

Amazon breaks the horizontal resistance and aims north.

Berkshire Hathaway goes down after the false breakout above the crucial horizontal resistance.

eBay is on the lower line of the channel up formation.

Goldman Sachs is more or less in the same situation but bounces with a promising hammer.

3M breaks the lower line of the wedge and aims south.

Netflix, with an evening star pattern and a false breakout above an important horizontal resistance.

Walmart, Covestro, Airbus and Westfield inside of symmetric triangle patterns. Here, a breakout should happen soon and will show us a direction to follow in the next few weeks or months.

Exclusive-Southwest Gas Nears Questar Deal After Buffett Lost Out-Sources

The deal would come three months after Dominion and the energy arm of Buffett’s Berkshire Hathaway Inc abandoned their Questar deal on concerns that antitrust regulators would not approve it. Dominion then launched an auction process to divest Questar.

Southwest Gas, a gas distribution company that serves Arizona, California and Nevada, will pay close to $2 billion, including debt, for Questar, whose pipeline and storage network spans Colorado, Utah and Wyoming, the sources said.

That would be an improvement on the deal with Berkshire Hathaway, which had agreed to pay $1.3 billion in cash for Questar and assume $430 million in debt. If the negotiations conclude successfully, Dominion could announce a deal with Southwest Gas as early as this week, the sources said.

The sources requested anonymity because the matter is confidential. Dominion and Southwest Gas did not respond to requests for comment.

Questar moves natural gas through 1,867 miles (3,005 km) of pipeline, with connections to other pipeline systems in the West and Midwest United States. It also owns the Clay Basin storage facility, the largest underground storage reservoir in the Rocky Mountains, according to its website.

Dominion announced in July 2020 that it would sell its entire gas infrastructure business to Berkshire Hathaway’s energy arm for $9.7 billion including debt. While a deal for most of the assets was completed in November 2020, Questar was left out as the Federal Trade Commission scrutinized the acquisition. The companies abandoned the Questar deal in July this year, citing uncertainty over its regulatory approval.

For Southwest Gas, the acquisition would mark a northward expansion of its natural gas operations and boost its regulated operations, which supply steady cash flow and are preferred by utility investors. It also owns Centuri, a company which services pipelines.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by David French in New York; Editing by Daniel Wallis)

Berkshire, Metals, Financials, and Gold.

  • Berkshire has not been acting as in the past during the last several years.
  • Its performance depends on its portfolio.
  • The business cycle helps to understand the change.
Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the price of Berkshire in the upper panel. The lower panel shows the business cycle indicator as updated in real time in each issue of The Peter Dag Portfolio Strategy and Management.

The business cycle indicator reflects the decision of business managers to replenish depleted inventories. A rising business cycle indicator measures the strength of the activities needed to replenish inventories – the purchase of raw materials, hiring of new workers, and the increase of borrowing to finance new capacity and ongoing operations.

During such times commodities, wages, interest rates, and overall inflation rise. The equity markets respond by favoring industrial, material, financial, and energy stocks. Defensive sectors such as utilities, staples, health care, and bonds underperform the market during this period.

The business cycle peaks because rising interest rates, energy prices, and overall inflation reduce consumers’ purchasing power. The outcome is slower growth in demand. Business does not recognize what is happening and lets inventories build up.

Eventually, rising inventories have a negative impact on profitability. Business is forced to cut production to reduce inventories. It decreases purchases of raw materials, cuts the labor force. It also borrows less to reduce interest costs. The outcome is lower commodity prices, lower wages, and lower interest rates. The result is steadily declining inflation.

During such times sectors such as staples, healthcare, utilities, and bonds outperform the markets. Cyclicals, industrial, metals and mining, and financials underperform the markets.

Despite its phenomenal performance, Berkshire stock responds to the trend of the business cycle. A decline in the business cycle indicator, indicating slower economic growth, is reflected by a slowdown in the price appreciation of Berkshire (see above chart). The sharpest gains in its stock price take place when the business cycle rises and the economy strengthens.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the business cycle indicator in the lower panel. The upper panel shows the performance of Berkshire compared to metal and mining stocks (ETF: XME). The graph is obtained by dividing the price of Berkshire by the price of XME.

The graphs show XME outperforms Berkshire (the ratio decline) when the business cycle rises due to a strengthening economy. When the economy weakens and the business cycle declines, Berkshire outperforms XME.

The above chart is similar to the relationship between XME and gold discussed in detail here.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the business cycle indicator in the lower panel. The relative performance of BRK/B and gold is shown in the upper panel. BRK/B outperforms gold when the business cycle rises, and the economy strengthens. On the other hand, BRK/B underperforms gold when the economy is weakening, and the business cycle declines.

I discussed here the cyclical pattern of bank stocks and how they relate to interest rates (not that obvious). One of the points of the article was bank stocks have a pronounced cyclical behavior. They outperform the market (SPY) when the business cycle rises. They underperform the market when the business cycle declines. These tendencies are similar to those of BRK/b (see first chart).

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows in the upper panel the performance of Berkshire compared to SPY (the graph shows the ratio of the price of Berkshire divided by SPY). The chart shows Berkshire outperforms SPY when the business cycle strengthens. It underperforms SPY when the business cycle declines. In other words, Berkshire performs like a bank stock during the business cycle.

Key takeaways

  1. Berkshire outperforms the market when the business cycle rises. It underperforms the market when the business cycle declines.
  2. Berkshire responds like a bank stock to the trend of the business cycle.
  3. Berkshires outperforms gold when the business cycle rises and underperforms gold when the business cycle declines.
  4. XME outperforms Berkshire and gold when the business cycle rises.
  5. XME underperforms Berkshire and gold when the business cycle declines.

Stock Buybacks: Why Would a Company Reinvest in Themselves?

U.S. corporate buybacks are on the rise in 2021 lifting investor spirits after last year’s pandemic dampened activity. While most investors are eager to see how much buybacks may support their investments, some are confused over what they are and how they work, and whether they are actually good or bad for a company’s stock price.

Corporations often buy back large blocks of their stocks typically when share prices are low, but some may choose for other reasons to buy their company’s stock even when analysts believe company shares are overvalued. Whether they buy their shares at cheap or expensive levels, a stock buyback is not always beneficial for individual investors.

Historic Background

Stock repurchases weren’t always legal per se. After the stock market crash of 1929 and the Great Depression, the U.S. government passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to try to prevent it from happening again.

The 1934 legislation didn’t bar stock buybacks, per se, but it barred companies from doing anything to manipulate their stock prices. Companies knew that if they did a stock buyback, it could open them up to accusations from the Securities and Exchange Commission (SEC) of trying to manipulate their stock price, so most just didn’t.

Tax cuts during the Trump administration made stock repurchases very popular as corporations spent billions on their own stock to reward shareholders and investors. However, corporate executives and insiders have also been accused of taking advantage of the stock buyback boom to sell shares they own to the companies they work for, profiting handsomely. Companies are spending millions or billions of dollars to reward shareholders and prop up their stock prices with buybacks, even if that means laying off workers to do it.

Recently, the Biden Administration announced it was planning on reforming current tax laws. If corporations begin to fear that some of the tax advantages of a stock buyback may be reduced or eliminated then this may encourage companies to become more active in 2021 before the tax changes become law.

What is a Stock Buyback?

A stock buyback, also known as a share repurchase, takes place when a corporation buys its own outstanding shares in order to reduce the number of shares available on the open market.

In a stock buyback, a company repurchases its own shares from the broader marketplace, usually through the open market. That leaves the remaining shareholders with a bigger chunk of the company and increases the earnings they reap per share, on top of the regular dividend payments that companies make to shareholders out of their profits.

Why Companies Perform Buybacks

Corporations buy back shares for a number of reasons such as to increase the value of remaining shares available by reducing the supply of outstanding shares or to prevent other shareholders from taking a controlling stake, sometimes called a hostile takeover.

Another reason for a buyback is for compensation purposes. Companies often award their corporate employees with stock and stock options. This benefits the existing shareholders and board members who are usually paid in stock options.

Pros of Stock Buybacks for Investors

  1. Boost in share prices
  2. Rising dividends
  3. Better earnings per share
  4. Less excess cash
  5. Positive psychology

“With the market being as expensive as it seems, share repurchases could drive the market that much higher,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

“It adds to the Street’s belief that there’s an underlying bid, we’re not in this alone, and someone else is going to support the stock and that’s the company,” he said. “It turns out to be a good thing for share prices. But they run the risk of overvaluing stocks, and it speaks to the broader question about why companies are doing it.”

Cons of Stock Buybacks for Investors

  1. Poor predictions
  2. Sinking dividends
  3. Poor use of capital
  4. Management self-interest
  5. Cover for stock handouts

Larry Fink, CEO of BlackRock, one of the largest investment companies in the world, in 2014 warned U.S. companies to slow down on buybacks and dividends.

“We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns,” he wrote in a letter.

Recent Activity Indicates Companies Leaning to the Pro Side

The rapidly improving economy and stocks at record highs may be fueling a flurry of stock buyback activity in 2021.

Banks have improved their capital positions and should be allowed to continue to buy back their own shares, Treasury Secretary Janet Yellen said in March.

Regulators restricted share repurchases in 2020 for the biggest institutions in the country as a precautionary measure after COVID-19 reached pandemic status. After those banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow buybacks to resume, though with some restrictions.

Yellen, speaking in March before the Senate Committee on Banking, Housing and Urban Affairs, said she agreed with allowing the share buybacks.

“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said. “But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”

They are expected to do just that as the buyback restrictions eased during the first quarter of 2021.

While Yellen see no problem with financial institutions resuming buyback activity, Warren Buffett’s capital-deployment machine pulled back on several fronts at the start of the year as the billionaire took a more cautious stance on stocks.

Berkshire Hathaway Inc slowed its buyback pace, according to a regulatory filing Saturday. Buffett has struggled in recent years to keep up with Berkshire’s ever-gushing cash flow. That’s led him to repurchase significant amounts of Berkshire stock, pulling a lever for capital deployment that he had previously avoided in favor of big acquisitions or stock purchases. He set a record in the third quarter of last year, snapping up $9 billion of stocks, but slowed that pace during the first quarter with repurchases of $6.6 billion.

Berkshire repurchased more stock in January and February than the company did in March when the stock climbed 5.8% according to the filing. Buffett’s long been disciplined on the price of buybacks, noting in 2018 when the company loosened its repurchase policy that he and his longtime business partner and Berkshire Vice Chairman Charlie Munger can repurchase shares when they’re below Berkshire’s intrinsic value.

Despite buybacks that fell short of Buffett’s quarterly record, the billionaire investor has continued to go after Berkshire’s own stock since the end of March, with at least $1.25 billion of repurchases through April 22, according to the filing. And given that Berkshire has no set amount allocated for buyback plans, sizable repurchases are still a nice bit of capital deployment, according to CFRA Research analyst Cathy Seifert.

“The fact that Berkshire allocated over $6 billion to buybacks this quarter is going to be positively received by investors” Seifert said.

What Bloomberg Intelligence Says

“The $6.6 billion 1Q buyback was an expected drop from 4Q, but still significant. Nearly all segments showed accelerated revenue and earnings.”

Share Buyback Plans are Booming

Corporate buyback announcements ‘exploded’ as trading in April wrapped up and that helped push stocks higher, said Vanda Research.

A jump in buybacks should help soften the blow in the U.S. equity market in the event of a drawdown.

“As net equity supply shrinks every dollar invested in the U.S. market will have a larger marginal impact,” said Vanda.

Warren Buffett says Greg Abel is his Likely Successor at Berkshire Hathaway

Buffett told CNBC that “the directors are in agreement that if something were to happen to me tonight, it would be Greg who’d take over tomorrow morning.”

The 90-year-old Buffett has never publicly signaled any plan to step down. Abel has been a Berkshire vice chairm since 2018, after a decade building its Berkshire Hathaway Energy unit into a major U.S. power provider.

Berkshire did not immediately respond to requests for comment.

The announcement for now ends speculation that began in 2006 when Buffett, then 75, first discussed his plans for succession in his annual letter to Berkshire shareholders. He has run Berkshire since 1965.

Buffett also told CNBC that if anything happened to Abel, the chief executive job would go to Ajit Jain, who oversees Berkshire’s insurance businesses, but is about a decade older.

“The likelihood of someone having a 20-year runway though makes a real difference,” Buffett said.

Buffett’s announcement does not change other aspects of Berkshire’s succession plans.

His son Howard is expected to become nonexecutive chairman, while one or both of his investment managers, Todd Combs and Ted Weschler, remain in line to become chief investment officer.

While Abel lacks Buffett’s magnetism and showmanship, he won Buffett’s confidence for his commitment to Berkshire’s culture, long-term thinking, and ability to spend money wisely.

“He’s a first-class human being,” Buffett said in a video message in 2013. “There’s a lot of smart people in this world but some of them do some very dumb things. He’s a smart guy who will never do a dumb thing.”

As vice-chairman, Abel oversees dozens of businesses with about 309,000 employees such as Berkshire Hathaway Energy, the BNSF railroad, Dairy Queen ice cream and See’s Candies, Fruit of the Loom underwear, and several industrial parts companies.

Abel was born and raised in Edmonton, Alberta, where he became a lifelong hockey fan, and graduated in 1984 from the University of Alberta.

Trained in accounting, he joined PricewaterhouseCoopers and later went to work for geothermal energy firm CalEnergy. He joined Berkshire Hathaway Energy in 1992, when the company was known as MidAmerican Energy.

(Reporting by Jonathan Stempel in New York and Niket Nishant in Bengaluru; Editing by Shinjini Ganguli, Louise Heavens and Chizu Nomiyama)

Warren Buffett Says U.S. Economy’s Unexpected Strength Benefits Berkshire

By Jonathan Stempel and John McCrank

Speaking at Berkshire’s annual meeting, Buffett said the economy has been “resurrected in an extraordinarily effective way” by monetary stimulus from the Federal Reserve and fiscal stimulus from the U.S. Congress.

“It did the job,” Buffett said. “This economy, right now, 85% of it is running in super high gear.”

Buffett lamented how an influx of so-called special purpose acquisition companies and inexperienced investors hoping for quick riches have made markets feel like a casino, making it hard for Berkshire to deploy more of its $145.4 billion cash hoard.

But the 90-year-old retained his optimism for the future of the company he has run since 1965, including after he’s gone.

“We’ve seen some strange things happen in the world in the last year, 15 months,” Buffett said. “It has reinforced our desire to figure out everything possible to make sure that Berkshire is, 50 or 100 years from now, every bit the organization and then some that it is now.”

REINFORCEMENTS

The annual meeting was held in Los Angeles, where Buffett joined Berkshire’s 97-year-old vice chairman Charlie Munger, to answer more than three hours of shareholder questions.

Greg Abel and Ajit Jain, Berkshire’s other vice chairmen and potentially successors to Buffett as chief executive, also fielded several questions.

Asked about their rapport, Jain said that they don’t interact as much as Munger and Buffett, but they talk every quarter about businesses they oversee.

Berkshire scrapped for a second year its annual shareholder weekend in its Omaha, Nebraska, hometown, an extravaganza that normally attracts around 40,000 shareholders.

But Saturday’s meeting, broadcast online on Yahoo Finance, was “kind of what you come to love about Berkshire,” said Steve Haberstroh, a partner at CastleKeep Investment Advisors in Westport, Connecticut. “It’s a little bit less about learning new things and more about being reminded about the old things.”

Many of Berkshire’s dozens of operating units, which include Geico car insurance and the BNSF railroad, have been rebounding as anxiety over COVID-19 lessens, more people get vaccinated, stimulus checks are spent, business restrictions are eased and confidence about the economy grows.

Gross domestic product grew at an annualized 6.4% rate from January to March, according to an advance government estimate. Some economists project the economy will grow in 2021 at the fastest clip in nearly four decades.

Buffett conceded that the recovery made his decision last year to exit stakes in the four major U.S. airlines — American, Delta, Southwest and United — appear ill-timed.

Munger, meanwhile, downplayed concern that Congress and the White House might raise the corporate tax rate to 25% or 28%, saying it wouldn’t be “the end of the world” for Berkshire.

Shareholders rejected proposals requiring Berkshire to disclose more about its efforts to address climate change and promote diversity and inclusion in its workforce.

But both proposals received about one-quarter of the votes cast, suggesting greater discontent than Berkshire shareholders historically demonstrate. Buffett, who controls nearly one-third of Berkshire’s voting power, opposed both proposals.

Saturday’s meeting came after Berkshire said first-quarter operating profit rose 20% to about $7 billion, while net income including investments totaled $11.7 billion..

CAUTION, SPACS AND ROBINHOOD

But there were signs Berkshire has grown more cautious about the markets.

While Berkshire repurchased $6.6 billion of its own stock from January and March, the pace of buybacks slowed.

Berkshire also said it sold $3.9 billion more stocks than it bought, though it still owned $151 billion of stock in just two companies, Apple Inc and Bank of America Corp.

Buffett acknowledged that low interest rates made Berkshire’s $140 billion of insurance “float,” which it uses for investing and acquisitions, less valuable.

He also said the growth of SPACs, which take private companies public, has made buying whole companies pricey for Berkshire, which hasn’t made a major acquisition since 2016.

“It’s a killer,” Buffett said, referring to SPACs. “We’ve got probably $70 or $80 billion, something like that maybe, that we’d love to put to work, … but we won’t get a chance to do it under these conditions.”

Berkshire’s leaders also heaped criticism on trading apps such as Robinhood, with Buffett saying they encourage a “gambling impulse” and Munger saying it was “just god-awful that something like that would draw investment from civilized man and decent citizens. It’s deeply wrong.”

Buffett stood by Apple, calling the iPhone maker an “extraordinary business” with “indispensable” products, and admitted he erred by selling a small percentage of Berkshire’s shares late last year.

As the meeting concluded, Buffett said the odds were “very, very good” that next year’s meeting would include shareholders again.

“We really look forward to meeting you in Omaha,” he said.

(Reporting by John McCrank and Jonathan Stempel in New York; Additional reporting and editing by Megan Davies; Editing by Steve Orlofsky and Cynthia Osterman)

Berkshire Shareholders Reject Climate Change, Diversity Proposals That Buffett Opposed

By Jonathan Stempel

The rejections were not a surprise, given that Buffett controls nearly one-third of Berkshire’s voting power and opposed both proposals.

But the climate change proposal won support from just over 25% of votes cast and the diversity proposal from 24%, suggesting greater discontent than Berkshire shareholders historically demonstrate.

The votes came as a growing number of major investors, including BlackRock Inc and the California Public Employees’ Retirement System (CalPERS) pension plan, call for companies to promote adherence to good environmental, social and governance principles.

CalPERS, along with Federated Hermes and Caisse de Dépôt et Placement du Québec, had proposed requiring Berkshire to publish annual reports about its climate change efforts.

The nonprofit shareholder advocate As You Sow separately proposed annual reports on diversity, saying companies such as Berkshire benefit from a diverse workforce.

Buffett doesn’t dispute that both issues are important, but opposed the proposals because of Berkshire’s decentralized model, where its dozens of businesses run largely without his interference so long as they perform and are managed well.

“We do some other asinine things because we’re required to do it, so we’ll do whatever’s required,” Buffett said. “But to have the people at Business Wire, Dairy Queen … make some common report, … we don’t do that stuff at Berkshire.”The company has also said it is seeing “great results” from many subsidiaries addressing climate change on their own.

Berkshire shareholders also re-elected all 14 directors, despite calls from Institutional Shareholder Services and Neuberger Berman to withhold votes from members of Berkshire’s governance, compensation and nominating committee. The vote totals were not immediately disclosed.

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman)

Barrick And Buffett – A Different Perspective

Buffett’s about face and sale of almost 9 million shares of Barrick the following quarter (Q3) seemed incongruous. The remaining 12 million shares were sold in the fourth quarter of 2020, and Berkshire Hathaway is now devoid of any holdings in the gold arena.

Further speculation about the intentions and reasoning underlying the purchase and subsequent sale of Barrick stock by Buffett seem almost moot. There are, however, a couple of other related events associated with Barrick and Buffett which provide adequate fodder for this article’s subject matter.

Not only did Berkshire Hathaway divest itself of all Barrick stock, it also sold entire positions in the following bank stocks: JPMorgan Chase, M&T Bank, and PNC Financial. In addition, it reduced its holding in Wells Fargo & Co. by almost 60%.

The latest sales of bank stocks by Berkshire Hathaway continue the pattern that began about the same time that Buffet acquired Barrick stock initially:

“Investor Warren Buffett sold his entire position in Goldman Sachs stock during the pandemic earlier this year. This was in addition to large sales of his holdings in other bank stocks such as JPMorgan Chase, Wells Fargo, and PNC.” (see Goldman Sachs Gold; Buffett Sacks Goldman)

Why is Warren Buffett getting out of bank stocks? The answer to that question might be more newsworthy than wondering about his reasons for buying, and then selling Barrick Gold so quickly.

Also, as noted in a previous article (see Barrick And Buffett; Gold And Goldman), a team of commodity analysts at Goldman Sachs raised their 12-month forecast for gold to $2300 from $2000 in July 2020.

The price of gold peaked at $2060 in the following month and then declined almost $300 per ounce to $1774 by late November 2020.

In December 2020, the Goldman commodity team reaffirmed their expectations and price target for gold at $2300 per ounce in 2021.

Gold is currently priced at $1779 per ounce and we are patiently waiting for Goldman’s next price prediction update.

Meanwhile, Barrick stock is at $19 per share, its lowest price since peaking at $31 last August. The stock appears to be breaking down.

At the very least, Warren Buffett has avoided further price erosion by selling his Barrick holdings last quarter.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT andALL HAIL THE FED!