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:, 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:, 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:, 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:, 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.

Table of contents

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.”


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..


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!