Dear Reader,
Warren Buffett's conglomerate Berkshire Hathaway recently held its annual shareholder meeting online.
Interesting take is that he sold out of his airline stocks investments. Warren Buffett invests both in whole companies by buying them out and keeping them private and individual stocks which can be characterized as value stocks or stocks with low Price/Earnings, Price/Book, Price/Sales ratios, predominantly. Fore example, the main business lines of his Berkshire Hathaway conglomerate, at which Warren Buffett is CEO and a controlling shareholder, are insurance, transportation, manufacturing and consumer staples. The major companies active globally in the insurance, transportation, manufacturing and consumer staples are characterized by low Price/Earnings, Price/Book, Price/Sales ratios, Berkshire Hathaway's investments including.
Berkshire Hathaway's investment portfolio driven mainly by insurance premiums is invested mainly in banks, financials, Apple, Kraft Heinz and Coca Cola. The US banking sector is down circa 30% year to date 2020, Apple is up year to date, while Kraft Heinz and Coca Cola are down year to date. There are of course dozens of other stocks in Berkshire's investment portfolio but their combined stake is not that decisive.
How will Warren Buffett's investment portfolio do in the coronavirus disease COVD-19 pandemic? Well, I think banks have more difficulties in store for them. I forecast the stocks of global major banks will fall a lot from their current levels driven by further bad loans write offs. I doubt Apple will continue to outperform. Hardly many people now are thinking of either upgrading or switching to an iPhone. Kraft Heinz and Coca Cola, however, will fare relatively better in the coming stock market collapse. Yes, I think global stock markets will fall further from here influenced mainly by the huge economic difficulties roughly 98% of companies experience currently.
Warren Buffett's investment portfolio, though, will do much better than the Nasdaq Composite or technology stocks in general. Value investing usually triumphs in recessions and the bursting of stock market bubbles. Both events we are witnessing first hand now. Value investing will triumph again.
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Respectfully yours,
Petar Posledovich
It is actually a confirmation of a bear market, since one of the investment gurus-Warren Buffet, throws the towel, sells stocks and goes into cash.
ReplyDeleteI watched lately Hugh Hendry
https://www.youtube.com/watch?v=U44_auRtR78
He is so right, actually all central banks do print money, but there is no velocity and no inflation, but deflation. Despite all efforts to bring inflation, we see actually the opposite.
Because we are at the end of the 50 year big credit cycle and the commercial banks just stopped lending.
We are now at the binary outcome - defaults or hyperinflation. Forbearance just postpones the outcome and we have bought some time.
Hyperinflation can come only as an act of currency haircut from the central banks.
Defaults will come as an deflationary outcome from the big losses on the books of the commercial banks.
We need to remember one thing that Bernanke said during his helicopter speech:
https://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
The central banks can fight deflation, they can always devalue the dollar overnight if deflation gets really ugly, which it will eventually. But they will do any unconventional measure to save the economy.
One of which is debasing the currency.
Sometimes, almost always, they are way behind the curve, therefore having some cash is still prudent.
So yes, we are that far, not only at the end of the credit cycle, but we are at the final stage of the end game.
As controversial as it might seem, holding enough physical cash and physical gold outside the system seems a prudent way to preserve capital.