Buffett defends Berkshire stock push, reassures on future as profit smashes record By Reuters

By Jonathan Stempel and David Randall

NEW YORK (Reuters) – Warren Buffett on Saturday forcefully defended Berkshire Hathaway Inc’s (N:) decision to invest heavily in stocks of companies such as Apple Inc (O:) as he labors through a four-year drought since his last major acquisition of a company.

Buffett, 89, also used his annual letter to Berkshire shareholders to assure they should not worry about the future of the company, which is “100% prepared” for when he and 96-year-old Vice Chairman Charlie Munger are no longer around.

Berkshire also posted record full-year earnings of $81.42 billion, nearly twice the prior high from 2017, boosted by unrealized gains from its stock investments. Operating profit, however, fell 3% to $23.97 billion.

The Omaha, Nebraska-based conglomerate ended the year with a $128 billion cash hoard, after repurchasing $2.2 billion of stock in the fourth quarter and $5 billion in 2019.

“I do think it’s on the right path,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which invests one-fourth of its assets in Berkshire. “Its balance sheet is exactly the type of toolkit you’d like to leave a successor.”

Berkshire has more than 90 units employing 391,539 people, including the BNSF railroad, Geico car insurer, Dairy Queen ice cream and See’s candies; clothing and jewelry companies, and namesake utility and real estate brokerage businesses.

It also invests in such companies as American Express Co (N:), Bank of America Corp (N:) and Coca-Cola Co (N:).

Berkshire ended the year with a $128 billion cash hoard, having made no major acquisitions since paying $32.1 billion in January 2016 for aircraft parts maker Precision Castparts, and Buffett lamented his inability to find big companies to buy.

“The opportunities to make major acquisitions possessing our required attributes are rare,” he wrote.

Buffett’s letters have grown shorter in recent years, with less humor and less discussion about the economy and investing.

James Shanahan, an Edward Jones & Co analyst who rates Berkshire a “buy,” called Saturday’s letter a missed opportunity to show how Berkshire, whose stock has trailed the Standard & Poor’s 500 () over the last decade, is undervalued.

“It felt much more businesslike and detached, and lost some of the wisdom that made it so entertaining,” he said.


The record profit is largely the result of an accounting rule that Buffett urges investors to ignore, requiring Berkshire to report paper gains and losses from its stock holdings with net income.

Buffett, whose $90.2 billion net worth makes him the world’s fourth-richest person according to Forbes magazine, said that while he still prefers buying whole companies, stocks are a better bet than low-yielding bonds.

He attributed that in part to the “American Tailwind,” or the economy’s ability to grow despite roadblocks such as war, high inflation and financial panic.

“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” he wrote.

Buffett’s comments surprised Stephen Dodson, who manages the Bretton Fund, which owns Berkshire shares.

“I was expecting him to say the market was expensive,” Dodson said. “He didn’t even hint that.”

The cash stake has nonetheless been a drag for investors.

In 2019, Berkshire’s stock rose 11% while the S&P 500 including dividends rose 31.5%, the biggest shortfall in a decade.


Buffett also used his letter to comfort investors that Berkshire will be in good hands after he leaves.

In 2018, Berkshire promoted Greg Abel, 57, and Ajit Jain, 68, to vice chairmen, giving them oversight of Berkshire’s non-insurance and insurance operations, respectively, and freeing Buffett and Munger to focus on deploying capital.

Buffett also has portfolio managers Todd Combs and Ted Weschler helping him buy stocks.

Combs, 49, on Jan. 1 also became Geico’s chief executive.

“Charlie and I long ago entered the urgent zone,” Buffett wrote. “That’s not exactly great news for us. But Berkshire shareholders need not worry: Your company is 100% prepared for our departure.”

He also said shareholders will be able to ask Abel and Jain questions at Berkshire’s annual meeting on May 2, where Buffett and Munger normally do most of the talking.

“I’m comfortable with how Berkshire is moving up the next generation,” said Thomas Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania, a longtime Berkshire shareholder.

Buffett said his estate may need 12 to 15 years to dispose of his Berkshire stock, which is going to charities including the Bill & Melinda Gates Foundation, and Berkshire stock will be “a safe and rewarding investment” during that time.

The disposal plan “gives investors the ability to focus on everything else,” said David Marcus, chief investment officer at Evermore Global Advisors, who personally owns Berkshire shares. “If Buffett weren’t the age that he is, it wouldn’t matter.”

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Outstanding auto-loan balances just hit a new record and delinquencies are on the rise and what to make of Morgan Stanley’s acquisition of E-Trade

Happy Friday MarketWatchers. Don’t miss these top stories:

Barron’s wants to recognize people and organizations whose products, services, or education programs are making an impact to improve the financial health of individuals across the U.S. Be sure to head to barrons.com/celebrates for more information and to submit a nomination by Feb. 29 for the Barron’s Celebrates: Financial Empowerment program.

‘My husband’s ex-mistress is ruining our life.’ She claims she gave birth to his child and is extorting us for money

‘After he signed a waiver, I removed my husband as beneficiary from my retirement accounts, and he took his name off our joint checking and savings accounts.’

Bloomberg once appeared to blame the financial crisis on the end of redlining — how this discriminatory practice still hurts Americans

Redlining policies have had a lasting impact on the U.S. housing market.

Weekend reads: Living off the beaten path in Italy

Also, how to invest in dividend stocks and when to visit Disney parks.

‘My father has lived a life of crime and drugs. He threw away every opportunity we gave him.’ Now that he’s on disability, doesn’t he owe his kids something?

‘My siblings and I got him a used car. He drove it off the lot, went for a joyride, and wasn’t heard from for three days.’

Outstanding auto-loan balances just hit a new record and delinquencies are on the rise — should you be concerned?

Nearly $66 billion of the $1.33 trillion in outstanding auto loans were over 90 days delinquent in the fourth quarter of 2019, up from $57 billion for the same period last year.

‘He never leaves his wallet on the table.’ My husband hides his finances and has an $8,000 monthly income and a P.O. box. I found his will — and it left me reeling

‘He even lies and tells me he has no money on him, just credit cards. Then I check when he goes to sleep and he has plenty of money in his wallet!’

Morgan Stanley is paying $13B for E-Trade, or $2,500 per customer. You can earn a $3,500 sign-up bonus for signing with a new broker — with one major catch

‘Moving a balance to a new brokerage can net you a nice reward.

Your hot chocolate now comes in beer form

A California craft producer finds success with a brew inspired by the cold-weather favorite.

Michael Bloomberg says it’s not so ‘simple’ to produce his tax returns — here’s what most high-income tax returns have in common

‘The number of pages will probably be in the thousands of pages.’

Bernie Sanders wants to spend $70B to modernize public housing, Pete Buttigieg wants to regulate landlords — where the Democratic candidates stand on affordable housing

‘For the first time in recent memory, affordable housing is a topic on the presidential campaign trail,’ said Diane Yentel, president and CEO of the National Low Income Housing Coalition.

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Outstanding auto-loan balances just hit a new record and delinquencies are on the rise — should you be concerned?

Automobile-loan delinquencies are at a record high, but experts say this may not impact your ability to get a loan for your car purchase.

In the fourth quarter of 2019, the outstanding balance on automobile loans and leases hit a record high of $1.33 trillion, according to data from the New York Federal Reserve, up nearly 5% from the year-earlier period.

Some $66 billion, or 5% of the outstanding loans, are over 90 days delinquent, up from $57 billion for the same period last year and $35 billion a decade ago.

“The scale of auto loans compared to subprime mortgages isn’t comparable,” said economist Douglas Holtz-Eakin, the president of the center-right think tank American Action Forum. “They just aren’t big enough to threaten the entire U.S. economy,” said Holtz-Eakin, who served under the first Bush administration and advised the late Sen. John McCain’s 2008 presidential campaign.

Automobile loans are only 7.4% of household debt, according to Holtz-Eakin’s calculations of New York Fed data. What’s more, subprime borrowers account for 22% of outstanding automobile-loan debt, New York Fed data from 2019 shows. A year earlier subprime borrowers accounted for 24% of that share.

Related: The states — mostly in the South — that are burdened with the biggest car loans

Still, it is important to pay attention to subprime borrowers, who typically have poor credit scores, because they are at greater risk of default, Holtz-Eakin said. If these borrowers consistently missed more payment, “it would be a problem,” he said.

Some 85% of new cars in the U.S. are financed with a loan or a lease, according to Experian

EXPGY, +0.27%

. The average price of a new car has risen over the past decade from $28,600 in 2009 to $37,200 in 2019, according to the automotive information site Edmunds.

The value of the average subprime auto loan is $30,633, according to Experian data from the third quarter of 2019. Subprime borrowers, whom Experian identifies as those with credit scores between 501 and 600, pay an average of $574 a month.

Also see: More borrowers are getting rejected for auto loans

Data from lenders such as Ford Motor Credit

F, -1.74%

, General Motors Financial

GM, -1.81%

and Toyota Financial Services

TM, -0.05%

appear to tell a different story.

In the past decade, Ford’s 60-days-and-over delinquency rates have not risen above 0.17% for U.S. borrowers, according to the company’s 2019 fourth-quarter report. Toyota reports a slightly higher 60-days-and-over rate of 0.43% in the U.S. as of December. GM reported a rate of 1.8% in the fourth quarter for global delinquencies of 61 days or more. The company doesn’t publicly disclose these figures for the U.S.

The three companies did not comment on the recent Fed data.

Automobile-purchase lenders like Ford are likely able to maintain low delinquency rates because of “a sound risk-based pricing strategy,” said Matt Erickson, director at Wilary Winn, a financial consulting company based in St. Paul, Minn. Meaning they set high enough interest rates on their loans to deter high-risk lenders, typically those with low credit scores.

Companies that are not “fully covering credit risk in their pricing strategy need to tighten up their underwriting,” he said, “if credit losses begin to negatively impact performance.”

The National Automobile Dealers Association did not respond to a request for comment on the future supply and demand for automobile loans.

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Nasdaq ekes out record finish, other stock indexes slump as coronavirus takes toll on Apple sales

The Nasdaq Composite index eked out a record finish Tuesday, even though other major stock benchmarks fell after Apple Inc. said its second-quarter earnings would take a hit from the viral outbreak in China, reigniting fears that the disease may disrupt manufacturing supply chains and have broad implications for the global economy and financial markets.

How did benchmarks perform?

The Dow Jones Industrial Average

DJIA, -0.56%

 shed 165.89 points, or 0.6%, to settle at 29,232.10, while the S&P 500

SPX, -0.29%

 lost 9.87 points or 0.3% to close at 3,370.29.

However, the Nasdaq Composite Index

COMP, +0.02%

 gained 1.57 points, or less than 0.1%, to finish at a record 9,732.74, after flipping positive only in afternoon trade. Most of the Dow’s decline was attributed to downward pressure in shares of Apple and Dow Inc.

DOW, -1.83%,

according to Automated Insights. U.S. financial markets were closed Monday for the Presidents Day holiday.

The Dow on Friday booked a weekly gain of 1%, the S&P 500 finished the period with a gain 1.5%, while the Nasdaq Composite Index returned 2.2% for the week.

What drove the market?


AAPL, -1.83%

said Monday it won’t meet its second-quarter financial guidance because the coronavirus outbreak that originated in Hubei province in China last year is affecting its suppliers’ production. “The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues,” the iPhone maker said in a statement.

Apple said revenue in the current quarter won’t reach its target range of between $63 billion and $67 billion due to the impact of the infectious disease.

Read: Apple’s coronavirus warning wasn’t a total surprise, but magnitude rattles Wall Street

The COVID-19 epidemic has sickened more than 73,000 people and claimed nearly 1,900 lives thus far.

U.S. markets, which have been primarily focused on corporate earnings and otherwise healthy economic data, had effectively shaken off worries fueled by the disease, but some strategists warn investors may be too dismissive.

“We haven’t really heard of any peak levels, that’s what’s beginning to sink into investors’ minds,” Peter Cardillo, chief market strategist at Spartan Capital Securities in New York, said referring to the rising number of people infected with the coronavirus.

“Also, we have gold prices soaring today,” he told MarketWatch, adding that precious metal could ascend even higher than $1,600 an ounce. “There are a lot of uncertainties and those uncertainties are weighing on the market.”

Read: Why gold prices topped $1,600 and may soon hit a more than 7-year high

“You’re trying to take the information from Apple and extrapolate that to the holdings you actually own,” Robert Pavlik, chief investment strategist at SlateStone Wealth told MarketWatch. “Obviously, there was going to be some impacts,” he said, pointing to disrupted supply chains and weaker demand. “But you just don’t know if the impacts are going to be temporary or if you’re going to lose those orders all together.”

Still, in the year to date, the Dow was up 2.4%, the S&P 500 gained 4.3%, and the Nasdaq ended 8.5% higher for the period.

See: What Apple, Walmart and other U.S. companies are saying about the coronavirus

What’s more, the expected hit to U.S. manufacturing from the coronavirus has not been felt yet: a reading on manufacturing conditions in the New York area surged to a nine-month high in February, the Federal Reserve Bank of New York said Tuesday. The forward-looking new orders component of the index hit its highest in a year.

A closely watched reading about home builder confidence was also strong in February. The National Association of Home Builders’ monthly index hit 74, down one tick from January, but still marking the strongest start to a year on record. The sentiment tracker is considered an early read on the pace of new residential construction.

But the outlook for the embattled energy sector looks tougher. Dallas Federal Reserve President Robert Kaplan said Tuesday he expects this year to see “belt-tightening” and restructurings for companies in the U.S. oil and gas sector as domestic production growth is expected to decline.

Which stocks were in focus?
How did other assets perform?

The price of a barrel of West Texas Intermediate crude for March delivery

CLH20, +0.25%

settled unchanged at $52.05 a barrel on the New York Mercantile Exchange, after gaining 3% last week.

Gold for April delivery

GCJ20, +1.15%

rose 1.1% to settle at $1,603.60 an ounce, its highest finish since March 2013, as investors flocked to haven assets.

The U.S. dollar

DXY, +0.47%

was 0.4% higher against a basket of rival currencies at 99.40.

The benchmark U.S. 10-year Treasury note

TMUBMUSD10Y, -1.72%

shed 3.2 basis points to 1.555%. The 30-year bond was lower at 2.006%, after briefly dipping below the key psychological threshold. Bond yields fall when prices rise.

In Europe, the Stoxx Europe 600

SXXP, -0.38%

slipped 0.4%, while the FTSE 100

UKX, -0.69%

finished 0.7% lower.

In Asia overnight, the China CSI 300

000300, -0.49%

 ended 0.5% lower to close at 4.057.51, the Shanghai Composite

SHCOMP, +0.05%

 edged up less than 0.1% at 2,984.97, and the Hang Seng Index

HSI, -1.54%

closed 1.5% lower at 27,530.20. The Nikkei 225

NIK, -1.40%

lost 1.4% to 23,193.80.

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Europe Posts New Record High; Tui Helps By Investing.com

© Reuters.

By Peter Nurse

Investing.com – European stock markets pushed higher Tuesday, following Wall Street to a new record high, helped by gains in the recently battered travel and leisure sector on the back of strong numbers from Tui.

At 04:00 ET (0900 GMT), the U.K.’s index was trading 65 points, or 0.9%, higher, France’s was up 28 points, or 0.5%, while the gained 105 points, or 0.8%. The index, which represents a broad swathe of companies across 17 countries in Europe, traded 0.6% higher, having hit a new record high at 428.30.

Overnight Monday, both the S&P and Nasdaq made a positive start to the week, closing at record highs as strong gains for mega-cap tech stocks overshadowed concerns about the coronavirus impact.

On Tuesday, shares in Tui (DE:) soared over 10% after the European holiday company pointed to the “best booking volumes month in the company’s history” during the three months to December. This strong holiday demand is expected to compensate for the grounding of the Boeing (NYSE:) 737 MAX aircraft.

These strong numbers have translated into hefty gains for some of the region’s airlines, a sector which has been hard hit by the repercussions of the outbreak of the coronavirus in China, with EasyJet (LON:) up 3.2%, Ryanair (LON:) 3% higher and IAG (LON:), which owns British Airways and Iberia, up 3.2%.

Elsewhere, shares in Deutsche Telekom (DE:) climbed over 4% on a report that a U.S. judge is expected to rule in favor of T-Mobile US (NASDAQ:) and Sprint (NYSE:) in the lawsuit that attempted to stop their industry-changing merger. T-Mobile is the mobile communications subsidiary of Deutsche Telekom.

On the flip side, Shares in AMS (SIX:)dropped almost 5% after the sensor specialist warned revenues in the first quarter would decrease despite fourth-quarter revenues above its own forecast amid strong demand for high-end smartphones.

Daimler, the maker of Mercedes-Benz, also fell 0.4% after the company said sales will fall for a second straight year as it re-gears its operations more to electric vehicles. The company also cut its dividend by more than two-thirds in an effort to save cash.

The economic calendar in Europe is dominated Tuesday by the release of the U.K. figures for the fourth quarter of 2019, at 04:30 AM ET (0930 GMT).

The U.K. economy probably narrowly avoided a contraction at the end of 2019, with the Investing.com poll forecasting no growth on the quarter, resulting in annual growth of 0.8%.

Also of interest will be a speech by European Central Bank President Christine Lagarde at 09:00 AM ET (1400 GMT). The central bank is in the middle of a major strategic review, and any comments from Lagarde over whether it changes its inflation goal will be of interest.

Elsewhere, the oil market has pushed higher Tuesday, rebounding a touch after recent losses. The market is still looking at potential cuts to supply from the club of major oil producers.

AT 04:00 AM ET (0900 GMT), futures traded 1.1% higher at $50.09 a barrel and the international benchmark contract rose 1.2% to $53.91.

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