OMAHA, Nebraska — Stock buyback critics, according to billionaire Warren Buffett, are “either an economic illiterate or a silver-tongued demagogue” or both, and all investors benefit from them as long as they are done at the right prices.

Buffett used a portion of his annual letter to Berkshire Hathaway shareholders on Saturday to tout the benefits of share repurchases, which have riled up Wall Street critics like Sens. Elizabeth Warren and Bernie Sanders as many other Democrats. The federal government even imposed a 1% tax on buybacks this year after they surpassed $1 trillion in 2022.

“When you are told that all share repurchases are harmful to shareholders or the country, or especially beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett, a long-time Democrat, wrote.

According to investor Cole Smead, Washington D.C. should take note of Buffett’s position on stock buybacks.

“Any politician, regardless of party affiliation, should stand up and take notice of a statement like that,” said Smead of Seattle-based Smead Capital Management.

Buffett, in typical self-deprecating fashion,

Buffett, in typical self-deprecating fashion, claimed that Berkshire’s remarkable record of doubling the returns of the S&P 500 over the last 58 years with him at the helm is the result of “about a dozen truly good decisions – that would be about one every five years.”

He mentioned a few in his letter, but he kept his message — which has long been one of the most widely read business documents — remarkably brief this year, at just over eight pages. He also dedicated an entire page to a tribute to his 99-year-old business partner Charlie Munger.

“I think investors, whether Berkshire investors or just Berkshire students, look to him for more, and I think they may come away wanting more,” CFRA Research analyst Cathy Seifert said.

Buffett emphasized how much Berkshire benefits from dividends from large investments in its portfolio, such as Coca-Cola and American Express, even though he refuses to pay a dividend at the Omaha, Nebraska-based conglomerate he leads because he believes he can generate a higher return for shareholders by investing that cash. Last year, Coke paid Berkshire $704 million in dividends, and American Express paid $302 million, helping to increase the value of those stakes to $25 billion for Coke and $22 billion for American Express. In the 1990s, Berkshire paid $1.3 billion for each investment.

Buffett said the key lesson for investors is that “it takes just a few winners to work wonders. And, yes, starting early and living into your 90s helps.”

Berkshire Hathaway reported a sharp drop in fourth-quarter profit to $18.2 billion from $39.6 billion a year earlier as the paper value of its investments fell.

Berkshire Hathaway reported a sharp drop in fourth-quarter profit

As a result, the value of Berkshire’s sizable stock portfolio distorted those bottom-line figures once more. Because operating earnings exclude derivatives and investments, Buffett believes they are a better measure of Berkshire’s performance. However, Berkshire’s operating earnings fell to $6.7 billion, or $4,584.46 per Class A share, from $7.3 billion, or $4,904.23 per Class A share, the previous year.

This is significantly lower than what Wall Street predicted. FactSet polled three analysts, who predicted Berkshire would report operating earnings per Class A share of $5,305.83 on average.

Analysts said the results were still strong overall, but higher claims costs continued to hurt Geico’s results, while BNSF’s railroad traffic slowed and rising interest rates hurt several of Berkshire’s housing-related businesses, such as its nationwide network of Realtors and its Clayton Homes manufacturing housing unit.

Berkshire’s performance tends to track the performance of the U.S. economy because so many of its dozens of manufacturing, utility, and retail businesses do. The conglomerate is a barometer of the economy in many ways.

Berkshire continues to invest in whole companies and stocks whenever Buffett sees an opportunity. According to Edward Jones analyst Jim Shanahan, he was particularly aggressive last year, making a net investment of approximately $53 billion. Much of that was invested in Occidental Petroleum and Chevron stock and Alleghany Corp. insurance, which was purchased for $11.6 billion last fall.

Despite all of that spending, Berkshire Hathaway’s cash reserves increased to $128.6 billion at the end of the year, up from $109 billion at the end of the third quarter. Berkshire Hathaway’s businesses generate so much cash that it accumulates faster than Buffett can invest.

Berkshire increased its stake in the Pilot Flying J network of 750 truck stops to 80% at the start of this year, up from 38.6% in 2017, which will help this year’s earnings.

SOURCE – (AP)

 

WASHINGTON – U.S. President Joe Biden announced on Thursday that the United States had nominated former Mastercard CEO Ajay Banga to lead the World Bank, citing his critical experience with global challenges such as climate change.

The announcement comes just days after Trump appointee David Malpass announced his intention to leave the 189-nation poverty reduction organization in June. His five-year term would have ended in April 2024.

The United States prioritizes addressing the effects of climate change at the multilateral bank. Leading climate figures have urged the Biden administration to use Malpass’s early departure to overhaul the powerful financial institution, which has been increasingly criticized as hostile to less-affluent nations and climate change efforts.

Malpass came under fire last year for appearing to cast doubt on the science that says burning fossil fuels causes global warming in remarks at a conference. He later apologized and said he had misspoken, noting that the bank relies on climate science regularly.

Banga, vice chairman of private equity firm General Atlantic, has over 30 years of business experience, having held various positions at Mastercard and on the American Red Cross, Kraft Foods, and Dow Inc boards. He is the first Indian-born candidate for World Bank President.

will help him achieve the World Bank’s objectives

“Ajay is uniquely qualified to lead the World Bank at this critical juncture in history,” Biden said, adding that Banga “has critical experience mobilizing public-private resources to address our time’s most pressing challenges, including climate change.”

In a statement, Treasury Secretary Janet Yellen said Banga’s experience “will help him achieve the World Bank’s objectives of eliminating extreme poverty and expanding shared prosperity while pursuing the changes required to effectively evolve the institution,” including meeting “ambitious goals for climate adaptation and emissions reduction.”

John Kerry, Biden’s climate envoy, said on Twitter that Banga was “the right choice.”

“He can assist in putting in place new policies that help deploy the large sums of money required to reduce global emissions and assist developing and vulnerable countries in adapting, building resilience, and mitigating the impact of greenhouse gases,” Kerry tweeted.

Traditionally, the United States has chosen the World Bank President. The International Monetary Fund’s chief executive officer has traditionally come from Europe. However, critics have called for the agreement to be scrapped and for developing countries to have a stronger voice in the two organizations.

The World Bank has promised an “open, merit-based

The World Bank has promised an “open, merit-based, and transparent selection process” and has stated that nominations will be accepted until March 29.

Eric LeCompte, executive director of the anti-poverty coalition Jubilee USA Network, said the United States was “looking to nominate people that will be supported by the developing world” and was “incredibly relevant” that Banga was born in India. “They want to be able to appoint people with experience and ties to other economies,” said LeCompte.

“I can’t think of a more intense time for someone to start this job,” said Clemence Landers, a policy fellow at the Center for Global Development, a Washington think tank.

The bank is under pressure to broaden its mandate, which will almost certainly require the next president to persuade donor countries to provide more funds.

Critics argue that the bank should do more to assist poor countries in financing projects to combat and prepare for climate change without putting them in debt. Landers also stated that it needs to better address cross-border issues such as pandemic surveillance and broad vaccination programs.

SOURCE – (AP)

 

NEW YORK – Stocks are falling on Wall Street on Tuesday due to concerns about upcoming corporate profits and the tightening squeeze of higher interest rates.

The S&P 500 fell 1.3% on the first trading day of the week following Monday’s holiday. As of 10:15 a.m. Eastern time, the Dow Jones Industrial Average was down 489 points, or 1.4%, to 33,337, while the Nasdaq composite was down 1.7%.

Despite reporting a higher-than-expected profit for the last three months of 2022, Home Depot suffered one of the S&P 500′s largest losses. It fell 5.6% on concerns about upcoming earnings after the company issued forecasts that fell short of Wall Street’s expectations.

The retailer said it would spend $1 billion to raise hourly wages in the United States and Canada. This fed broader market concerns that rising company costs were eating into profits, one of the main levers that set stock prices.

Stocks Are Dropping On Wall Street

The other major lever is in jeopardy as interest rates continue to rise. When safe bonds pay higher interest rates, stocks and other investments are more expensive. Rates have risen to the point where Morgan Stanley strategists believe US stocks are more expensive than ever since 2007.

The 10-year Treasury yield, which helps set mortgage and other important loan rates, increased to 3.93% from 3.82% late Friday. The two-year yield, more sensitive to Fed expectations, increased to 4.71% from 4.62%.

Yields have risen this month as Wall Street raises its expectations for how high the Federal Reserve will raise short-term interest rates to reduce high inflation. The Federal Reserve raised its key overnight rate from 4.50% to 4.75%, up from near zero a year ago.

Several economic reports have recently come in that were stronger than expected. On the plus side for markets, they helped allay fears that the economy would soon enter a slump. On the negative side, they give the Fed more reason to stick to its “higher for longer” campaign of raising interest rates to suffocate inflation.

A strong economy could keep inflation under control.

The most recent evidence came from a preliminary report released Tuesday, indicating that business activity is picking up. S&P Global said the services industry likely resumed growth last month and reached an eight-month high. Meanwhile, manufacturing is still contracting, but the reading has reached a four-month high.

Higher interest rates, in addition to dragging down investment prices

Higher interest rates, in addition to dragging down investment prices, slow the economy by making borrowing more expensive and increases the risk of a future recession. As a result, Wall Street’s more pessimistic investors have maintained their recession forecasts but shifted the timing to later in the year.

The Fed stated in December that its typical policymaker expects short-term interest rates to rise to 5.1% by the end of this year, with the first-rate cut occurring in 2024. After previously believing that the Fed would eventually ease up on interest rates, Wall Street has largely agreed with the Fed’s assessment.

The concern is that the Fed will raise its rate forecasts even higher next month when it releases its latest economic projections. Aside from showing that the job market and retail sales have been stronger than expected, recent economic reports have also indicated that inflation is not cooling as quickly and smoothly as hoped.

These concerns have stopped Wall Street’s strong start to the year. After rising as much as 8.9%, the S& P 500 is now only up 4.9% for the year.

International stock markets were mostly down after manufacturing indicators in Europe and Asia painted a mixed picture, and Russian President Vladimir Putin accused Western countries of threatening Russia.

SOURCE – (AP)