Buffett’s Berkshire Hathaway gains as insurance lifts first-quarter profit and cash nears $200 billion

Berkshire Hathaway shares rose in premarket trading Monday after Warren Buffett’s conglomerate reported a surge in operating earnings as well as a record cash hoard. Berkshire’s Class A shares were higher by 1.1% in the premarket. Meanwhile, Class B shares gained about 0.6%. Berkshire Hathaway shares have already outperformed this year, with each share class having advanced more than 10%. The S&P 500 is up by more than 7% this year. Warren Buffett poses with Martin, the Geico gecko, ahead of the Berkshire Hathaway Annual Shareholder’s Meeting in Omaha, Nebraska on May 3rd, 2024. David A. Grogan | CNBC

Berkshire Hathaway shares rose in premarket trading Monday after Warren Buffett’s conglomerate reported a surge in operating earnings as well as a record cash hoard.

Berkshire’s Class A shares were higher by 1.5% in the premarket. Meanwhile, Class B shares last gained about 1.2%.

Those moves come after the conglomerate posted first-quarter operating profit of $11.22 billion, up 39% from the year-ago period, mainly driven by an increase in insurance underwriting earnings. Operating profit measures earnings encompassing all of Berkshire’s businesses.

Stock chart icon Berkshire Hathaway Class B

The strength in the insurance businesses, particularly its crown jewel Geico, comes as the sector as a whole benefits from stronger demand and increased pricing power. Insurance underwriting earnings rose to $2.598 billion, a 185% increase from $911 million in the year-earlier quarter. Geico earnings swelled 174% to $1.928 billion from $703 million a year prior.

Berkshire’s cash hoard swelled to a record, partly due to the holding company’s inability in recent years to find a suitable acquisition target. Cash soared to a record $188.99 billion in the first quarter, up from $167.6 billion in the fourth quarter.

“We had much-improved earnings in insurance underwriting. And then our investment income was almost certain to increase,” Buffett said Saturday at the conglomerate’s annual shareholder meeting in Omaha, Nebraska. “And I said that in the annual report because yields are so much higher than they were last year. And we have a lot of fixed, short-term investments that are very responsive to the changes in interest rates.”

Berkshire Hathaway shares have already outperformed this year, with each share class having advanced more than 10%. The S&P 500 is up by more than 7% this year.

Class A shares marked

CNBC

Stocks making the biggest premarket moves: Berkshire Hathaway, Paramount, Spirit Air, Victoria’s Secret and more

Was April’s Correction Noise Or Signal For Global Markets?

April was a rough month for investors, but the rebound in asset prices in the early days of May has revived expectations that the worst has passed. A key catalyst for the turnaround in sentiment: Friday’s US payrolls data, which posted a substantially softer-than-expected rise in April. The crowd views the news as a net positive because it lifts the odds that the Federal Reserve will cut interest rates this year.

Even if this view is correct, which is open for debate, it’s not without risk for markets. Much depends on how fast and how far the US economy slows. A modest degree of cooling will probably help soften inflation, which has been firmer than expected in recent updates. But the deceleration in economic activity could come back to bite if the slowdown has substantial downside momentum.

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“It feels a little early to declare that the US economy has made a soft landing since the Fed still is holding interest rates at restrictive levels,” says Comerica Bank chief economist Bill Adams. “But the April jobs report helps clear a path to that destination.”

For some analysts, however, the risk of the economy slowing more than the consensus assumes is significant. “The reason I think the Fed’s going to see enough to cut [interest rates] is because we’re more toward the hard landing end of the spectrum,” advises Citi chief US economist Andrew Hollenhorst.

One thing that is clear in the shift in rate-cut expectations: Fed funds futures this morning are pricing in moderately high odds for the first rate cut in September, a conspicuous shift from a week ago.

The bond market supports the latest dovish pivot: the policy-sensitive 2-year US Treasury yield starts the trading week at 4.83%, reflecting last week’s sharp drop that leaves this rate at its lowest level in nearly a month.

The caveat is that there are several moving parts for assuming a best-case scenario comprised of softer inflation and a mild slowdown in economic activity that trims inflation’s sails, reduces interest rates but without strengthening headwinds for earnings and the stock market. That’s a tall order, but one that’s suddenly back in vogue as a plausible path.

The week ahead will test the durability of this Goldilocks scenario, although the light schedule for

Will Big Tobacco’s ESG argument go up in smoke?

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Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT

Having failed to resist the lure of cigarettes in my youth, I was interested by the recent passage of a UK bill that will raise the minimum legal smoking age by one year, every year.

Is this a harbinger of an international wave of new restrictions that will save future teenagers from repeating my mistake? Or is Big Tobacco set to keep raking in vast profits for decades to come? And why do some people think sustainable investment funds ought to be putting money into this sector?

Read on and let us know your thoughts: you can reach us at moralmoneyreply@ft.com.

SOCIAL INVESTMENT FACTORSIs the ESG tent big enough for Big Tobacco?

“ESG is the devil,” Tesla chief executive Elon Musk wrote on X last year.

He was highlighting a report on how the biggest tobacco companies enjoy much higher scores from some environmental, social and governance rating providers than Musk’s electric car company.

It’s hard not to have some sympathy with Musk’s frustration on this point. S&P Global’s latest ESG score for Philip Morris International, whose cigarettes continue to cause ill health and death around the world, is 85 out of 100. The score for Tesla, with its transformational contribution to the shift away from fossil fuel in road transport, is just 40, below all of the world’s five biggest listed tobacco companies.

Can there really be any argument for ESG-focused investors to hold stakes in Big Tobacco? And given the public’s steady move away from cigarettes — and the threat of increasingly strict policy measures — is there an investment case even for those with a narrow financial perspective?

A new legislative threat

On April 16, UK lawmakers voted overwhelmingly in favour of a new law that will make it illegal for people born after 2009 ever to buy cigarettes. It’s the toughest tobacco law ever passed in a major economy. If many other nations were to follow suit, it would have dire long-term implications for the industry’s profits.

Yet the share prices of London-listed tobacco giants Imperial Brands and British American Tobacco have risen since the day before the bill’s approval, with

Has the Euro area escaped its low-inflation trap for good?

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For much of the 2010s, inflation in Euro area countries undershot the European Central Bank’s 2.0% target, due to a combination of domestic factors—chiefly weak demand—and external factors, such as peak globalization and depressed oil prices from 2015 onwards. That all changed after the end of the Covid-19 pandemic, with global supply chains snarling up as demand recovered rapidly; inflation has now overshot the ECB’s target for over two years. But what does the future hold for inflation in Euro area countries? 

Inflation in Euro area countries expected to meet target

Our Consensus is for inflation in Euro area countries to finally converge to the 2.0% target by the middle of next year, and to then remain roughly steady on average over the medium to long term. This would be a notable increase from the 1.4% average in the 2010s. There is a large discrepancy among our panelists though: Average inflation forecasts for 2025 range from 1.2% to 3.0%, while those for 2026 range from 1.5% to 2.8% for instance. 

Multiple factors will drive price pressures

The EU’s push away from Russian gas and toward clean energy will raise costs for industry and consumers, as will rising global protectionism and a general desire among countries to boost supply chain security over out-and-out efficiency. Plus, the EU labor market is forecast to remain tight in coming years amid population aging, with our panelists forecasting wage growth around 50% higher than during the 2010s as a result; this will prop up inflation in Euro area countries in turn. 

Upside risks to inflation abound

Escalating tensions between the EU and China are a key upside risk to inflation. The bloc could impose tariffs on Chinese electric vehicle imports later this year, and has recently launched investigations into several other aspects of China-EU trade relations. Then there is a potential Donald Trump win in the U.S. presidential elections this November: He has threatened to impose tariffs on all imports, which could lead Europe to retaliate by raising its own trade barriers in turn. And conflicts in the Middle East and Ukraine could intensify, disrupting global shipping as well as oil and agricultural output. So while inflation in Euro area countries is set to return to target, don’t bank on it staying

Mapped: The Most Valuable Company in Each Southeast Asian Country

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May 6, 2024 Graphics/Design:

See this visualization first on the Voronoi app.

The Most Valuable Company in Each Southeast Asian Country

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Southeast Asia has been emerging as an economic powerhouse in the past decade. However, there are very noticeable disparities in the sizes of the largest publicly-traded corporations in countries within the region.

In this visualization, we map the most valuable company in each Southeast Asian country, by their market capitalization in current U.S. dollars as of April 18th, 2024.

Data for this visualization and article is sourced from Companiesmarketcap.com, and the Laos and Yangon stock exchanges.

Southeast Asia’s Biggest Companies are Banks

The most valuable companies in Indonesia and Singapore, Bank Central Asia and DBS Group, are each worth more than $60 billion, and both are banks.

In the quartet of Malaysia, Thailand, Vietnam, and the Philippines, the largest companies by market cap are all worth around $20 billion. Out of the four, two are banks.

CountryCompanyMarket Cap 🇮🇩 Indonesia🏦 Bank Central Asia$73B 🇸🇬 Singapore🏦 DBS Group$69B 🇲🇾 Malaysia🏦 Maybank$28B 🇹🇭 Thailand⛽ PTT PCL$27B 🇻🇳 Vietnam🏦 Vietcombank$20B 🇵🇭 Philippines📈 SM Investments
Corporation$20B 🇰🇭 Cambodia🚢 Sihanoukville
Autonomous Port$1B 🇱🇦 Laos🏭 LALCO$312M 🇲🇲 Myanmar📈 First Myanmar
Investment$139M
Note: Figures are rounded, and current as of April 18th, 2024.

Cambodia stands by itself, with its most valuable publicly listed company, Sihanoukville Autonomous Port, worth $1 billion.

Meanwhile, LALCO in Laos is a credit leasing company worth $312 million and Myanmar’s biggest company, First Myanmar Investment, is worth $139 million.

Finally, Brunei and Timor-Leste do not have public stock exchanges, but for different reasons.

Most of Brunei’s economy relies on the state-owned oil sector, which also helps make its sultan the world’s second-richest monarch. However, in Timor-Leste, a small population combined with limited access to credit and liquidity has led to limited opportunities for the creation of publicly-listed companies or an exchange.

Atlas Holdings sells NPX One to PE firm Breck

Connecticut-based private equity firm Atlas Holdings has sold NPX One, a US manufacturer and supplier of polystyrene trays for fresh protein, to Dallas-based private equity firm Breck Partners. Terms of the transaction have not been disclosed.

Atlas acquired the assets which comprise NPX One with its purchase of Sealed Air Corporation’s North American foam trays and absorbent pads (TAP) businesses in 2015, which was renamed Novipax. Following its sale of the absorbent pads business in 2020, Atlas rebranded the tray business as NPX One.

Private credit fundraising falls to lowest level since 2020

With inflation remaining stubbornly high and the Federal Reserve seemingly set to keep interest rates higher for longer, private credit fundraising has fallen to the lowest level seen since 2020, according to a report by Bloomberg.

The report cites a survey by data provider Preqin in revealing that managers across the private debt space raised $30.6bn in the first three months of this year — around 14% lower than the the average $35.8bn seen in every first quarter since 2017.

Survey respondents highlighted both interest rates and inflation as their top two concerns for the private debt market.

The report quotes Yasho Lahiri, a Partner at Kramer Levin practicing in private investment funds: “It’s been one of the worst fundraising markets there’s been for private funds. I think it has to do with the fact that there hasn’t been a Fed rate cut and a lot of people are sitting and waiting to see if there’s more guidance before they do anything.”

DecisionPoint to go private in $78.5m all-cash deal

DecisionPoint Systems, a retail in-store solutions and services provider focused on point-of-sale systems, will merge with an affiliate of Barcoding Holdings, a portfolio company of Pennsylvania-based private equity firm Graham Partners, in a $78.5m all-cash transaction.

Under the terms of the deal, which is expected to close in July, DecisionPoint stockholders will receive $10.22 per share in cash, representing an approximate 27% premium over the closing price of $8.05 on 30 April 2024, and a year-to-date return of 63% over the $6.26 per share price on the last trading day of 2023.

In a press statement, Steve Smith, CEO of DecisionPoint, described the decision as “a capstone for our public shareholders”.

Mike Stewart, Principal of Graham Partners, added that the merger would “enhance the value proposition for customers, adding service offerings across a customer’s device life cycle and establishing a national footprint”, creating “an integrator of scale in supply chain automation”.

A cooler jobs market may not be enough

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Good morning. Berkshire Hathaway was a net seller of equities (including Apple shares) in the first quarter and its cash pile grew to a new record. It is hard not to conclude that the high returns available on short-term Treasuries are making its mark on the Berkshire portfolio, despite Warren Buffett’s insistence that cash yields don’t matter (“We don’t use the cash now at 5.4 per cent but we wouldn’t use it if it was at 1 per cent . . . we only swing at pitches we like.”). Let me know your thoughts: robert.armstrong@ft.com. 

How good was that jobs report?

Until last Friday, the evidence that the economy was slowing and bringing inflation down with it consisted of smallish data items and anecdotal corporate testimony. A slightly weaker ISM or consumer confidence reading here; bad news from McDonald’s and Starbucks there. Friday’s weaker-than-expected jobs report — 175,000 jobs added, against an expected 241,000 — represents a meaty, important data point around which all those other bits and bobs can coalesce.

In the chart below, the light blue line shows why the news was welcomed so warmly by markets. What looked very much like a re-accelerating trend in job creation over the previous four months is suddenly more ambiguous:

Still, the three- and six-months averages, which remain sideways-to-up, remind us that April is just one month. Happily, the wage data is more encouraging still. A quite clear, multi-month cooling trend is in place: 

Over at The Overshoot, Matt Klein looks at the evidence and concludes that “US inflation may be much closer to normalisation than I had previously thought.” Wage growth and inflation are closely linked, Klein notes, for the simple reason that consumer spending is mostly funded by wages and most business revenue is funded, directly or indirectly, by consumer spending. We have now had three consecutive months in which the nominal wage data, considered in its totality, has been below the high trend that began back in mid-2022:

Aggregate weekly wage income, which is average hourly pay multiplied by the number of people on payrolls times the number of hours worked each week . . . translates pretty closely to nominal gross domestic product, and was unchanged in April 2024 . . . That would make last month the