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The Weekend Edition # 77
3rd straight down week; Warren Buffett's letter; Earnings recap; Calendars
Welcome to another issue of the Weekend Edition. My apologies for not getting this out on Sunday, as usual.
Thank you to all who’ve read and welcome to all the new subscribers this week!
Here’s what we cover:
Market Recap - 3rd straight down week
Warren Buffett’s letter
Premium Articles - Cruise Stocks & the FOMC Minutes
The Week Ahead - Economic & Earnings Calendar
Let’s dive in ⬇️
Market Recap - 20 Feb - 24 Feb, 2023 📉📈
Going into last week, we knew we had the Fed minutes but what was even more important were the PCE inflation numbers. This is the last set of inflation numbers before the March Fed meeting, and what a surprise that was. All the inflation numbers came in hot even after an upward revision to the prior numbers.
Inflation has clearly re-accelerated, albeit by a slight amount. However, as I’ve stated before, this is to be expected. We’re down to the stickier categories and quite often we do see a slight uptick before it heads back down. But, this is changing the market’s mood. Or in fact, has changed the market’s mood somewhat.
We’re also seeing a change in the Fed Funds Rate, where the market is now pricing in no pivot or cuts in 2023. This is a departure from what we’ve been seeing in the last few weeks during the bear market rally.
We had a strong day of selling on Friday. Last week was the third straight week that the S&P 500 closed in red. Futures are up this morning and don’t be surprised if we see a little bounce in the markets this week as the we get a breather from the selling pressure.
Speaking of oil, we saw quite the impact from the SPR release. WTI Crude was down over -7% for the week.
And another interesting phenomenon this week was that Abu Dhabi’s Murban crude futures were trading at higher premium to Brent, than they normally do.
Natural gas saw a slight pop after several heavy weeks of selling and with the Dollar remaining strong throughout the week, we saw gold pull back as well.
USD-JPY was the trade of the week not, just on the strength of the US Dollar but also because the Bank of Japan decided to sell more JGBs again!
To top that off, the new appointee for the Governor position, Mr. Ueda, made remarks about how the current easing policy was still appropriate for Japan and any change in policy would come, if needed. Mr. Ueda’s appointment had given traders cause to speculate that the easy monetary policy for Japan would be coming to an end. So his remarks appeared contrary to what the market was expecting.
Warren Buffett’s letter
Warren Buffett put out his annual letter and the earnings for Berkshire Hathaway this weekend. It’s probably the most anticipated shareholder’s letter and much of the discussion is all over the news. But, I still wanted to quote some of the major issues.
On the stock market, business and capitalism.
Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon “creative destruction.
What you’ve read in the media is true… he did have a go at the issue of share repurchases. But his point was that there is a right way to do share repurchases. And the right way is to do it a value accretive prices and not do it as a company pleases and at any price. Returning money to shareholders may not always be the right the right thing to do. But, it also doesn’t make it harmful.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
On their commitment to Berkshire Hathaway:
…We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses. Our CEO will always be the Chief Risk Officer – a task it is irresponsible to delegate….
At Berkshire, there will be no finish line.
Finally, he has a section titled: “Nothing Beats Having a Great Partner” where he lays out quotes from the great Charlie Munger. Not only do I admire their partnership but, if you don’t read anything else, this list is worth reading.
Warren’s advice for us: “Find a very smart high-grade partner – preferably slightly older than you – and then listen very carefully to what he says.”
FactSet Earnings Scorecard:
We’ve heard earnings from the majority of the S&P500 by now. The blended earnings decline is now -4.8% this week. This is an improvement over the past weeks where we saw -4.7%, -4.9% and -5.3% prior to that.
With a year-on-year decline in earnings, it looks more and more certain that we will be experiencing an earnings recession because I don’t believe next quarter’s earnings will turn positive either.
We heard from the major retailers last week and not surprisingly, both Home Depot and Walmart commented on how difficult the year ahead looks. Recession warnings were discussed. HD gapped down on earnings and the situation wasn’t helped with home sales number coming in the lowest since 2004 and mortgage numbers coming in the lowest since 1995.
Article of the Week
Premium membership is $10/month or $100/year but this week’s article is free to read for all!
The Week Ahead
There’s always something to learn from the letters of Warren Buffett. This year two quotes that stood out to me were:
The disposition of money unmasks humans. - Warren Buffett
Nothing can be truer than this. This one-liner was on the first page of the newsletter. It’s more life advice than anything else. How we choose to spend out wealth is very telling of who we are.
You have to keep learning if you want to become a great investor. When the world changes, you must change. - Charlie Munger
And this is yet another reality of investing… and trading. What we’re seeing in this very choppy market is exactly that. People are flip-flopping between their views on the Fed, the macro, earnings and playing it out with options. Last week, we had several days where the market was moved around with these same-day options. When will this change? Who knows! What we do know is that we have to adapt to the present situation and learn to navigate the markets the best we can.
Here’s wishing you safe investing.
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Ayesha Tariq, CFA
There’s always a story behind the numbers.
None of the above is Investment Advice. I may or may not have positions in any of the stocks or asset classes mentioned. I have no affiliation with any of the companies other than explicitly mentioned.
Full disclaimer: https://ayeshatariq.substack.com/about
For one-on-one coaching on macro and fundamentals: https://www.traderade.com/ayesha
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