I probably shouldn’t have read Warren Buffett’s annual letter. It only reminded me of the futility inherent in what we do every day.
As longtime readers can attest, I don’t actually put any figurative or literal stock in near-, medium- or really even long-term market prognostication. In that sense, I wholeheartedly agree with Buffett’s unabashedly acerbic characterization of any and all such soothsaying.
If your question is whether that means I view most of the analysis I highlight in these pages as “worse than useless,” as Buffett would put it, the answer’s even more disheartening than if the answer was an unqualified “yes.” The answer’s “no.” No, it’s not “worse than useless,” because it’s entertaining. As Alonzo Harris might put it, “That’s why I read it. Because it entertains me.” And it apparently entertains you folks too. Endlessly. Bless your hearts.
Every time I read Buffett, I think three things. 1) He’s a long-only hedge fund manager pretending to be something other than a long-only hedge fund manager. 2) He’s exactly right to suggest that perusing any sort of color commentary regarding markets and macro is a waste of time at best and conducive to bad decision making at worst. 3) I shouldn’t be reading a Warren Buffett letter because… well, because see 2), and also because who’s Warren Buffett? Just some guy who made some money.
I noticed a handful of comments on February 24’s Berkshire article, most of which suggested I shouldn’t have spared Warren the usual sarcasm regarding the “realities” of his business model just because Charlie Munger recently died. Honestly, I don’t even know what I mean by “realities” in that context. I haven’t studied Berkshire such that I’m qualified to craft unique jokes. Every quarter I just paraphrase Dan Loeb’s 2015 “[Buffett] had the first hedge fund” soundbite. That’s it. That’s my whole Berkshire shtick. Paraphrased Dan Loeb and cheap grandad jokes. I keep waiting for somebody to ask if I have anything else to offer other than re-heated Dan Loeb, but nobody ever calls me on it. So, every three months, I spin it up like cotton candy at a junk food convention in Omaha. There’s a Berkshire joke. And people eat it up like “11 tons of peanut brittle.” There’s another one. I’ll be here all night, folks.
Reading those comments I was reminded of the veritable chasm between the lens through which my readership views the world and my own lens, which ironically and paradoxically speaks both to my affinity for Buffett’s views on the vacuity of market soothsaying and to my inability to view Buffett in this moment as anything other than an old man who just lost his best friend.
To that latter point, Warren Buffett’s a nobody, folks. He’s not an inventor. He’s not a peacekeeper. He’s not a revolutionary. He’s not a philosopher. He’s not a world leader. He’s not an explorer. He’s not a scientist. He’s not a teacher. He’s not a paramedic. In short, he’s not a hero. He’s not a villain either. He’s not a cult leader (I know, I know: Have you ever been to a Berkshire annual meeting?). He’s not a dictator. He’s not a warlord. He’s not a drug kingpin. He’s not a mobster. Buffett’s just a guy who bought some businesses. Sure, he has a lot of money. So what? So do all kinds of other people. Why anybody cares what he has to say is completely beyond the real me, even if digital me pretends to get it. A lot of you probably think I wake up on Berkshire Saturdays and think “Oh good, I get to pen some Buffett snark.” In reality, I think “Oh God, I’ve gotta fake an interest in some Buffett snark.” Which, incidentally, is pretty much the same thing I think about a lot of the ostensibly “clever” market-related snark and “brilliantly” pithy macro commentary I churn out.
What’s left of my social network from ~20 years ago finds all of this endlessly amusing. That I spend my days regaling the public with play-by-play accounts of macroeconomics and capital markets, I mean. “You still doin’ the stock thing?” I get that question. And whenever I do, I’m reminded of Al Pacino’s Lefty and Johnny Depp’s Donnie Brasco in the car. “There’s good money in it?” “What? What? The market stuff?” “Thank you.” “Yeah. If you know what you’re doing, there is.”
I hope — I like to think — that regardless of why new readers are here, this is why longtime readers are still here: The knowledge that there’s more to the story — more to the man — than some former trader or, worse, some retired academic, carrying on all day about charts and lines, blips and bps, like that’s interesting. Like that’s what matters in life.
Now, allow me to highlight some “key” color and “incisive” analysis. That’s why you’re here, right? That’s why you clicked.
In the latest installment of his popular weekly “Flow Show” series, BofA’s Michael Hartnett said the next trade may be “long global producers and short US consumers.” He pointed to a “contrast” between jobs and manufacturing over the past year, illustrated on the left, below. The resilient labor market sustained the spending impulse, at least in the US, but the excess savings that served as a tailwind for the American consumer are now mostly “extinguished,” Hartnett said, as evidenced by a “falling saving rate and rising delinquencies.” In other words, the “strong consumer/weak producer” dynamic may be on the cusp of a role reversal, whereby hiring cools but manufacturing picks up.
Hartnett went on to say that “based on historical relationships and current valuations,” the best trades for the “long producer, short consumer” thesis are commodities and “mercantilist stock indices,” like the KOSPI, OMX and DAX.
He was a bit cautious on semis, Japanese shares and housing, all of which he judged to have “already discount[ed]” a meaningful inflection in ISM, leaving less in the way of upside. Semis, he wrote, are “obviously in a different cycle due to the AI arms race” and there are “very obvious bubble risks.”
Explaining the figure on the right above, Hartnett noted that the number of small businesses poised to hike prices in the coming months is “on the rise again.” That, he warned, “correlates with CPI.” He also suggested that any further increase in nominals or reals could “cap” or even “unwind” equity upside.
Until then, though, “the AI ‘baby bubble’ is growing up,” Hartnett said. And an accelerating ISM coupled with what investors still expect will be a trio of Fed rate cuts in 2024 is “the magic sauce for more upside.”
How’s that for burying the lede?
H-
I still have “no clue” as to who you used to be, prior to the time you became “H”. Now, I still don’t know who you are!
Maybe you should start an after school investing club for high school students (who are actually interested in investing) or do something like this. The socialization might be good for you, too.
Cut and paste from Reddit, summarizing an article that was In Bloomberg news in 2022.
Ex-Wall Street trader quit to become a teacher at a public HS in central Florida. Now the school’s math team is one of the best in the country. Colleagues and students say it’s because he’s infused a competitive culture into the team.
This is wild. Imagine quitting your job on Wall Street to become a public school teacher.
This guy left his job as a bond trader, bought a Ferrari, and began teaching at a public high school school in Gainesville, Florida.
The result? Buchholz High School now counts more qualifiers in national math team events than almost every other high school in America.
https://www.bloomberg.com/news/articles/2022-06-03/ex-trader-turns-high-school-math-team-into-wall-street-pipeline
I know what I did the first 60% of my life, but trying to figure out what to do with the next 40%. Something “meaningful” – just trying to figure out what that is. An extremely fortunate situation that I am in; don’t want to waste it!
So THAT’s why Buchholz High’s math program is so good. I thought it was because the university was down the street.
I started my graduate work in Finance and other things in 1966, right when academics were just figuring out what Finance actually was. I watched modern finance being born and squeezing its way into the old school. The stock market in those days was cold, flat dead. The DJIA hit 1000 for the first time in Feb 1966. That didn’t happen again, ever, until Oct 1982. While modern finance was being created in that backwater environment, the first conglomerates were being born like new galaxies in an expanding baby universe. Two of those were new business forms were remarkable, and different. My favorite was Gulf & Western, a bumper stamping company taken over by Charles Bluhdorn in the mid 1950s. He was my first idol at the time. Under him this company came to be the leader in movies, publishing, recorded music, sugar refining and production, shoe making, and many other uncorrelated industries. At Bluhdorn’s untimely death in 1983, the company was broken up. and sold off. Pieces of it ended up as Paramount, Simon & Schuster, Viacom, Madison Square Garden and many others. At about the same time, somewhat less publicly, Warren Buffet was turning a tired carpet mill into what now comprise 6% of all the assets in all the companies in the S&P 500., in short, the biggest company in America. It doesn’t have the biggest market cap. From a company perspective market cap is immaterial and not real. Mostly, cap is a public relations phantom. Buffet and Bluhdorn both worked their magic in the old school. Buffett’s idol was Benjamin Graham, the grandfather of the “old school” of value investing. Buffett is now the leader of that old school and his latest letter shows me he “knows the score.” He told us that in his opinion there is really nothing of value left to buy that will materially improve the performance of Berkshire-Hathaway. Nothing can. What he has accomplished came about from his following the teachings of his idol and his and his partner’s astute observations. Graham was one of my mentors from afar, and the mentor of my main grad school guru, a co-founder of the CFA program. It was these old school folks whose teachings I passed on to my students (and also followed with my wife’s and my meager professor’s earnings). Let’s say, I am not unhappy with what happened from so doing. Old school still makes sense to Buffett and could teach much to those who choose to believe in the miracle of the infinite “melt up.” In the words of the song, “… it just isn’t real …” Buffett may be called a hedge fund manager by some but I say he is by far the most successful creator of the ideal conglomerate, and probably the very last of his kind.
Thanks for the perspective, Dr. Lucky.
My early hero was Robert Vesco.