Weekly Roundup: Stocks Rise on Poor Job News, Berkshire, FTX to Repay Creditors – but They’re Unhappy
Berkshire Hathaway’s 2024 Annual Meeting
Come one, come all. Or come 45,000 – the Berkshire Hathaway annual meeting is like none other. Warren Buffett (and until this year, partner Charlie Munger) will entertain any question for the better part of a day, along with recapping Berkshire’s performance. Berkshire made a wonderful tribute video for Charlie this year, who sadly passed away in November, just shy of his 100th birthday.
All this, a company exhibit hall, plus plenty of satellite value investor events before and after.
We’ve put quite a bit of coverage out on the BBAE Blog and YouTube channel – and I’ll have a more nuanced article out next week – so I won’t reinvent the wheel here, but for a quick summary, Berkshire continues to do well and sports a record cash balance.
Buffett has been a net seller of equities this past year, meaning he’s likely bearish on the market (in 2022, a down year, he was a net buyer).
Berkshire’s insurance business did especially well; its railroads and utility business less so. Awkward moment: With Tim Cook in the audience, Buffett mentioned selling 13% of Berkshire’s Apple position.
But it was a good year overall, and Berkshire owners like me are hoping it will remain an investment that modestly outperforms the S&P 500, especially on a risk-adjusted basis, in the coming decades.
- BBAE analyst Shaoping Huang and I share our takeaways from Berkshire’s 2024 meeting in this recap video. (And if you’re a fan of thought progression, you can see what we were expecting to get out of the meeting in this preview video.)
- Whitney Tilson of Stansberry Research, the world’s #1 Berkshire and Buffett expert, sat down for a BBAE interview in one of the CHI Health Center’s overflow rooms here.
- Vitaliy Katsenelson, CEO of Investment Management Associates, chatted with me after a breakfast event (generously sponsored by Vitaliy) in this video.
- Gary Dvorchak of The Blueshirt Group talked about the IPO markets and why he owns 1,000,000 shares of Tuya (NYSE: TUYA) here.
- Here’s the Berkshire Hathaway-themed livestream I did, where I also introduce how to use BBAE’s Discover to see what’s in the Berkshire portfolio (and a lot more).
Bad news is good news: Fed rate cut now expected again because of labor market cooling
I’m not into day-to-day market watching. If you’re investing for years, or decades, it doesn’t make sense. In fact, it can tempt activity bias by pulling you into trading when you shouldn’t.
But the US markets have had a good week-or-so run, with the Dow Jones Industrial Average rising for seven days in a row, and the S&P 500 rising above 5,200, as Yahoo! Finance notes.
The reason? US unemployment was the highest since August. Weekly jobless claims of 231,000 were 22,000 higher than the week before.
Bad news is itself bad. But investors watch the Fed like how a dog watches his owner holding a piece of meat and moving it around: They’re less concerned with the actual news, good or bad, and, at least these days, more concerned with how the Fed will react to the news.
The market has swung from being nearly certain of six or seven Fed rate cuts in 2024 (a rate cut stimulates the economy, and therefore stocks, but making borrowing cheaper) to praying for at least one.
Investors no longer take a rate cut as a given, or for granted. With the bad news of a worsening employment situation (a strong job market can fuel inflation, incidentally, because everyone feels confident enough to spend) the chance of an economy-stimulating rate cut went up. And Mr. Market has decided that Fed policy trumps employment in influencing equity values.
FTX will pay 118% (or more) of creditor claims – but many aren’t happy
This story has a miraculous-sounding headline, at least in most of its media coverage thus far. But it actually has a substantial glass-half-empty element, too.
The half-full part, which you’ll see more prominently in the media headlines, is that left-for-dead FTX, Sam Bankman-Fried’s crypto exchange – the same crypto exchange that a) misappropriated customer funds, b) about which appointed-to-restructure CEO John Ray III, who sorted out Enron’s bankruptcy, said he’d “never seen such a complete failure of corporate controls,” and c) whose claims were trading at three cents on the dollar shortly after FTX’s bankruptcy, will not only pay back the $11.2 billion in claims outstanding, but will pay a little extra – because it expects to end up with somewhere between $14.5 billion and $16.3 billion in cash.
As Bloomberg’s Matt Levine points out, it wasn’t that John Ray III was a crypto recovery genius, or that FTX hadn’t bought wild and crazy things with customer deposits; it was more that the bankruptcy process is incredibly slow, and during that incredibly long wait, crypto just happened to rally again.
Bitcoin went from $17,000 to $61,000, and Solana, which FTX had a big position in, went from $12 per coin shortly after the blowup to $152 recently – nearly a 12x return. And the AI boom helped FTX’s investment in Anthropic, which it sold for a $900 million profit.
That’s the half-full perspective: In fairness, going from three cents on the dollar to 118 cents on the dollar is no small stroke of luck.
One part of the half-empty perspective is that those claims shouldn’t have been “on the dollar” in the first place – dollarization is common in bankruptcy resolution, even if for the crypto crowd, sovereign currency can be anathema. But the kicker is that the claims were dollarized at the time of FTX’s bankruptcy, which was a particularly low point for crypto (ironically, in no small part due to FTX’s bankruptcy spooking the market).
More simply, the half-empty perspective says that the “$11.2 billion” in creditor claims is essentially a false yardstick based on a low-water mark (to slightly mix metaphors) – that FTX’s claims of “paying back creditors in full” makes a great headline, but only works because the math of “full” got distorted by a bankruptcy practice that was unfitting and particularly unkind to FTX’s claimants.
The unhappy creditors have a few other, more technical, grievances, too – including owing taxes on US dollar receipts – and say they won’t accept the settlement. So this story is not over, and may set a precedent as it unfolds.
I’m not a bankruptcy expert and I’m especially not a crypto bankruptcy expert, but I suppose there aren’t many crypto bankruptcy experts yet. And that seems to be the point.
This article is for informational purposes only and is neither investment advice nor a solicitation to buy or sell securities. All investment involves inherent risks, including the total loss of principal, and past performance is not a guarantee of future results. Always conduct thorough research or consult with a financial expert before making any investment decisions. James owns shares of Berkshire Hathaway and Apple. BBAE has no position in any investment mentioned.
