The market rally that looked so promising is running out of steam.
The S&P 500 has now finished lower three weeks in a row. The Dow Jones Industrial Average has given up its gains for the year. Volatility is rising, along with demand for put options to protect against losses. The hope that “as goes January, so goes the year” is looking like a meaningless aphorism.
It’s especially disheartening after a disastrous 2022 and feels like déjà vu all over again. Just like this time a year ago, the economy is humming, but inflation is too fast and the Federal Reserve will have to break up the party. That’s bad for stocks, no question.
Yet legendary investor Warren Buffett is Zen, even though Berkshire Hathaway posted an operating loss in the fourth quarter. There was an annual decline in the company’s book value last year for only the fourth time in its 58-year history.
In his letter to shareholders, Buffett was as optimistic as ever. “Despite our citizens’ penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America,” he wrote.
That’s in stark contrast to the famous quote by British economist John Maynard Keynes: “The long run is a misleading guide to current affairs. In the long run, we are all dead,” he wrote in 1923.
Buffett still seems the better guide here. Stocks do go down sometimes. But more often they go up.
The first page of Buffett’s letter is a table of returns for Berkshire Hathaway and the S&P 500 since 1965. The compound annual gain for the index is 9.9% over the period. The comparable return for Berkshire shares is 19.8%.
Maybe looking at the long term really is better.
—Brian Swint
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Berkshire Hathaway CEO Swipes at Buyback Critics
Berkshire Hathaway
CEO Warren Buffett has kept his optimism, despite last year’s tumble in stock and bond prices. Buffett told shareholders in his annual letter on Saturday that he believes in the resilience of the U.S. economy. “I have yet to see a time when it made sense to make a long-term bet against America,” he said.
-
By the end of 2022, Berkshire was the largest shareholder of
American Express Co.,Bank of America,
Chevron,
Coca-Cola,
HP,
Moody’s,
Occidental Petroleum,
and
Paramount Global.
While buybacks ruled in 2021, the conglomerate used last year’s market downturn to snap up company stocks. - The letter included sharp words for critics of corporate share buybacks. Someone saying they hurt shareholders or the country is “either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett wrote. Berkshire bought $8 billion of its stock in 2022.
- Berkshire Hathaway told Barron’s in an email that the comment was “written six months ago and not directed at anybody specific.” President Joe Biden has recently criticized buybacks, especially by oil companies with record profit, and wants to quadruple the current 1% buyback tax.
- Berkshire Hathaway’s fourth-quarter operating earnings declined 8% to $6.7 billion after taxes, hurt by Burlington Northern’s falling railroad profit and a lower U.S. dollar. For the year, operating earnings rose 12% to a record $30.8 billion after taxes.
What’s Next: The 10-K report said if Buffett, 92, became unavailable, Berkshire’s board agreed that Vice Chairman Greg Abel, 60, who heads Berkshire’s non-insurance operations, should succeed him. Buffett said the next CEO should hold a major portion of his net worth in Berkshire stock, to be motivated to enrich shareholders.
—Avi Salzman and Janet H. Cho
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Pfizer in Talks to Buy Seagen
Multinational pharmaceutical company is in discussions to acquire biotech firm Seagen in a deal that could be worth more than $30 billion, The Wall Street Journal reported.
- Seagen is currently valued at about $30 billion and a buyout would likely require a premium to that. The talks are still at an early stage and there is no guarantee of a transaction, the report said, citing unidentified people familiar with the situation.
- Pfizer could lose $17 billion in sales by 2030 due to the expiration of patents and the deal could offset that. Seagen didn’t immediately respond to a request for comment early Monday. Pfizer declined to comment.
- Pfizer has a solid cash position, according to the report, which says the pharmaceutical giant has some $22.7 billion from sales of its Covid-19 vaccines, drugs, and other products
What’s Next: The move would give Pfizer a stronger lineup of cancer treatments. Seagen has developed a class of agents that have shown promise to be effective against some of the most common tumors.
—Brian Swint
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Elon Musk Unveiling Tesla’s Third Master Plan for Growth
Tesla
CEO Elon Musk teased a “Master Plan 3” for the electric-vehicle maker at the company’s investor event coming Wednesday, hyping it as a path to “a fully sustainable energy future for Earth.” But analysts expect it to be an outline of a new generation of Tesla vehicles.
- Several analysts believe Tesla needs a lower-priced vehicle to guarantee its growth through the end of the decade, and defend its market share against all the EV models traditional auto makers are developing. Wells Fargo analyst Colin Langan believes a $30,000 third-generation vehicle could expand Tesla’s market.
- Tesla’s third master plan could be tied to Master Plan 2, the March 2016 announcement that mentioned robotaxis, “megapack” batteries, and recycling targets, Evercore ISI analyst Chris McNally wrote. That plan promised things including an electric bus and car-sharing goals that still don’t exist.
- New Street Research analyst Pierre Ferragu thinks a lower-priced car could be ready by 2025, with a tag of $25,000, given Tesla’s lead in battery costs and EV manufacturing. It could sell a million units a year by 2026. He sees good prospects for Tesla’s energy-storage business this year.
- Analysts project earnings per share of about $4.10, and $5.60 for 2023 and 2024, respectively, driven by Tesla’s car business. Canaccord analyst George Gianarkas is looking for a stock buyback, as well as new commercial vehicles such as the Semi truck that began shipping in December.
What’s Next: Wall Street expects Tesla to sell more than a million Model Y vehicles this year, which would make it the world’s best-selling car, including gasoline-powered cars. The Model Y was the fourth-best-selling vehicle in 2022, shipping about 760,000 units, while Toyota Motor’s Corolla sold 1.1 million units.
—Al Root and Janet H. Cho
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Telecoms, Big Tech Set for Debate on Funding Upgrades
Barcelona, Spain, will be buzzing with this week’s Mobile World Congress—a telecom conference with an estimated 80,000 attendees this year, including tech executives, innovators, and regulators. Artificial intelligence is expected to take center stage, but a clash between tech and telecom firms in Europe over who will underwrite network infrastructure upgrades is threatening to overshadow it.
-
The European Union is asking how to fund upgrades to internet connectivity, according to Reuters. It has suggested big tech companies such as Google’s
Alphabet,Apple,
Meta Platforms,
and
Netflix,
which generate a lot of the traffic on the networks, take on more of the costs of their upkeep. - Last week, the EU began a 12-week “consultation” to gather comments on the proposals. Representatives from Alphabet, Meta, and Netflix are expected to push back against the EU, Reuters reported, adding that Netflix CEO Greg Peters will meet with the EU’s internal market chief Thierry Breton at the conference.
-
Tech firms say they already spend money on the networks. European telecommunications firms such as
Deutsche Telekom
and
Telecom Italia
have been vocally supporting adding fees from big tech, the report said. - The next-generation 5G technology is also on the agenda for the conference. Among product launches expected at the conference will be smartphones from Honor, OnePlus, Huawei, and HMD’s Nokia.
What’s Next: The metaverse is also on the agenda, with several sessions scheduled to discuss how the emerging technology will affect issues in education, further technology innovation, and whether it is a fleeting fantasy or a lasting business opportunity.
—Liz Moyer and Adam Clark
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Lawmakers Ponder Hearings on Ohio Train Derailment
The House Oversight Committee has asked Transportation Secretary Pete Buttigieg by letter for documents and information on the department’s response to the
Norfolk Southern
train derailment in early February in East Palestine, Ohio, and the subsequent environmental hazards in a continuing investigation.
- The Oversight committee is run by Kentucky Republican James Comer, with Maryland Democrat Jamie Raskin as ranking member. GOP Rep. Jim Jordan from Ohio also signed the letter. The committee said it is concerned about the Transportation Department’s “slow pace” in resolving the matter.
- The House Transportation and Infrastructure Committee and House Energy and Commerce Committee are considering their own investigations, Axios reported. Ohio GOP Rep. Bill Johnson, who represents East Palestine, is a member of the House Energy Committee.
- GOP Rep. Elise Stefanik of New York told reporters at a ribbon-cutting ceremony on Friday that “I anticipate there will be congressional hearings on the Transportation and Infrastructure Committee.” President Joe Biden has rejected claims his administration has failed to respond to the crisis.
- Representatives of federal agencies, including the Federal Emergency Management Agency, the Centers for Disease Control and Prevention, and the Environmental Protection Agency, went door-to-door in East Palestine on Saturday to offer residents more information on available resources.
What’s Next: Sen. Tom Carper (D-Del.) and Sen. Shelley Moore Capito (R-W.Va.), said the Senate Environment and Public Works Committee would soon schedule a hearing on the environmental and public-health aspects of the derailment and the efforts to clean up toxic chemicals at the site.
—Liz Moyer
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MarketWatch Wants to Hear From You
Americans are getting increasingly behind on their debt, New York Fed data show. How much worse will it get if the Supreme Court voids Biden’s student-loan forgiveness order—and full payments resume in late summer?
A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to thebarronsdaily@barrons.com.
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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