• Market Crumbs

Billionaires Debate Valuations

Image via Brendan Church on Unsplash

Last week at Berkshire Hathaway's annual shareholder meeting, which was held virtually as a result of the coronavirus, Warren Buffett shocked many with his cautious tone on the state of the economy and the stock market.

With Berkshire's cash pile growing to a record $137 billion, Buffett has been quicker to divest investments, such as airlines, than to put the money to work. When asked why Berkshire has been slow to deploy its cash, Buffett replied because "we don’t see anything that attractive to do."

With markets staging a strong rebound from the March lowfor example, the S&P 500 bounced nearly 35%, this week saw other notable billionaire investors join Buffett and warn about current valuations.

On Tuesday, hedge fund manager Stanley Druckenmiller told the Economic Club of New York that he believes the stock market is overvalued.

"The risk-reward for equity is maybe as bad as I’ve seen it in my career," Druckenmiller said. "The wild card here is the Fed can always step up their (asset) purchases."

Druckenmiller believes the market is overly optimistic on the progress of drugs to treat the coronavirus, saying "I don’t see why anybody would change their behavior because there’s a viral drug out there."

The following day, hedge fund manager David Tepper gave his opinion of the stock market, saying it is "maybe the second-most overvalued stock market I’ve ever seen," trailing only 1999.

"The market is pretty high and the Fed has put a lot of money in here," Tepper said. "There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full."

While admitting the market may have put in a bottom, Tepper said some large-cap tech stocks appear "fully valued," as his position is "relatively conservative" and he remains "very guarded."

Yesterday brought out another billionaire investorthis time Nelson Peltz, who has the opposite view of the aforementioned.

"I’m positive. I think that vaccine is going to come sooner than later," Peltz said. "This thing is not going to last forever. There’s still loads of value in the market because the market is primarily a tech market."

Peltz revealed he initiated two new positions, saying "we like these companies, we think they’ve been beaten down a bit too much."

As billionaire investors go public with their views of the market, it's worth remembering to take what they say with a grain of salt, as was proven by Bill Ackman who said "hell is coming" near the lows as he closed his shorts and purchased stocks.

Leftover Crumbs

  • 36.5 million. 2.981 million Americans filed for unemployment benefits last week, bringing the trailing eight-week total to a staggering 36.5 million, according to the Labor Department. Continuing jobless claims rose by 456,000 to 22.83 million. The four-week moving average jumped by 2.7 million to 19.76 million. The total of 36.5 million now dwarfs the 22 million jobs that were created since the Great Recession.

  • Starbucks wants a break. Starbucks, which authorized a share repurchase program for 40 million shares in March as CEO Kevin Johnson said "we’ve got a strong balance sheet," is now requesting landlords offer rent concessions for the next 12 months. "We are having ongoing conversations with our landlords in various markets regarding what may be commercially reasonable lease concessions in the current environment," Starbucks CFO Pat Grismer said.

  • Uber follows Lyft. Uber has joined Lyft in announcing new rules for both drivers and riders to limit the spread of the coronavirus. Uber will require both drivers and riders to wear face masks, limit the number of passengers that are in a vehicle and prohibit riders from sitting in the front seat. Drivers will also be required to take a selfie to prove they are wearing a face mask. Uber CEO Dara Khosrowshahi said the company will spend $50 million to provide supplies such as face masks, hand sanitizer and disinfectant wipes for drivers.

  • Credit card spending tanks. JPMorgan Chase & Co. data shows its U.S. customers' credit card spending dropped by 40% during March and early April compared to the same period a year earlier. Not surprisingly, spending in non-essential categories such as restaurants, entertainment and retail fell sharply. "While surprising, we expect this may change over time as layoffs, furloughs and unemployment insurance further impact families’ bank accounts," president and CEO of JPMorgan Chase Institute Diana Farrell said.

  • Tesla warns employees. Tesla has told employees if they choose to not return to work over fears of the coronavirus they risk losing unemployment benefits. "Once you are called back, you will no longer be on furlough so if you choose not to work, it may impact your unemployment benefits as determined by your local government agency – and not by Tesla. We completely respect your decision and will support you, without any penalties from us," an internal email read.