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Buffett Strikes Cautious Tone

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Over the weekend legendary investor Warren Buffett’s Berkshire Hathaway reported its worst quarterly performance in the company's history as the coronavirus takes a toll on the company's investments.

Berkshire reported a $49.75 billion net loss for the first quarter compared to net earnings of $21.66 billion during the same period a year earlier. Berkshire said most of its nearly 100 businesses saw "relatively minor to severe" effects as a result of the coronavirus, with businesses deemed as essential having slowed "considerably" in April.

Buffett was quick to point out that operating profit, which he deems a better measure of Berkshire's performance, rose 6% to $5.87 billion for the quarter.

Buffett gave plenty of insight into Berkshire's quarter and his views on markets during the company's annual meeting Saturday.

With Berkshire's cash pile growing to a record $137 billion, Buffett said the reason he's been slow to deploy it is because "we don’t see anything that attractive to do."

"We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion. And if we really like what we are seeing, we would do it," Buffett said.

Buffett said Berkshire only purchased a net $1.8 billion of stocks during the first quarter, while repurchasing just $1.7 billion of its own stock. Buffett had enough of his airline investments, selling Berkshire's entire stake in the sector which included United Airlines, American Airlines, Southwest Airlines and Delta Air Lines.

"The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way," Buffett said. "I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control."

Summing up his investments in the airline sector, Buffett bluntly said "It turned out I was wrong."

Buffett appeared to pour cold water on rumors he would be interested in helping troubled airplane manufacturer Boeing. "I don’t know that three, four years from now people will fly as many passenger miles as they did last year," Buffett said. "You’ve got too many planes."

Buffett had praise for Fed Chair Jerome Powell, saying "Jay Powell in my view, and the Fed board, belong up there on that pedestal with him because they acted in the middle of March."

The 89-year-old Buffett said he and his 96-year-old vice chairman Charlie Munger are in good health. In regards to who may take over the reigns down the line, Buffett said Greg Abel, vice chairman of non-insurance operations, as well as Todd Combs and Ted Weschler, his two key investing deputies, will allocate capital at Berkshire.

Asked why he won't break up Berkshire, Buffett replied "If you were to sell Berkshire’s various subsidiaries you would incur a very significant amount of tax at the corporate level before anything was distributed to the shareholders."

While Buffett, who is arguably one of the best stock pickers in history, is struggling to find ways to deploy Berkshire's record cash pile, perhaps his one piece of advice for most investors should be seriously considered.

"In my view, for most people, the best thing is to do is owning the S&P 500 index fund."

Leftover Crumbs

  • Musk's costly tweetstorm. Tesla co-founder and CEO Elon Musk wiped $14 billion off Tesla's market capitalization Friday after tweeting "Tesla stock price is too high imo." In what could arguably include his Tesla shares, Musk also tweeted "I am selling almost all physical possessions. Will own no house." Musk's tweets caused Tesla shares to crash, falling more than 20% from Thursday's post-earnings high. While it's not clear what Musk's motive is, it appears the tweets were authentic as opposed to his account being hacked.

  • Congress has questions for Bezos. The House Judiciary Committee has called on Amazon founder and CEO Jeff Bezos to explain statements the company previously made regarding its competitive practices. The Committee threatened to subpoena Bezos if he does not submit responses to whether the company uses third-party seller data to create competing products. "If these allegations are true, then Amazon exploited its role as the largest online marketplace in the U.S. to appropriate the sensitive commercial data of individual marketplace sellers and then used that data to compete directly with those sellers," the letter read.

  • 3M won't stand for it. 3M has sued five vendors it accuses of targeting government officials with with bogus offers to sell billions of nonexistent N95 respirators. 3M says the vendors tried to sell the respirators at inflated prices to officials in Florida, Wisconsin and Indiana. "We will continue to take legal action in cases like these and are working closely with national and international law enforcement to help stop the perpetrators of these unlawful and unethical schemes," 3M said.

  • Coronavirus hits meat industry. The Centers for Disease Control said nearly 5,000 employees at meat processing plants across the U.S. have tested positive for the coronavirus. The CDC tested workers at 100 processing plants across 19 states and found 3% of those tested contracted the coronavirus. "The recognized risk to meat and poultry facility operation requires prompt action to decrease risks to workers, preserve facility function, and maintain the food supply," the CDC said.

  • Uber must face lawsuit. Uber was ordered by a U.S. judge to face a lawsuit alleging it stifled competition through illegal predatory pricing and other anticompetitive tactics. According to the complaint, Uber gained market share by giving above-market incentives to drivers and low fares to passengers, then subsequently reduced driver payments and raised fares. "At this stage, the court finds Sidecar’s allegations of market power to be sufficiently plausible to avoid dismissal," Chief Magistrate Judge Joseph Spero said.