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So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds.
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Becky Quick: (02:47:14)
This next question comes from Steven Staller. He’s a shareholder in Atlanta, Georgia and he says, “Would you please help us understand the effects of COVID-19 are on our insurance businesses? Other insurance companies have reported losses from boosting reserves for future insurance claims that they expect to be paying as a result of Coronavirus. Yet in Berkshire’s 10Q released this morning, we do not appear to have reported much of these future expected losses. Can you tell us why this is the case? What kind of risks Berkshire is underwriting that allows us not to be affected by the pandemic or conversely, what we are writing that might be?”
Warren Buffett: (02:47:47)
Well, the amount of litigation that is going to be generated out of what’s already happened, let alone what may happen, is going to be huge. Now, just the cost of defending litigation is huge, enormous expense, depending on how much there is.
Warren Buffett: (02:48:08)
Now, in the auto insurance field, which is our number one field in terms of premium volume by some margin, that’s more definable, but who knows what comes out of it in terms of litigation. But in what they call commercial multiple peril, which involves property losses and where some people elect to buy business interruption experience coverage, many policies quite clearly in the contract language would not have a claim for business interruption under a commercial multiple peril policy where you’ve elected that. But other policies do I know of, I think I know of one company. I don’t know the details, that’s written a fair amount where they cover or they certainly there’s a good argument perhaps that they cover business interruption that might arise from a pandemic.
Warren Buffett: (02:49:26)
Well, they’re in a very different position than the standard language which says that you recover for business interruption only if involves physical damage to the property. And you can buy all kinds of different policies. We are not big in the commercial, multiple peril business.
Warren Buffett: (02:49:47)
So I mean, this is not like our auto business or anything of that sort, but we will have claims. We’ll have litigation costs, but proportionally it’s not the same with us as with some other companies, which have been much more…
Warren Buffett: (02:50:03)
…those with some other companies which have been much heavier in writing business interruption as part of a commercial, multiple peril. But you don’t automatically get coverage if you have business interruption. I mean for example, I think it would be unusual if say General Motors had a strike, which they did, and that they have business interruption that covers a strike. We actually wrote about, probably the only annual report in the United States, we wrote about business interruption insurance because we had it over in France, when one of our properties was adjacent to a much smaller property that had a fire and then it spread to our plant and it caused a lot of physical damage and we have business interruption that ties in with that. But if we had some company we were selling auto parts to and they had a strike, our business would be interrupted, but that is not part of the coverage, unless you specifically really buy it. So, there’s some claims that are going to be very valid and related to the present situation. There’ll be an awful lot that there’ll be litigation on that won’t be valid.
Warren Buffett: (02:51:18)
And, there’s no question that some insurance companies, I know one particular, that will pay a lot of money relative to their size, in terms of policies that they’ve written. And I think we have reserved, and our history shows we generally have reserved on the conservative side, adequately at least. And that’s certainly our intent. And we tell no managers of any of our insurance operations, what numbers we expect from them or do any of that. They evaluate their losses and they build in something for social inflation. They build in things for all kinds of things. And generally speaking, Berkshire has been pretty accurate in its reserving. And, I have no reason to think that we’re otherwise than that, currently.
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https://www.ft.com/content/a2b4c18c-a5e8-4edc-8047-ade4a82a548d
Sweden’s unique strategy to deal with coronavirus will ensure it has only a small second wave of cases unlike other countries that could be forced to return to lockdown, according to the architect of the contentious policy. Anders Tegnell, Sweden’s state epidemiologist who devised the no-lockdown approach, estimated that 40 per cent of people in the capital, Stockholm, would be immune to Covid-19 by the end of May, giving the country an advantage against a virus that “we’re going to have to live with for a very long time”. “In the autumn there will be a second wave. Sweden will have a high level of immunity and the number of cases will probably be quite low,” Mr Tegnell told the Financial Times. “But Finland will have a very low level of immunity. Will Finland have to go into a complete lockdown again?”
He believes European leaders, fearful that their health systems would be overwhelmed, felt they needed to copy China’s approach, the first country to lock down because of the disease. About a quarter of people in Stockholm had the virus at the start of May, according to a mathematical model by Sweden’s public health agency, which Mr Tegnell said was part of the reason the number of cases in the capital had fallen recently. By contrast, tests this week in Norway’s capital Oslo suggested that under 2 per cent of the population had been infected.
But Mr Tegnell said uncertainty about how long virus immunity would last meant it was unlikely Sweden would reach “herd immunity”, a level of the disease where so many people are infected — usually about 80 per cent — that it stops spreading. “I don’t think we or any country in the world will reach herd immunity in the sense that the disease goes away because I don’t think this is a disease that goes away,” he added. Many countries’ hope is that they can keep the virus at bay until a vaccine is found. But Mr Tegnell said that, even in the best-case scenario, it was likely to take “years” to develop one, before it could be administered to an entire population. “It’s a big mistake to sit down and say ‘we should just wait for a vaccine’. It will take much longer than we think. And in the end, we don’t know how good a vaccine it will be. It’s another reason to have a sustainable policy in place.”
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"Some years, the gains in underlying earning power we achieve will be minor; very occasionally, the cash register will ring loud. Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do."
"America’s economic achievements have led to staggering profits for stockholders. During the 20th century the Dow-Jones Industrials advanced from 66 to 11,497, a 17,320% capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further 72%, to 19,763. American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle. Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.” During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."
It seems that they really see this event as different. Maybe too much uncertainty/to early to act in a big way, or maybe not cheap enought to compensate for that uncertainty.
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More than 117 million people are likely to make trips in China during the five-day May Day holiday that started Friday
Nothing to see here guys. All new infections in China are now reported like "xxxx city got 30 new cases and that's because a foreign guy came over irresponsibly".
I think a 2nd wave is coming.
My friend recently went to a good restaurant in Wuhan. Still no one there. Her family was the only one. Where is the pent up demand after this is all over?
We have this on top of the most historical asset bubble. Just keep that in mind.
Shopping malls and department stores are open again, but largely empty. The same is true of restaurants; people are ordering in instead. The subway is quiet, but autos are selling: If being stuck in traffic is annoying, at least it’s socially distanced.
After reopening on March 23, the dealership had been selling about seven cars per day, on pace with last year despite all the restrictions. Most were relatively low-end vehicles, such as the A3, which retails for about 200,000 yuan ($28,000)—the kind of car often bought by families to complement a bigger, fancier model. “People are not willing to take public transport in Wuhan,” said the marketing director, who asked to be identified by only his surname, Pan. “And they don’t dare commute by Didi”—the ubiquitous ride-hailing app. The focus now, Pan said, was on following up with people who’d expressed interest in an Audi in the past but hadn’t bought one. They might be ready to bite. The dealership was looking to expand its current staff of about 150, and employees would soon receive the pay they’d missed during the lockdown. Another salesperson added, “It’s like a boom.”
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"WHO emergency expert says Sweden could be ‘future model’ for coronavirus policy"
Nonetheless, data released from the country’s central bank and a leading Swedish think tank show that the economy will be just as badly hit as its European neighbors, if not worse.
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On top of that, we have Buffet and Munger not buying anything after the big market drop. Has this ever happened before? At the same time, we also have all kinds of 0 experience "investors" taking out their credit card, taking mortgage forebearance etc. to trade in the market. I've personally been contacted by a few college classmates who have never traded stocks now wanting to catch this opportunity of a decade to make money.
I have to wonder if Buffet and Munger are smarter or these 0 experience day traders.
The market has provided ample opportunity for those who missed this in March to cash out with the S&P now where it was in October 2019. There should be no valid excuse for these people if they lose their shirts.
“I feel like everything that I buy, I watch pretty closely and if it’s something that’s not doing well, I’ll generally try to put [that money] into something that is doing well instead,”
“I’m a complete noob when it comes to stocks,” the mother of high school senior twin boys said while sheltering at home. “It’s not thousands and thousands of dollars that I invested, but it’s a start. We’ll see what happens. I hate to say it, but it’s like gambling, isn’t it?”
More accounts were opened and dollars invested at E*Trade in the first quarter than in any prior full-year period, according to a company statement. The brokerage added 329,000 retail accounts and over $18 billion in net retail assets.
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Meanwhile, the Swedish economy has been far less badly hit than that of other European countries and is expected to contract by only 4 per cent this year. “I’m not an economist, but the UK is far more affected with more out of work,” Tegnell says, although he insists that he would never want to sacrifice lives to protect GDP.
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https://www.wsj.com/articles/new-york-feds-williams-says-recovery-unlikely-to-be-swift-11587130541
“I don’t see the economy being back to full strength by the end of the year. It’s going to take longer to get us back to where we want to be,” he said in a CNBC interview. Mr. Williams tied the prospect of a slow recovery in part to caution by the public that is likely to outlast any social-distancing and other government restrictions. “Even as the pandemic passes, even as the restrictions are relaxed gradually over time, people may take quite a while before they are willing to get back on airplanes, on trains, or go to the theater or go to concerts or things like that,” Mr. Williams said. “So there are some risks it takes longer to get that recovery for the economy than just what happens in terms of the formal restrictions that are in place.” “We’re definitely in a severe downturn in economic activity,” he said Thursday. “Even as a pandemic passes through and the economy comes back, I expect demand to be weak and therefore needing strong monetary support, fiscal policy support as well, to get our economy back to full strength over the next couple of years.”
Other regional Fed officials also weighed in on Friday, sharing by varying degrees Mr. Williams’s expectation that it will take time for the economy to right itself. Speaking on Yahoo Finance, Philadelphia Fed leader Patrick Harker said he doesn’t expect a snapback quickly once the all-clear signal arrives from health experts. “I’m not a fan of the V-shaped recovery, I don’t think it will be that V. But the goal is to make a U, but a very narrow U,” he said, which means the official, who has an FOMC vote this year, sees a sharp and deep downturn from which it takes some time to emerge.
In a video presentation, St. Louis Fed leader James Bullard, an FOMC non-voter, said that second-quarter data— which he expects will show the full brunt of the economic shutdown—will be so bad as to warrant being omitted from the normal process of measuring economic activity. What will happen in the second quarter won’t be comparable “to anything we’ve seen in U.S. macroeconomic history,” Mr. Bullard said. “We should just sort of write off the second quarter. Think of it as a very different episode and quit calculating annual growth rates and quit comparing to other periods in the past because it’s deceptive in thinking about how the economy might be able to behave going forward,” he said.
Mr. Bullard also joined with other Fed officials and said the central bank has made “substantial progress” in fixing financial markets, and added that “the Fed is certainly willing to do much more” if it sees a need. In a later conversation with reporters, Mr. Bullard said it’s a “very unlikely outcome” that the U.S. central bank would buy stocks as a means to support the economy. He noted that the equity market hasn’t suffered from liquidity issues, and probably wouldn’t get much lift from central bank purchases.
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The guy has numerous times stated he missed GOOG and AMZN, MSFT, etc. There would have been zero reason not to be able to deploy at least some capital during the sell off into those. Personally, I think he probably did. If he didn’t, there’s no excuse about scars from the past or limitations on size...even novice investors saw pretty quickly those businesses would be ok. And many of the pros like Tepper nailed the bottom, almost to the day. Or maybe the greatest investor of all time was just sleeping?
I like Tepper but saying that it's okay to nibble isn't exactly calling a bottom. Unless there is something I'm missing that he said?
“I spoke to Dave Tepper yesterday and we were both kind of marveling, ‘Jeez it’s been bullish. Why?’”
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"There are early signs that past infection by the new coronavirus can prevent future disease. But some infectious-disease experts say there are too many unknowns about the immune system’s response to the virus—including how long immunity might last and the likelihood of reinfection—to rely on the tests to predict complete immunity. “I don’t know we have enough trust in what an exposure means that it would change the way we deploy our workforce,” Kimberly Hanson, an infectious-disease physician at the University of Utah School of Medicine, said at a media briefing. “We’re still trying to figure out what detecting an antibody response means, and if it’s protective or not, we don’t know.” Given the potential shortcomings, early serology tests might prove more useful as a tool for gauging the spread of the virus through communities, rather than for determining whether individuals have full immunity, said Stanford’s Dr. Bendavid."
"For starters, the flu tallies are estimates of total flu burden, while the Covid-19 figures are confirmed cases only. Eventually, the CDC will estimate the total Covid-19 burden, but for now, the numbers are not an apples-to-apples comparison.“We always know confirmed cases are an underestimate,” said Lynnette Brammer, who leads the CDC’s domestic influenza-surveillance team.
In addition, Covid-19 differs from the flu in how quickly it spreads, the length and severity of the illness, and the unusual demands a contagion with no cure places on medical staff and facilities. Instead of gentle waves of cases cascading across the country over a span of six months, like the flu, a tidal wave of Covid-19 cases has swept over a handful of cities in half the time. The concentration of quickly amassing serious infections overwhelmed the affected areas, and the fear is that without social distancing—for now the only effective intervention—other places will have a similar experience. A snapshot of the 2009 H1N1 influenza pandemic shows the difference in the speed of transmission between a raging flu and the new coronavirus. Comparing only laboratory-confirmed cases, in the first 102 days of the H1N1 flu pandemic, the CDC reported 43,677 illnesses and 302 deaths. In 22 fewer days, Covid-19 infected 11 times as many people and killed 60 times as many. “The flu season is spread out,” said William Schaffner, an infectious-disease specialist at Vanderbilt University Medical Center in Nashville. “This is being jammed up in a short time frame.” Covid-19 outbreaks have also been highly localized. “You’ve got a hot-spot pattern instead of an even pattern,” said Emily Martin, an epidemiologist at the University of Michigan School of Public Health. “All the pressure is concentrated in small areas.”
Not only are more Covid-19 patients coming into hospitals, they require longer care.The median length of stay for adults hospitalized with seasonal flu is 3.6 days, according to research published in the journal Clinical Infectious Diseases. In nine Seattle-area hospitals, where 12 of 24 Covid-19 patients died through March 23, the median stay was 12 days in the hospital, 9 days in ICU and 10 days on mechanical ventilators. (The median for survivors was 17 days in the hospital, 14 in ICU and 11 on a ventilator.) Having a hospital full of highly contagious patients leads to diminished stores of equipment intended to protect staff members who are also at risk of infection. The University of Michigan Medical Center now requires everyone to wear a mask. Additionally, anyone caring for patients who have or are suspected of having Covid-19 must wear a gown and eye protection. During flu season, the center uses “droplet protection” only in some rooms, and there is no universal masking requirement. “It’s a different world,” Dr. Lauring said. Most people have some immunity to the flu, either from vaccines or previous exposure, and nearly all health-care workers are protected by the flu shot. “It’s not unusual to have compliance rates above 95%,” Vanderbilt’s Dr. Schaffner said, referring to vaccinations of hospital employees. “That’s everybody—doctors, nurses, dietitians, people who clean at night—everybody.” Currently, there is no vaccine or specific treatment for Covid-19, so slowing or stopping its spread has required social distancing.
But there is one quality that might make Covid-19 less problematic than flu. “It’s not changing and mutating at the rate the flu can do,” said Allison Weinmann, an infectious-disease physician at Henry Ford Health System in Detroit. That could make it easier for pharmaceutical companies to develop an effective vaccine—and render Covid-19 no more remarkable than the seasonal flu."
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"As companies of all sizes shut their doors and make claims against their business interruption policies, insurers are coming under the spotlight. Unsurprisingly, few documents explicitly detail how they will deal with this unprecedented pandemic, creating gray areas that insurers and the policyholder will view differently. Claims will be in the “many billions of dollars, if not trillions,” according to Ben Lenhart of law firm Covington. Over the coming months and years these claims will work their way through settlements, arbitration or the courts. But governments are already getting involved. Four U.S. state legislators—insurance is regulated on a state-by-state basis—and a U.K. government committee are all considering both what type of financial support to offer insurers and how to compel or force the companies to be generous with their customers. Insurance, usually considered an economically defensive industry, has underperformed in the current crisis. On both sides of the Atlantic the sector is down about a third this year, compared with 24% for the S&P 500 index and 25% for the Stoxx Europe 600."
"In at least three states, lawmakers have proposed legislation to force insurers to pay billions of dollars for business losses tied to government-ordered shutdowns. In other states, regulators are pushing insurers to expand coverage under personal-car policies to also cover certain commercial activity, such as delivery of takeout meals by owners and employees of restaurants that are struggling to survive bans on dine-in eating. Some regulators have declared moratoriums on cancellations and nonrenewals of policies. And some are urging car insurers to lower people’s bills. These states note that policyholders now working from home don’t have the commutes they used to and thus aren’t on the roads as much. This push comes despite specific contractual exclusions in most standard policies for claims stemming from viruses. As a result, some insurers are threatening court challenges over these efforts to rewrite policies and provide benefits that weren’t priced in. “If elected officials or courts require payment for perils that were excluded and for which no premium was ever collected, catastrophic results are likely to occur and we may deal with a second crisis: insurance insolvencies and impairments,” said Charles Chamness, president of trade group National Association of Mutual Insurance Companies."
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"The dramatic move tallies with President Christine Lagarde’s comment that there are “no limits” to the central bank’s commitment as the economy faces a deep recession due to restrictions intended to stem the spread of the coronavirus. Former President Mario Draghi weighed in with a commentary in the Financial Times on Wednesday urging public authorities not to worry about rising debt levels, arguing that the “the cost of hesitation may be irreversible.” Central banks globally have stepped up with extraordinary measures to fight the crisis. U.S. Federal Reserve Chairman Jerome Powell made a rare televised interview appearance on Thursday, stating his institution is “not going to run out of ammunition.”
Maybe markets are starting react to this? Or how one can be sure, that cash is going to protect purchasing power in the (near) future? What would you do if you are Norwegian wealth fund?
How can the Fed unlimited QE be deflationary?
in General Discussion
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