Buffett/Berkshire - general news

[Luca]

9 minutes ago, sleepydragon said:

I suspect when he says “geo political” risk he is worrying TSM is forced to build factories in US which are much more costly and the huge capx on sensitive equipments and also the infrastructure support like electricity needed. It’s not just the war will actual happen, it’s whole new Cold War thing both governments are doing that will add costs to TSM’s business 

So we have two major high NA foundries, TSMC and Samsung. Both can produce cheaper in Asia.

 

1. Who will "force" TSMC to build factories in the US? 

 

2. They do need a lot of electricity but why would that be a problem? Its not like there is not enough?

 

3. That they are not an asset light business is clear but ASML has many locations in taiwan, close cooperation etc? Why would there be problems with the equipment?

 

4.  This whole new cold war will affect every technology business, it all start with TSMC. The iphone, the Nvidia AI, the AMD chip for Teslas etc. Intel wont produce as efficient as TSMC and certainly not in the US. 

Edited April 13, 2023 by Luca

[sleepydragon]

58 minutes ago, Luca said:

So we have two major high NA foundries, TSMC and Samsung. Both can produce cheaper in Asia.

 

1. Who will "force" TSMC to build factories in the US? 

- Biden. The US labor cost is just too high compare to Taiwanese. 

 

2. They do need a lot of electricity but why would that be a problem? Its not like there is not enough?

- Actually not. TSMC consumes a huge percentage of Taiwan's electricity. They had shortage. I read it somewhere before. 

 

3. That they are not an asset light business is clear but ASML has many locations in taiwan, close cooperation etc? Why would there be problems with the equipment?

- A small earthquake or an accident from war (despite both sides won't want to damage) would be very costly, as some of the equipments and fabs can't be rebuilt for years.  

 

4.  This whole new cold war will affect every technology business, it all start with TSMC. The iphone, the Nvidia AI, the AMD chip for Teslas etc. Intel wont produce as efficient as TSMC and certainly not in the US. 

- That's true for all the chip companies. Though people will still use iPhone even if it's running on a decade old chip. I mean nobody else will have it too.

 

 

[Luca]

1 hour ago, sleepydragon said:

- That's true for all the chip companies. Though people will still use iPhone even if it's running on a decade old chip. I mean nobody else will have it too.

 

 

Its true for all chip companies but TSMC owns this market which relies on hundres of billions of dollars of capex, lots of machines from ASML with long waiting and production times, an amount of talent and educated engineers non existant after the taiwan war, no earnings for many businesses for the forseeable future etc...

[Whensthepaintdry?]

Did I hear correctly that Buffett said they were building for TSMC?

[gfp]

1 hour ago, Whensthepaintdry? said:

Did I hear correctly that Buffett said they were building for TSMC?

 

He may be referring the the new subsidiary that they got as part of Alleghany, which also built the structure for the Sphere in Las Vegas

 

https://www.wwafcosteel.com

 

(edit: by the way, I checked this site under projects and this new BRK subsidiary is building TSM and Intel's new factories, Tesla giga, and basically everything else on a huge scale that gets built from steel)

Edited April 13, 2023 by gfp

[Spooky]

4 hours ago, sleepydragon said:

I suspect when he says “geo political” risk he is worrying TSM is forced to build factories in US which are much more costly and the huge capx on sensitive equipments and also the infrastructure support like electricity needed. It’s not just the war will actual happen, it’s whole new Cold War thing both governments are doing that will add costs to TSM’s business 

 

I think this is right and is related to the CHIPS act passing.

[Munger_Disciple]

My impressions after seeing the interview:

On Banks: Buffett saw that all the banks were reaching for yield as they got massive deposits during COVID and sold all of them that BRK owned last year except BAC. He would have also sold BAC if he weren't knee deep into it (> 10% position) with a very low tax basis. Looking at BAC balance sheet, they owned a boatload of agency RMBS at low yields.  Of course BAC's deposit franchise is bullet proof, Moynihan is a good guy and they are too big to fail so there is no LT risk there but their SH equity will take a hit from higher interest rates.   

Ajit & Greg's Relationship: To me this is the most interesting part of the interview when Becky asked Greg about his relationship with Ajit. It is clear that they now have a closer relationship than before after they both were appointed Vice Chairmen & Board members. And it seems to be a very respectful mutual relationship. I came away thinking: Ajit=New Charlie, Greg=New Warren. We are in safe hands. 

 

Paramount: Clearly it was a Buffett position. The funny thing is that he talked about all the reasons not to own it or other media companies including the fact that he thinks streaming is a really shitty business. My guess is that he sold it in Q1.

Apple: Looks like Apple has become a sacrosanct position in Buffett's mind on par with Berkshire. These are the only two securities he kept in Allegheny's portfolio and blew out everything else. And he loves Tim Cook. Mr. B thinks he made a dumb mistake when he sold 10% of Apple position at $115. Mumbled something about taxes.  

Greg's BRK Ownership: Will continue to accumulate more shares in the future with his own capital freed up from BHE sale. Good news for BRK shareholders. 

 

 

 

[aceskc]

2 hours ago, Munger_Disciple said:

My impressions after seeing the interview:

On Banks: Buffett saw that all the banks were reaching for yield as they got massive deposits during COVID and sold all of them that BRK owned last year except BAC. He would have also sold BAC if he weren't knee deep into it (> 10% position) with a very low tax basis. Looking at BAC balance sheet, they owned a boatload of agency RMBS at low yields.  Of course BAC's deposit franchise is bullet proof, Moynihan is a good guy and they are too big to fail so there is no LT risk there but their SH equity will take a hit from higher interest rates.   

Ajit & Greg's Relationship: To me this is the most interesting part of the interview when Becky asked Greg about his relationship with Ajit. It is clear that they now have a closer relationship than before after they both were appointed Vice Chairmen & Board members. And it seems to be a very respectful mutual relationship. I came away thinking: Ajit=New Charlie, Greg=New Warren. We are in safe hands. 

 

Paramount: Clearly it was a Buffett position. The funny thing is that he talked about all the reasons not to own it or other media companies including the fact that he thinks streaming is a really shitty business. My guess is that he sold it in Q1.

Apple: Looks like Apple has become a sacrosanct position in Buffett's mind on par with Berkshire. These are the only two securities he kept in Allegheny's portfolio and blew out everything else. And he loves Tim Cook. Mr. B thinks he made a dumb mistake when he sold 10% of Apple position at $115. Mumbled something about taxes.  

Greg's BRK Ownership: Will continue to accumulate more shares in the future with his own capital freed up from BHE sale. Good news for BRK shareholders. 

 

 

 

The apple /taiwan thought process seemed interesting....he seemed uncomfortable with geopolitical tail risk with taiwan...but was okay bearing it with Apple because of the customer stickiness that withstood the 10k replacement test ....found that interesting because it seems to me that Taiwanese chips are probably even more essential and irreplaceable to its customers than iPhone is to its fanbase.

[LearningMachine]

1 hour ago, aceskc said:

The apple /taiwan thought process seemed interesting....he seemed uncomfortable with geopolitical tail risk with taiwan...but was okay bearing it with Apple because of the customer stickiness that withstood the 10k replacement test ....found that interesting because it seems to me that Taiwanese chips are probably even more essential and irreplaceable to its customers than iPhone is to its fanbase.

 

The 10k replacement test is interesting.

 

What other companies would you not be willing to switch away from for life even if someone offered you $10K?  AMZN comes to mind, but capex there is a different matter. 

 

Also, for AAPL, getting out and then getting back in after probability of China taking over Taiwan materializes would cost a lot in taxes, and given the probability is not 100% anyway, he is saying he doesn't want to get out.  However, for someone not in AAPL currently, it might be worth to wait to see if that entry point comes especially at current prices. 

[LearningMachine]

4 hours ago, Munger_Disciple said:

My impressions after seeing the interview:

On Banks: Buffett saw that all the banks were reaching for yield as they got massive deposits during COVID and sold all of them that BRK owned last year except BAC. He would have also sold BAC if he weren't knee deep into it (> 10% position) with a very low tax basis. Looking at BAC balance sheet, they owned a boatload of agency RMBS at low yields.  Of course BAC's deposit franchise is bullet proof, Moynihan is a good guy and they are too big to fail so there is no LT risk there but their SH equity will take a hit from higher interest rates.   

 

I posted the below earlier why he didn't get out of BAC that a lot of folks have been missing and that he didn't want to get into at the meeting, but he alluded to it with his love for Moynihan and by his comments about wanting to own a bank 100%.  He owns 12.9% of BAC and that continues to go up, while staying under the limits. 

 

 

*****

If you can get out of other banks, you can then help your own bank (BAC) and Moynihan plan for this at the expense of other banks potentially being counterparty to these hedges:

• Hedges on held-to-maturity:  "hedging of items that are not recognized at fair value on the Consolidated Balance Sheet". See footnote 2 to table 11 on page 52:  https://www.sec.gov/ix?doc=/Archives/edgar/data/0000070858/000007085823000092/bac-20221231.htm . Thanks to someone on the group for sharing privately. 
• Hedges on Available for Sale: "we don't have any capital impact from rising rates."  See https://app.tikr.com/stock/transcript?cid=19049&tid=2592914&e=1784038192&ts=2718283&ref=u8yosp .  So far resulting in about ~$800M quarterly floating interest income. 

 

If you have the patience for securites/loans to mature and get lent out at much higher rates, interest income will be much much higher than what it is today. 

 

*****

[yesman182]

4 hours ago, Munger_Disciple said:

Paramount: Clearly it was a Buffett position. The funny thing is that he talked about all the reasons not to own it or other media companies including the fact that he thinks streaming is a really shitty business. My guess is that he sold it in Q1.

wouldn't he need to disclose his sale?

[Munger_Disciple]

2 hours ago, yesman182 said:

wouldn't he need to disclose his sale?

 

Only if BRK ownership exceeds 10% (sale to be reported within a couple of days). Otherwise around May15th when they file 13F for Q1 2023. 

Edited April 14, 2023 by Munger_Disciple

[Munger_Disciple]

3 hours ago, LearningMachine said:

 

If you can get out of other banks, you can then help your own bank (BAC) and Moynihan plan for this at the expense of other banks potentially being counterparty to these hedges:

• Hedges on held-to-maturity:  "hedging of items that are not recognized at fair value on the Consolidated Balance Sheet". See footnote 2 to table 11 on page 52:  https://www.sec.gov/ix?doc=/Archives/edgar/data/0000070858/000007085823000092/bac-20221231.htm . Thanks to someone on the group for sharing privately. 
• Hedges on Available for Sale: "we don't have any capital impact from rising rates."  See https://app.tikr.com/stock/transcript?cid=19049&tid=2592914&e=1784038192&ts=2718283&ref=u8yosp .  So far resulting in about ~$800M quarterly floating interest income. 

 

 

Thanks for pointing it out. Looks like BAC hedged at least a portion of their HTM securities' exposure to rising rates.

[gfp]

12 hours ago, LearningMachine said:

 

I posted the below earlier why he didn't get out of BAC that a lot of folks have been missing and that he didn't want to get into at the meeting, but he alluded to it with his love for Moynihan and by his comments about wanting to own a bank 100%.  He owns 12.9% of BAC and that continues to go up, while staying under the limits. 

 

 

*****

If you can get out of other banks, you can then help your own bank (BAC) and Moynihan plan for this at the expense of other banks potentially being counterparty to these hedges:

• Hedges on held-to-maturity:  "hedging of items that are not recognized at fair value on the Consolidated Balance Sheet". See footnote 2 to table 11 on page 52:  https://www.sec.gov/ix?doc=/Archives/edgar/data/0000070858/000007085823000092/bac-20221231.htm . Thanks to someone on the group for sharing privately. 
• Hedges on Available for Sale: "we don't have any capital impact from rising rates."  See https://app.tikr.com/stock/transcript?cid=19049&tid=2592914&e=1784038192&ts=2718283&ref=u8yosp .  So far resulting in about ~$800M quarterly floating interest income. 

 

If you have the patience for securites/loans to mature and get lent out at much higher rates, interest income will be much much higher than what it is today. 

 

*****

 

I took that line item on page 52, table 11 - the one referenced in footnote 2 - as being a loss on hedging not a gain.  Is that not correct?

[gfp]

Yen bond sale results -

https://www.bnnbloomberg.ca/warren-buffett-s-berkshire-sells-1-2-billion-of-yen-debt-after-big-japan-bets-1.1907592

[backtothebeach]

All 3 hours of the recent CNBC interview are now on Squawkpod.

Edited April 15, 2023 by backtothebeach

[Saluki]

https://www.cnbc.com/2023/04/12/full-transcript-berkshire-hathaway-chairman-ceo-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today-.html

 

Transcript of the interview now online. 

[dcollon]

Thanks Backtothebeach and Saluki. 

[Munger_Disciple]

3 hours ago, gfp said:

 

I took that line item on page 52, table 11 - the one referenced in footnote 2 - as being a loss on hedging not a gain.  Is that not correct?

 

You are correct @gfp. Negative number would have been a gain (regulatory capital is calculated assuming assets are HTM without taking into account mark-to-market gains or losses), so BAC hedges cost them $10 billion in 22. 

Edited April 14, 2023 by Munger_Disciple

[CassiusKing1]

4 hours ago, backtothebeach said:

All 4 hours of the recent CNBC interview are now on Squawkpod.

Thanks for posting.

 

WEB- "And we'll never run out of money!"  

 

[Spekulatius]

6 hours ago, Munger_Disciple said:

 

You are correct @gfp. Negative number would have been a gain (regulatory capital is calculated assuming assets are HTM without taking into account mark-to-market gains or losses), so BAC hedges cost them $10 billion in 22. 

Losses in HTM don’t have any regulatory capital impact for banks. That’s not because anything special was done by BAC, it’s because that’s how the regulator set the rules this way.

(Losses in AFM only impact systemically important banks like VAC, JPM, C etc  that are above ~$700B in size. For smaller banks, losses in AFS don’t have any regulatory capital impact either).

 

I also think it’s correct that BAC has a $11.9B hedging loss not a gain. I guess they better on interest rates staying low. BAC isn’t as well managed than JPM, at least in terms of liability management that’s for sure. I think their earnings won’t look as good either, but we will see on 4/18 how it plays out.

In my opinion, it is likely that Buffett kept VAC,  it because it is necessarily better than other banks,  he kept it simply because it is his largest position and selling it would have been difficult, so he just decided to do away with his smaller positions to reduce his sector exposure.

 

 

Edited April 14, 2023 by Spekulatius

[Munger_Disciple]

1 hour ago, Spekulatius said:

Losses in HTM don’t have any regulatory capital impact for banks. That’s not because anything special was done by BAC, it’s because that’s how the regulator set the rules this way.

(Losses in AFM only impact systemically important banks like VAC, JPM, C etc  that are above ~$700B in size. For smaller banks, losses in AFS don’t have any regulatory capital impact either).

 

I also think it’s correct that BAC has a $11.9B hedging loss not a gain. I guess they better on interest rates staying low. BAC isn’t as well managed than JPM, at least in terms of liability management that’s for sure. I think their earnings won’t look as good either, but we will see on 4/18 how it plays out.

In my opinion, it is likely that Buffett kept VAC,  it because it is necessarily better than other banks,  he kept it simply because it is his largest position and selling it would have been difficult, so he just decided to do away with his smaller positions to reduce his sector exposure.

 

 

 

Yeah, BAC had $12B cumulative losses on hedges so far with most of it ($10B) coming in 22. I agree with you that their hedging sucks. I don't understand why they bet on interest rates staying low when they were already very low when they placed such a bet. JPM seems to have managed interest rate risk better than BAC but then JPM has a massive derivative book so one should be cautious with JPM as well.  

Edited April 15, 2023 by Munger_Disciple

[crs223]

12 hours ago, backtothebeach said:

All 4 hours of the recent CNBC interview are now on Squawkpod.

 

That was great, thank you.

 

I loved hearing so much from Greg.  Nice to know he's the "enforcer" for WEB.  WEB had a great point: where else do you have an officer buying $100M of stock with his own money and no discount/grants/options.  I love being a shareholder in BRK.

 

This one surprised me, particularly given the conversation around this site a year ago (which came from BRK letters from the early 80s): inflation is not that bad for auto insurers.  BRK is not going to write a 20 year auto policy.  They write 6 month policies and they can crank up the price pretty quickly.  They'd write 15 day policies if inflation got up high enough!  Inflation is not special risk to insurers... they just adjust the price as needed.  "I don't wish it on anyone, but you could argue inflation is good for insurance because you get much bigger premiums on much bigger coverages".  "over time, autos have gotten safer, accidents per 100 miles driven has gone down, but price for auto insurance has gone up 30-40x".

[LearningMachine]

16 hours ago, Munger_Disciple said:

 

Yeah, BAC had $12B cumulative losses on hedges so far with most of it ($10B) coming in 22. I agree with you that their hedging sucks. I don't understand why they bet on interest rates staying low when they were already very low when they placed such a bet. JPM seems to have managed interest rate risk better than BAC but then JPM has a massive derivative book so one should be cautious with JPM as well.  

 

 

I know I myself started the speculation that Footnote 2 in Table 11 might be related to interest rate hedges on HTM, but we don't know for certain.  All the footnote says is "Includes amounts in accumulated other comprehensive income related to the hedging of items that are not recognized at fair value on the Consolidated Balance Sheet."

 

What we do know with certainty is what we have them on the record saying on Jan 13, 2023:

Quote

It’s mainly the treasuries that are in there, they’re swapped to floating. That way, we don’t have any capital impact from rising rates. And so, you’re going to see the securities yield just continue to pick up. Number one, based off of the treasuries swap to floating as floating rates go higher. And number two, as the securities come due, there’ll be fewer and fewer of them at lower rates. And so, you’re going to see the pickup over time.

 

Because they are talking about treasuries above and HTM doesn't impact capital, I understand they are likely referring to only AFS. BAC provides more details on cash flow hedges on pages 107 and 108, but they don't distinguish between AFS and HTM. https://www.sec.gov/ix?doc=/Archives/edgar/data/70858/000007085823000092/bac-20221231.htm .

 

Overall, though, we can't claim that they bet on interest rates staying low especially given that at least for AFS, they are saying that treasures are "swapped to floating" and that "we don't have any capital impact from rising rates.".

 

If that had the foresight or received guidance to do that for AFS, you could argue they might have at least given thought to doing something like that for HTM.

Edited April 15, 2023 by LearningMachine

[DooDiligence]

On 4/14/2023 at 11:01 PM, crs223 said:

 

That was great, thank you.

 

I loved hearing so much from Greg.  Nice to know he's the "enforcer" for WEB.  WEB had a great point: where else do you have an officer buying $100M of stock with his own money and no discount/grants/options.  I love being a shareholder in BRK.

 

This one surprised me, particularly given the conversation around this site a year ago (which came from BRK letters from the early 80s): inflation is not that bad for auto insurers.  BRK is not going to write a 20 year auto policy.  They write 6 month policies and they can crank up the price pretty quickly.  They'd write 15 day policies if inflation got up high enough!  Inflation is not special risk to insurers... they just adjust the price as needed.  "I don't wish it on anyone, but you could argue inflation is good for insurance because you get much bigger premiums on much bigger coverages".  "over time, autos have gotten safer, accidents per 100 miles driven has gone down, but price for auto insurance has gone up 30-40x".

 

It's probably not that hard to win back business either. We'll see if Progressive is underpricing and has to hike bigly.