Buffett/Berkshire - general news

[anony208]

My speculation on BRK slimming down(or eventually exiting) only BHE was based on the various comments in the letter -- broken social contract, increasing regulatory burden, not throwing good money after bad, "costly mistake"

 

Very different situation with insurance compared to energy -- no mention of regulatory pressure, still gushing mucho $$ and BRK is a master at operating in this area.

 

 

 

 

Edited February 26 by anony208

[gfp]

1 hour ago, anony208 said:

My speculation on BRK slimming down(or eventually exiting) only BHE was based on the various comments in the letter -- broken social contract, increasing regulatory burden, not throwing good money after bad, "costly mistake"

 

Very different situation with insurance compared to energy -- no mention of regulatory pressure, still gushing mucho $$ and BRK is a master at operating in this area.

 

 

 

 

 

Don't hold your breath on Berkshire exiting BHE.  He specifically alluded to the bulkheads within Berkshire Hathaway Energy in the letter.  It's just a message to regulators not to count on multi-decade capital projects in the tens of billions absent a predictable regulatory framework.  PG&E might not have been in a good position to negotiate, but Berkshire isn't a helpless patsy here.  These are decisions for the communities.  Berkshire will be fine no matter what.  I highly doubt it will ever happen, but if pacificorp were to disappear to creditors 10 years from now I don't think it will be a big deal for 2034 Berkshire Hathaway.  But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

[Xerxes]

@gfp

 

Was wondering if you had any theory on why BNSF was dividend out of National Indemnity to BRK’ proper balance sheet. 

 

Is it about the roll-up of liabilities that the insurance outfit might have, capping exposure to the railroad. Any thought ?
 

https://www.bnsf.com/about-bnsf/financial-information/pdf/8k-20231005.pdf

[RadMan24]

55 minutes ago, gfp said:

 

Don't hold your breath on Berkshire exiting BHE.  He specifically alluded to the bulkheads within Berkshire Hathaway Energy in the letter.  It's just a message to regulators not to count on multi-decade capital projects in the tens of billions absent a predictable regulatory framework.  PG&E might not have been in a good position to negotiate, but Berkshire isn't a helpless patsy here.  These are decisions for the communities.  Berkshire will be fine no matter what.  I highly doubt it will ever happen, but if pacificorp were to disappear to creditors 10 years from now I don't think it will be a big deal for 2034 Berkshire Hathaway.  But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

We'll see what differences are noted in the 2023 BHE investor presentation, whether there are any chnages to capital allocation plans or the like.

 

Nevertheless, it is letters like these that make you realize how fortunate it is we have a whole weekend to ponder the results and outlook, without any 'trading' dynamic distractions influencing our thinking. 

[gfp]

24 minutes ago, Xerxes said:

@gfp

 

Was wondering if you had any theory on why BNSF was dividend out of National Indemnity to BRK’ proper balance sheet. 

 

Is it about the roll-up of liabilities that the insurance outfit might have, capping exposure to the railroad. Any thought ?
 

https://www.bnsf.com/about-bnsf/financial-information/pdf/8k-20231005.pdf

 

I think it would be a good question to ask at the annual meeting and I think Warren would answer it.  If I had to guess I would guess that it was a combination of the railroad not counting for very much in terms of insurance regulatory capital (something like $40 billion) vs. various valuations in the real world between Berkshire's stated $85 Billion and UNP's $155 Billion market cap currently.  You combine that with National Indemnity's absurd overcapitalization and it wasn't important to have BNSF in there, but also that is where the billions of dollars in annual dividends would end up (and have been landing).  BNSF pays a lot of cash out to their owner every quarter - in stark contrast to Berkshire Hathaway Energy.  (I don't know what all this talk about BNSF consuming capital at Berkshire is about - they have paid out the entire purchase price and more in cash dividends)

 

But since it wasn't important to National Indemnity's capital (Nat. Indemnity's capital barely changed after BNSF was removed because of stock market fluctuations and the fact BNSF was only counting for like $40B.), the decision probably was about bulkheads and fortifying the structure of the enterprise.  Every time you can add bulkheads and non-recourse walls below the holding company level you increase the resilience / bulletproof-ness of the whole enterprise.  There aren't any tax consequences so no real downside.  National Indemnity is in no way capital constrained on the business they can write.

 

I think National Indemnity is where the original stock position in BNI was accumulated and National Indemnity is where there was plenty of money to come up with the cash portion of the merger consideration.  So it's kind of an accident of history that BNSF was always a wholly owned subsidiary of National Indemnity.  I don't think it was some master plan that the railroad should be in the insurance company.

[Cigarbutt]

34 minutes ago, gfp said:

 

Don't hold your breath...

But I would bet that someone figures out you can't treat the utility this way and expect what you got in the past.  

Maybe it's a way to play the regulatory competition game across states of the union or just a way to cap damages and obtain a pass-through mechanism to clients.

Yes, don't hold your breath because, if BHE plans to leave Oregon (or hyper-regulated California or whatever), they certainly don't act that way presently. 

Just following a significant rate increase obtained last January in Oregon, Pacific Power filed 10 days ago for a plan aiming at a 16.9% rate "adjustment" including innovative insurance-related solutions and an inspired by PC&G recent travails but improved catastrophic fire fund with significant contributions from parties other than the utility itself (which keeps skin in the game obviously).

Oregon rate proposal (pacificpower.net)

06_Joelle_R_Steward_Direct_Testimony.pdf (pacificpower.net)

They also just produced an extensive 420-page document (date Feb 22, 2024, 2 days after the annual report release, what a coincidence..) which would provide a framework to sort of ring-fence this issue across the following relevant states (perceived as less friendly? and relevant to BHE liabilities, known and to be reported), Oregon, Washington, California and Utah. The report's main theme is Lessons Learned, which may be the carrot that Greg Abel will be seen to carry.

Charlie Munger on Greg Abel: The Warren Buffett of Tomorrow? | Collection: Charlie Munger #304 (yapss.com)

Opinion: What Mr. Buffett is doing appears to be an assist (with the meaning associated to ice hockey).

Adapted meaning of an assist: In ice hockey, an assist is attributed to the player of the scoring team who shot, passed or deflected the puck towards the scoring teammate.

Apologies for the hockey example but i played outside hockey today and the girl taking care of the ice rink (who happened to play very well) told me this was likely the last day of the year (very very unusual for this time of year at this latitude, from memory first time ever in February) so one has to adapt to changing circumstances (players, climatic conditions) i guess.

[bargainman]

I never really understood the rationale for the railroad purchase.  The hailing of it as a high capital requirement business as if that was a huge positive.  Now years later bemoaning that high capital requirement.  I mean the higher that requirement, the higher the risk of a low ROE/ROIC no?  I guess he did mention that he got it for a good price.  Has anyone done an analysis of that part of the business since purchase?  I wonder if he'd have made better by just buying back shares?

[gfp]

20 minutes ago, bargainman said:

I never really understood the rationale for the railroad purchase.  The hailing of it as a high capital requirement business as if that was a huge positive.  Now years later bemoaning that high capital requirement.  I mean the higher that requirement, the higher the risk of a low ROE/ROIC no?  I guess he did mention that he got it for a good price.  Has anyone done an analysis of that part of the business since purchase?  I wonder if he'd have made better by just buying back shares?

 

He has received his entire cost basis back in dividends and retains an extremely profitable, durable enterprise that has comparable valuations  (UNP = $155 Billion, replacement cost ~$500 Billion ??) that are favorable and the "capital eating enterprise" continues to pay out several billions of cash every year in tax free dividends to the owner.  I think it was a once in a lifetime opportunity to buy an irreplaceable productive asset that is almost impossible to buy out of the public markets.  He was pretty psyched.

[LC]

The railroads are a good asset but you know, when your “moat” is the political and regulatory minefield that makes it impossible to create competitors, it makes it hard to complain about those same politicians and regulators  taking their pound of flesh. You make the bed, you need to sleep in it…

[scorpioncapital]

17 minutes ago, LC said:

The railroads are a good asset but you know, when your “moat” is the political and regulatory minefield that makes it impossible to create competitors, it makes it hard to complain about those same politicians and regulators  taking their pound of flesh. You make the bed, you need to sleep in it…

 

Very astute observation. It is why I limit the capital I deploy to monopolies that are no doubt going to be heavily regulated in various ways. Even V/MA I am weary about.

 

[alpha]

Just a suggestion... it would be nice to create a separate thread for the annual report discussion and keep this one for general news updates. 

[RadMan24]

WSJ picking up on the Japan investments: https://www.wsj.com/finance/stocks/warren-buffett-was-there-for-the-japanese-market-rally-deb6315c?mod=hp_lead_pos2

[RadMan24]

2 hours ago, Cigarbutt said:

 

Oregon rate proposal (pacificpower.net)

06_Joelle_R_Steward_Direct_Testimony.pdf (pacificpower.net)

They also just produced an extensive 420-page document (date Feb 22, 2024, 2 days after the annual report release, what a coincidence..) which would provide a framework to sort of ring-fence this issue across the following relevant states (perceived as less friendly? and relevant to BHE liabilities, known and to be reported), Oregon, Washington, California and Utah. The report's main theme is Lessons Learned, which may be the carrot that Greg Abel will be seen to carry.

 

 

 

Thanks for sharing -- but it is clear through those documents that 1.) The rate increases will be large, but still below what other Western states/cities pay and 2.) Any major fire event in the next year or two will be catastrophic. Luckily the West has had a landslide of snow in the mountains and rain this winter, but we'll see how things play out. 

[nwoodman]

For real?  Results were good, but I thought the old boy did a good job of hosing future expectations. This market feels awefully bubbly.

[Spooky]

3 hours ago, nwoodman said:

For real?  Results were good, but I thought the old boy did a good job of hosing future expectations. This market feels awefully bubbly.

 

Agree with you there. He didn't paint an optimistic long-term portrait of the company. Barring some financial calamity where they are able to be the buyer of last resort, they will struggle to move the needle given their huge size. Given the issues discussed with BHE, if they aren't able to re-deploy their capital in a way that meets Buffett's test for retained earnings, I can see them instituting a dividend which would be unfortunate for me. As a Canadian I'll get hit with withholding taxes.

 

The pendulum of market sentiment has changed from fear to greed, time to be cautious.

 

 

 

[Xerxes]

9 hours ago, gfp said:

 

I think it would be a good question to ask at the annual meeting and I think Warren would answer it.  If I had to guess I would guess that it was a combination of the railroad not counting for very much in terms of insurance regulatory capital (something like $40 billion) vs. various valuations in the real world between Berkshire's stated $85 Billion and UNP's $155 Billion market cap currently.  You combine that with National Indemnity's absurd overcapitalization and it wasn't important to have BNSF in there, but also that is where the billions of dollars in annual dividends would end up (and have been landing).  BNSF pays a lot of cash out to their owner every quarter - in stark contrast to Berkshire Hathaway Energy.  (I don't know what all this talk about BNSF consuming capital at Berkshire is about - they have paid out the entire purchase price and more in cash dividends)

 

But since it wasn't important to National Indemnity's capital (Nat. Indemnity's capital barely changed after BNSF was removed because of stock market fluctuations and the fact BNSF was only counting for like $40B.), the decision probably was about bulkheads and fortifying the structure of the enterprise.  Every time you can add bulkheads and non-recourse walls below the holding company level you increase the resilience / bulletproof-ness of the whole enterprise.  There aren't any tax consequences so no real downside.  National Indemnity is in no way capital constrained on the business they can write.

 

I think National Indemnity is where the original stock position in BNI was accumulated and National Indemnity is where there was plenty of money to come up with the cash portion of the merger consideration.  So it's kind of an accident of history that BNSF was always a wholly owned subsidiary of National Indemnity.  I don't think it was some master plan that the railroad should be in the insurance company.

thank you. 
I agree with the last paragraph. 

[MarioP]

9 hours ago, Cigarbutt said:

Maybe it's a way to play the regulatory competition game across states of the union or just a way to cap damages and obtain a pass-through mechanism to clients.

Yes, don't hold your breath because, if BHE plans to leave Oregon (or hyper-regulated California or whatever), they certainly don't act that way presently. 

Just following a significant rate increase obtained last January in Oregon, Pacific Power filed 10 days ago for a plan aiming at a 16.9% rate "adjustment" including innovative insurance-related solutions and an inspired by PC&G recent travails but improved catastrophic fire fund with significant contributions from parties other than the utility itself (which keeps skin in the game obviously).

Oregon rate proposal (pacificpower.net)

06_Joelle_R_Steward_Direct_Testimony.pdf (pacificpower.net)

They also just produced an extensive 420-page document (date Feb 22, 2024, 2 days after the annual report release, what a coincidence..) which would provide a framework to sort of ring-fence this issue across the following relevant states (perceived as less friendly? and relevant to BHE liabilities, known and to be reported), Oregon, Washington, California and Utah. The report's main theme is Lessons Learned, which may be the carrot that Greg Abel will be seen to carry.

Charlie Munger on Greg Abel: The Warren Buffett of Tomorrow? | Collection: Charlie Munger #304 (yapss.com)

Opinion: What Mr. Buffett is doing appears to be an assist (with the meaning associated to ice hockey).

Adapted meaning of an assist: In ice hockey, an assist is attributed to the player of the scoring team who shot, passed or deflected the puck towards the scoring teammate.

Apologies for the hockey example but i played outside hockey today and the girl taking care of the ice rink (who happened to play very well) told me this was likely the last day of the year (very very unusual for this time of year at this latitude, from memory first time ever in February) so one has to adapt to changing circumstances (players, climatic conditions) i guess.

Thanks for the Munger quote

 

We’re very lucky to have a 92-year-old in such good shape as Warren and we’re very lucky to have a chief executive like Greg. Greg is very remarkable.

 

So for Charlie Greg is already the CEO in the day to day

[Luca]

My dad called me this morning that his GF sold some of her crypto and bought Berkshire due to the run...tells you a lot about the market folks

Edited February 26 by Luca

[DooDiligence]

9 hours ago, bargainman said:

I never really understood the rationale for the railroad purchase.  The hailing of it as a high capital requirement business as if that was a huge positive.  Now years later bemoaning that high capital requirement.  I mean the higher that requirement, the higher the risk of a low ROE/ROIC no?  I guess he did mention that he got it for a good price.  Has anyone done an analysis of that part of the business since purchase?  I wonder if he'd have made better by just buying back shares?

 

WRT BNSF, it sounds to me like poor mouthing from Omaha, and as to BHE, hell only a few months ago we were all hailing the dramatic reinvestment opportunities for this business and suddenly it's all gone? BRK specializes in global risk management. I don't buy it, but I will hold through it.

 

He did sound sad though, but not about the businesses.

They should install a stripper pole / dunking booth in the office.

Nothing like a good wet t-shirt contest to liven up a room.

[Eldad]

8 hours ago, scorpioncapital said:

 

Very astute observation. It is why I limit the capital I deploy to monopolies that are no doubt going to be heavily regulated in various ways. Even V/MA I am weary about.

 

Or find very small monopolies that no one really knows about and are not consumer facing. V/MA and Railroads are very much on everyone’s radar. 

[Luca]

8 minutes ago, Eldad said:

Or find very small monopolies that no one really knows about and are not consumer facing. V/MA and Railroads are very much on everyone’s radar. 

Like?

[KPO]

6 minutes ago, Luca said:

Like?

AOS, although it likely doesn’t meet the valuation criteria. 

[Jaygo]

52 minutes ago, Eldad said:

Or find very small monopolies that no one really knows about and are not consumer facing. V/MA and Railroads are very much on everyone’s radar. 

Well you could certainly give some examples. 

[Eldad]

8 minutes ago, Jaygo said:

Well you could certainly give some examples. 

I mean you all know as well as I do. The code word is “niche”. Basically what Idex, Ametek and all the industrial acquirers scour the globe for. 
 

I mean even CSU is based on this. They are basically getting a tiny monopoly with most purchases, but the TAM is so small no one cares to get mad about it. 

[gfp]

5 hours ago, nwoodman said:

For real?  Results were good, but I thought the old boy did a good job of hosing future expectations. This market feels awefully bubbly.

 

Well I would just like to say thanks for the post nwoodman!  I had just woken up, let out the puppy, and saw your post and said "What the fuck is the market doing??" and ran upstairs to start dumping BRK shares pre-market.  Sold from 430 all the way down to 424.  No clue what that market reaction was but I was like, "did they read the same report as me???"