Buffett/Berkshire - general news

[gfp]

Insurance Insider has a good summary of the insurance results - Gen Re is growing premiums under Ajit's leadership, and a previous note mentioned that the TransRe partnership has produced $350m in new premiums to GenRe.

--------------------

 

AIG deal pushes Berkshire to $22mn underwriting loss

Dan Ascher

 

Berkshire Hathaway's record-breaking $34bn retroactive reinsurance deal with AIG has pushed the Warren Buffett-led firm's underwriting group to a loss in the second quarter.

 

The segment, which includes property and casualty as well as life (re)insurance business, swung to a $22mn underwriting loss from a $337mn gain reported for the year-ago period.

 

Berkshire's collection of underwriting companies, which include personal lines carrier Geico and reinsurer Gen Re, were dragged into the red by a $400mn underwriting loss within Berkshire Hathaway Reinsurance Group, including a $331mn pre-tax retroactive reinsurance deficit.

 

Berkshire blamed the bulk of that $331mn loss on an unspecified "deferred charge amortization" related to the AIG transaction, as well as another unnamed retro deal written at the end of last year.

 

The reinsurance group was pushed further into deficit by its life unit which clocked a $121mn loss, primarily due to foreign exchange fluctuations for periodic payment annuity business.

 

Losses in Berkshire's reinsurance group more than offset gains in all of the financial behemoth's other underwriting units.

 

Gen Re profits swelled to $25mn from the mere $2mn the direct reinsurer reported this time last year. However the result paled beside the carrier's life and health division which swung to a $39mn profit from a $21mn loss in the second quarter of 2016.

 

A year ago, Gen Re's property and casualty division put the reinsurer into the black with a $23mn profit. But in the just-ended quarter the unit posted a $14mn loss.

 

Nevertheless, Gen Re reported a 25 percent uptick in P&C premiums earned for the period, which grew to $777mn driven by more income from direct and broker markets as well as greater participation on renewals.

 

Meanwhile Buffett's primary underwriting group, which includes National Indemnity Company and Berkshire Hathaway Specialty Insurance, reported a 8.9 percent increase in premiums written, which were $1.8bn for the period just gone.

 

The group's profitability improved delivering an underwriting gain of $232mn, up by a third on the result posted at this time last year.

 

Meanwhile, despite a $1bn or 16.7 percent increase in premiums written at Geico, profit fell almost 21 percent to $119mn.

 

Berkshire said that increases in average Geico policy premiums had failed to offset inflation in claims costs.

 

The loss produced by the Reinsurance Group's deficit contributed to Berkshire's earnings miss for the quarter, as it posted disappointing net income of $4.262bn, or $2,592 per class A share.

 

Analysts had expected the company to earn $2,858 a share, according to the average of four estimates collected by MarketWatch.

 

On an operating basis, the company's profit fell 11 percent to $4.12bn, Reuters reported. The news service said that equated to $2,505 per class A share while analysts had anticipated $2,791.

[rb]

2017 Q2 is out: http://www.berkshirehathaway.com/news/aug0417.pdf

 

$99.7 billion in cash by the end of June  :o

 

Berkshire's cash pile represents 5.4% of Corporate America's total cash pile (https://www.ft.com/content/2cbc02d4-e0bf-3ece-9f5d-b9b063561e2b)

Yep at these levels they can afford to do 2-3 elephants over the next couple of years...... should the opportunity arise.

[Guest longinvestor]

BV @ $182,816, up 6.2% from YE 2016. At this run rate, if it gets to $195K by YE, we are trading in the 1.4x range. Effectively, it has been this range bound for several years now. I have been irrational in my buying behavior, trying to pick up cheap. Orders did not fill, perhaps won't. I am likely committing the mistake mentioned in Phil Fischer's Common stocks - Uncommon profits and surely will regret it later! The most rational thing for the long term is not overthink this and just buy at these prices. There is the famous The market can behave irrational for longer than you can remain solvent.. Replace the word solvent with patient and you have what's going on with BRK today;  it is the opposite, somewhat of a bonanza of being able to accumulate. Well, if you believe so ;) We will see in time, won't we?

 

 

 

 

 

[John Hjorth]

I'm in your camp on this, longinvestor,

 

Furthermore, - say, you try to pick it up relatively cheap for two years - you are then subject to "the risk" of a large Berkshire aquisition in that period, creating a jump upwards in earnings going forward, which most likely will influence market price upwards, generating a miss out for the forward net Berkshire buyer.

 

We know the Oncor deal is in the mold right now, but generally we do not know what is going on at Mr. Buffetts desk.

[james22]

GMO's James Montier:

 

All these years I have looked to Warren Buffett as a beacon of hope. Two months ago, he said that equities look cheap, relative to interest rates. It seemed like a dreadful thing to say.

 

It might be true only if you believed there was absolutely no mean reversion—in that case you’d be looking at a 3% real return from equities, zero from bonds, and, say, minus 1% or 2% from cash. But here was a man who, using his favorite valuation indicator of market cap to gross domestic product, pointed to the tech bubble of 2000 and said it was insane. Using the same indicator, he pointed out when to buy equities in late 2008, early ’09.

 

Here we are within a hair’s breadth of the levels in 2000, and he is saying equities are cheap. This is an unvaluelike statement, and I don’t think it’s true. There are plenty of reasons why interest rates are not related to performance—very low rates haven’t stopped a 50% decline in Japan.

 

So I’m sticking to dead heroes now—Ben Graham and John Maynard Keynes.

 

http://www.barrons.com/articles/coping-with-the-foie-gras-stock-market-1501305385

[fareastwarriors]

Berkshire Shares need Deal Fuel to Fly Any Higher

 

 

https://www.bloomberg.com/gadfly/articles/2017-08-07/berkshire-shares-need-buffett-deal-fuel-to-fly-higher

[Guest longinvestor]

Berkshire Shares need Deal Fuel to Fly Any Higher

 

 

https://www.bloomberg.com/gadfly/articles/2017-08-07/berkshire-shares-need-buffett-deal-fuel-to-fly-higher

 

Greg Warren of Morningstar, who is quoted here represents the peanut gallery of analysts on the stage@the annual meeting. He sounds like a pompous ass when he opens his mouth. His bone to pick comes from the fact that BRK has blown right past his estimate of FV. Believe he had that at $ 250K for the A.

 

A couple of years ago, he asked Buffett if there would be a share buyback at the1.2x threshold, between quarterly earnings reports and Buffett clearly said no. That didn't stop Greg from reporting that "Buffett confirmed to us that they would buy shares back before reporting the BV to the public". That's kind of stupid because the exact BV number is in all likelihood unknown to anyone, including the CFO of BRK until just prior to release.

 

Greg's words are worthless to me. As far as I'm concerned, he wastes my time with the 6 questions he does get to ask at the annual meeting.

[John Hjorth]

Greg Warren of Morningstar, who is quoted here represents the peanut gallery of analysts on the stage@the annual meeting. He sounds like a pompous ass when he opens his mouth. His bone to pick comes from the fact that BRK has blown right past his estimate of FV. Believe he had that at $ 250K for the A.

 

A couple of years ago, he asked Buffett if there would be a share buyback at the1.2x threshold, between quarterly earnings reports and Buffett clearly said no. That didn't stop Greg from reporting that "Buffett confirmed to us that they would buy shares back before reporting the BV to the public". That's kind of stupid because the exact BV number is in all likelihood unknown to anyone, including the CFO of BRK until just prior to release.

 

Greg's words are worthless to me. As far as I'm concerned, he wastes my time with the 6 questions he does get to ask at the annual meeting.

 

Hilarious. Love it. Made my day. [ : - ) ]

[fareastwarriors]

Warren Buffett Likes Solar, but Not the Price Tag

 

https://www.bloomberg.com/news/articles/2017-08-08/warren-buffett-likes-solar-but-not-the-price-tag

[Guest longinvestor]

Warren Buffett Likes Solar, but Not the Price Tag

 

https://www.bloomberg.com/news/articles/2017-08-08/warren-buffett-likes-solar-but-not-the-price-tag

 

The headline should instead read " Falling energy prices don't support 2 year payback demands of Wall Street financiers". BHE by passing along cost savings to rate payers is shaking things up in the Utility world. This is why Oncor is wooing BHE versus vulture capital. Also, rooftop financiers walked away from AZ after saddling homeowners with expensive financing. Surely the fine print on rooftop contracts says something about sell back rates are subject to energy market forces and prices used for investment justification may not be realized.

 

It's easy to hide behind or obfuscate by buying headlines!

[gfp]

Gen Re did a quota share deal in Australia that will see them take 60% of AMP's retail life business onto their books -

 

http://www.theaustralian.com.au/business/companies/amp-to-release-capital-after-500-million-reinsurance-deal/news-story/797c94aaac93cc4e5e387255a464d046

 

It has been interesting to see the moves and growth that have started since Ajit and Kara Raigul took over.

[John Hjorth]

globalfinancepartners,

 

During the years, it has come to my attention, that you have a really deep and detailed knowledge, understanding and view of insurance operations of Berkshire [consistently & continuously hard work, to cut it to the bone .... - out of pure interest].

 

Personally, I would really appreciate, if you would share with me and our fellow board members the temperature of the Berkshire insurance operations, as you perceive them right now.

 

For my part, it would be really appreciated. We have a separate topic for the 2017Q2 on here, that I hope you will use, instead of this "general news" topic, so that what is on your mind does not "drown".

 

Thank you in advance, if you're in on it.

[Dynamic]

Gen Re did a quota share deal in Australia that will see them take 60% of AMP's retail life business onto their books -

 

http://www.theaustralian.com.au/business/companies/amp-to-release-capital-after-500-million-reinsurance-deal/news-story/797c94aaac93cc4e5e387255a464d046

 

It has been interesting to see the moves and growth that have started since Ajit and Kara Raigul took over.

 

For those without a subscription to the Australian, this synopsis will probably suffice. http://www.intelligentinsurer.com/news/munich-re-gen-re-strike-reinsurance-deal-with-australia-s-12765

[alpha]

Berkshires latest filing is out:

 

• Eliminated GE Holdings
  
• Added to Synchrony
  
• Trimmed its airline holdings
  
• Increased positions in Bank of New York Mellon and GM
  
• Reduced its Wabco Holdings position to almost nothing
  
• Increased Liberty Media position, decreased Sirius XM Holdings
  

 

https://www.reuters.com/article/us-investment-funds-buffett-idUSKCN1AU2B1

 

https://www.sec.gov/Archives/edgar/data/1067983/000095012317007953/xslForm13F_X01/form13fInfoTable.xml

[Jurgis]

Datorama updated: http://www.dataroma.com/m/holdings.php?m=brk

 

Baupost also bought SYF... did any of these guys talk about what/why they like it?

[Dynamic]

Berkshires latest filing is out:

 

• Increased positions in Bank of New York Mellon and GM
  

 

https://www.sec.gov/Archives/edgar/data/1067983/000095012317007953/xslForm13F_X01/form13fInfoTable.xml

 

A few things I noted when updating my Berkshire Look-Through spreadsheet at https://docs.google.com/spreadsheets/d/1Ok3bOO4z_2Itbta6FguKbuFA1HvcQvzisspPBN6IpZY/edit#gid=2050477249

 

Interesting that GM's third and final line on the 13-F went from 1,237,600 to 11,237,600

It almost looks like it could have been a typo, though I'm sure everyone preparing it take a great deal of care. And it still fits with the round-numbers held in total, at exactly 60 million (was 50 million shares)

 

There still seems to be a typo in the 13-F on MOSANTO CO NEW. Don't think it fits with the need to abbreviate some longer names. Perhaps a simple typo or a way to reduce attention from protesters and adherents of the Organic marketing spin and the Naturalistic Fallacy who refer to it as MONSATAN. (I'll admit I was concerned about GMOs a couple of decades ago, more from a concern over possible side-effects like herbicide resistance getting into weeds, than health or 'messing with nature', but I've changed my opinion having seen the evidence roll in)

 

For some reason, one line of PHILLIPS 66 appears to be new but shows zero shares under column 7 Other Manager 4,8,11. Perhaps one of the other lines changed the manager code because all the values are as last quarter. That said, I might just not have noticed this zero line last quarter.

[mbreject]

Datorama updated: http://www.dataroma.com/m/holdings.php?m=brk

 

Baupost also bought SYF... did any of these guys talk about what/why they like it?

 

Haven't looked into it, but as someone with a card, I assume that they really low costs. I can't talk with anyone no matter what I press. I'm going to close the card after I get redeem my Sam's club certificate.

[John Hjorth]

This is an entity, that connects economic idiots with people with cash, to make money. These entities run lean, and internet based in most cases. You can complain by leaving - by paying your balance [if you can] and close the card account.

 

The above is meant in general terms.

 

I'm not by that calling you an idiot, mbreject, nor even indirectly implying that you are.

 

In our household we have a few of those cards, too, because of the built in perks. I can't even get automated monthly payment in full of the balance [because the card issuers don't want us to pay monthly balance in full, so that they can charge interest on the balance], so I pay them manually - monthly, and in full, so we get our perks -, without any interest expenses on the card.

[gfp]

I haven't heard any of them mention Synchrony.  Berkshire's position is probably through Todd or Ted.  Todd seems to be the financials specialist of the two, but who knows.  Synchrony declined during the past quarter and offered an entry point for anyone interested in their business.  They have a very very healthy net interest margin despite their growing charge-offs/delinquencies.  To me it seems likely that they will be acquired by a larger financial firm with even lower costs on deposits, but maybe I am missing some reason they are unlikely to be acquired.

 

As for the products, we use two of their products.  The one we use most is their Lowes card that can be used only at Lowes.  My wife is a real estate developer / landlord, so we put a lot of money through Lowes and Home Depot.  The Lowes card gives you 5% off at the register, which is more attractive than some later statement credit - as I can see the price discount right on my receipt.  In our town, the sales tax is just about 10%, which means using SYF's card at Lowes gives me half the tax back.  Lowes and Home Depot have algorithms to exactly price match identical items they both carry, so the absence of a similar offering from Home Depot often decides which store we drive to for the materials list.  The card is paid in full every month through their online portal.  They've never made a dollar off of us, but we have saved a couple thousand.  Lowes saves the CC processing fee if our purchases had been on Visa/Amex/etc, which helps offset the 5%.

 

The other card we use is the Amazon Prime Store card.  It is one of the several cards amazon offers with discounts.  It is not the original one, but a more recent entry.  It is set as the default payment method at Amazon and it pays 5% back on anything purchased through amazon or their 3rd party sellers.  It pays the 5% in the form of a statement credit on your next bill, so it works differently than the Lowes card but the economic effect is the same.  We buy a lot on Amazon and 5% is a better discount than our other cards would offer.  There are other 5% cards that partner with Amazon, though, and those other cards can be used at more than just Amazon.  Same deal as above - pay it off every month in full and SYF never makes a dollar.

 

The other product I have seen but not used is their growing "Care Credit" program.  My wife's friend used Care Credit to pay for some expensive dental work with a 0% payment plan.  She kept to the terms and paid it off at 0%. 

 

All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF.  And when they do, it's a whopper - huge APRs.  So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%!  These are not the most sophisticated users of credit.  I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them.  But they don't.

 

One thing I have read is that SYF offers customers pretty low credit limits and is quick to ding your credit score if you mess up.  Both of those lead to some unhappy (ex)customers.

 

So who ends up buying them?  It's not a squeaky clean reputation business and the relationships - like the Amazon deal - can (and probably will eventually) be lost.

 

 

 

Datorama updated: http://www.dataroma.com/m/holdings.php?m=brk

 

Baupost also bought SYF... did any of these guys talk about what/why they like it?

[gfp]

Small deal for Iscar -

 

http://www.livemint.com/Companies/NrtK1Y34Av0d94opVoXOFJ/Larsen--Toubro-sells-unit-to-IMC-International-for-Rs174-cr.html

http://www.thehindubusinessline.com/companies/berkshire-hathaway-to-buy-lt-arm-for-174-crore/article9820224.ece

 

Also a news article talking about how BHE / CalEnergy is less enthusiastic about their Salton Sea geothermal business - finally cancelling a planned plant they had delayed and scaled down a few times -

 

http://www.desertsun.com/story/tech/science/energy/2017/08/16/warren-buffetts-berkshire-hathaway-nixes-salton-sea-geothermal-plant/570131001/

 

Also - Elliott buying more EFH debt to try and block Berkshire's deal for Oncor..

https://www.wsj.com/articles/elliott-management-buys-slice-of-energy-future-debt-1502919644

 

Next major court date is August 21st -

http://www.omaha.com/money/buffett/warren-watch-eclipse-day-may-shed-some-light-on-berkshire/article_6c197e3d-0fb2-56b4-95a2-f8b9fcc1aa59.html

[rb]

 

All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF.  And when they do, it's a whopper - huge APRs.  So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%!  These are not the most sophisticated users of credit.  I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them.  But they don't.

They do make a % of everything you buy using the card. So you've probably made them quite a bit of money over the years. Yes they would prefer interest on top of it but it's not a deal breaker.

[mbreject]

This is an entity, that connects economic idiots with people with cash, to make money. These entities run lean, and internet based in most cases. You can complain by leaving - by paying your balance [if you can] and close the card account.

 

The above is meant in general terms.

 

I'm not by that calling you an idiot, mbreject, nor even indirectly implying that you are.

 

In our household we have a few of those cards, too, because of the built in perks. I can't even get automated monthly payment in full of the balance [because the card issuers don't want us to pay monthly balance in full, so that they can charge interest on the balance], so I pay them manually - monthly, and in full, so we get our perks -, without any interest expenses on the card.

 

I am an idiot for keeping this card for so long. I made a mistake in thinking that having the Sam's Club credit card was the only way to get the cashback or maybe they've changed the T&C's along the way, because it's not like that anymore. I'm just too lazy to drive to my local Sam's, but I have to do it soon before the check expires.

 

I haven't heard any of them mention Synchrony.  Berkshire's position is probably through Todd or Ted.  Todd seems to be the financials specialist of the two, but who knows.  Synchrony declined during the past quarter and offered an entry point for anyone interested in their business.  They have a very very healthy net interest margin despite their growing charge-offs/delinquencies.  To me it seems likely that they will be acquired by a larger financial firm with even lower costs on deposits, but maybe I am missing some reason they are unlikely to be acquired.

 

As for the products, we use two of their products.  The one we use most is their Lowes card that can be used only at Lowes.  My wife is a real estate developer / landlord, so we put a lot of money through Lowes and Home Depot.  The Lowes card gives you 5% off at the register, which is more attractive than some later statement credit - as I can see the price discount right on my receipt.  In our town, the sales tax is just about 10%, which means using SYF's card at Lowes gives me half the tax back.  Lowes and Home Depot have algorithms to exactly price match identical items they both carry, so the absence of a similar offering from Home Depot often decides which store we drive to for the materials list.  The card is paid in full every month through their online portal.  They've never made a dollar off of us, but we have saved a couple thousand.  Lowes saves the CC processing fee if our purchases had been on Visa/Amex/etc, which helps offset the 5%.

 

The other card we use is the Amazon Prime Store card.  It is one of the several cards amazon offers with discounts.  It is not the original one, but a more recent entry.  It is set as the default payment method at Amazon and it pays 5% back on anything purchased through amazon or their 3rd party sellers.  It pays the 5% in the form of a statement credit on your next bill, so it works differently than the Lowes card but the economic effect is the same.  We buy a lot on Amazon and 5% is a better discount than our other cards would offer.  There are other 5% cards that partner with Amazon, though, and those other cards can be used at more than just Amazon.  Same deal as above - pay it off every month in full and SYF never makes a dollar.

 

The other product I have seen but not used is their growing "Care Credit" program.  My wife's friend used Care Credit to pay for some expensive dental work with a 0% payment plan.  She kept to the terms and paid it off at 0%. 

 

All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF.  And when they do, it's a whopper - huge APRs.  So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%!  These are not the most sophisticated users of credit.  I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them.  But they don't.

 

One thing I have read is that SYF offers customers pretty low credit limits and is quick to ding your credit score if you mess up.  Both of those lead to some unhappy (ex)customers.

 

So who ends up buying them?  It's not a squeaky clean reputation business and the relationships - like the Amazon deal - can (and probably will eventually) be lost.

 

 

 

Datorama updated: http://www.dataroma.com/m/holdings.php?m=brk

 

Baupost also bought SYF... did any of these guys talk about what/why they like it?

 

My SYF Sam's club credit card has a crazy limit (monthly limit is like ~7x my annual purchase on the card.) It might be because it's a warehouse club card though (my Costco citi card's credit limit is also ridiculously high while my other citi card's limit is frustratingly low.) It's possible that Citi and SYF are doing this in hopes to retain the customers they got from AmEx and Discover, but maybe they're just that damn predatory. Gah. Hearing about the high APR's really make me appreciate AmEx's charge card model a lot more.

 

[gfp]

 

All of these products are just hoping that you will pay some interest at some point, and looking at the numbers quite a few people do pay interest to SYF.  And when they do, it's a whopper - huge APRs.  So the higher charge-offs and delinquencies aren't too surprising because you are talking about people who are willing to owe a balance that compounds against them at rates approaching 30%!  These are not the most sophisticated users of credit.  I'm sure many could transfer that balance to a competing product with an 18 month 0% offer or something and pay it down without the compounding against them.  But they don't.

They do make a % of everything you buy using the card. So you've probably made them quite a bit of money over the years. Yes they would prefer interest on top of it but it's not a deal breaker.

 

So I always wondered about this and haven't dug deep enough to answer it for myself.  I always assumed that the 5% being paid to me is being split between the merchants (say Lowes) and Synchrony.  If that is the case, SYF is not getting a 'swipe fee' like a regular card network card would get.  The cards I am describing cannot be used at retailers other than the one on the card and have no Visa, MC, etc affiliation.  Someone is covering the 5% to me and I really doubt that SYF is getting a 'swipe fee' net of that 5% - i.e., it would really surprise me if Lowes or Amazon ate the entire 5% and then paid SYF a swipe fee on top of that (even if the swipe fee was below market rate).

 

Do you know for sure or are you also speculating?

[rb]

So I always wondered about this and haven't dug deep enough to answer it for myself.  I always assumed that the 5% being paid to me is being split between the merchants (say Lowes) and Synchrony.  If that is the case, SYF is not getting a 'swipe fee' like a regular card network card would get.  The cards I am describing cannot be used at retailers other than the one on the card and have no Visa, MC, etc affiliation.  Someone is covering the 5% to me and I really doubt that SYF is getting a 'swipe fee' net of that 5% - i.e., it would really surprise me if Lowes or Amazon ate the entire 5% and then paid SYF a swipe fee on top of that (even if the swipe fee was below market rate).

 

Do you know for sure or are you also speculating?

These are all covered by private agreements which are kept secret. From what you're describing the agreement is probably like this: Lowes eats the 5 - that's what they pay to keep you tied to them and jams SYFs card down ur throat. In turn they do pay SYF a swipe fee but likely a heavily discounted one. SYF gets paid some and Lowes benefits cause you use your SYF card and they pay lower swipe fees than they would have if you used you visa instead.

[pau_]

Buffett's NYT: Berkshire Hathaway Will Not Increase Its Oncor Offer

 

"We're committed to being an exceptional long-term partner in Texas and our simple, straightforward deal is good for Oncor, its customers and the state."