Buffett/Berkshire - general news

[Cigarbutt]

https://www.wsj.com/articles/after-the-coronavirus-shareholders-will-have-to-share-their-crown-11585829466

 

"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."

 

https://www.wsj.com/articles/pressure-mounts-on-insurance-companies-to-pay-out-for-coronavirus-11585573938

 

"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."

The social inflation movement on this aspect is building up and it's hard to know the outcome. It's fascinating that this could end up as a form of retroactively imposed adverse selection.

Mr. Buffett has often mentioned that many large investments (utilities, insurance) are a bet that there will be a fair compromise between the end user and the private capital trying to earn a reasonable return.

In 1988 (annual report), when Geico was not wholly owned, Mr. Buffett had said the following:

"The antagonism that the public feels toward the industry can

have serious consequences: Proposition 103, a California

initiative passed last fall, threatens to push auto insurance

prices down sharply, even though costs have been soaring.  The

price cut has been suspended while the courts review the

initiative, but the resentment that brought on the vote has not

been suspended: Even if the initiative is overturned, insurers

are likely to find it tough to operate profitably in California.

(Thank heavens the citizenry isn’t mad at bonbons: If Proposition

103 applied to candy as well as insurance, See’s would be forced

to sell its product for $5.76 per pound. rather than the $7.60 we

charge - and would be losing money by the bucketful.)

 

    The immediate direct effects on Berkshire from the

initiative are minor, since we saw few opportunities for profit

in the rate structure that existed in California prior to the

vote.  However, the forcing down of prices would seriously affect

GEICO, our 44%-owned investee, which gets about 10% of its

premium volume from California.  Even more threatening to GEICO

is the possibility that similar pricing actions will be taken in

other states, through either initiatives or legislation.

 

    If voters insist that auto insurance be priced below cost,

it eventually must be sold by government.  Stockholders can

subsidize policyholders for a short period, but only taxpayers

can subsidize them over the long term.  At most property-casualty

companies, socialized auto insurance would be no disaster for

shareholders.  Because of the commodity characteristics of the

industry, most insurers earn mediocre returns and therefore have

little or no economic goodwill to lose if they are forced by

government to leave the auto insurance business.  But GEICO,

because it is a low-cost producer able to earn high returns on

equity, has a huge amount of economic goodwill at risk.  In turn,

so do we."

Then, there was the possibility that private players would be forced to underprice policies. Now, there's the possibility that policies written before may need to cover outcomes not intended to be covered initially. For those that think that bailouts for everyone, everywhere and everything don't come with moral hazard and unintended consequences, this is food for thought although a reasonable compromise should be maintained in the end but strong players may be punished more than zombie players which is not, typically, a winning strategy at the aggregate level.

 

[DooDiligence]

If I hear one single Republican mouthing off about socialism, I'm going to scream.

[rb]

If I hear one single Republican mouthing off about socialism, I'm going to scream.

Pace yourself young padawan. The road is long.

[Munger_Disciple]

Berkshire selling Delta & Southwest:

 

https://www.sec.gov/Archives/edgar/data/27904/000120919120023250/xslF345X03/doc4.xml

https://www.sec.gov/Archives/edgar/data/92380/000120919120023268/xslF345X03/doc4.xml

 

That was a quick roundtrip!

[undervalued]

That's going to crash the airlines even more. They both are the stronger out of the 4 big airlines.

[Gregmal]

On the flip side, didn't Buffett sell out of a rail company before buying BNSF?

[rb]

They're hauling ass on Delta too. No joke!

 

Edit:

Maybe Buffett found that 1-800 number from years ago.

[DooDiligence]

If I hear one single Republican mouthing off about socialism, I'm going to scream.

Pace yourself young padawan. The road is long.

 

;D

 

I have great lung capacity.

[Gamecock-YT]

That's going to crash the airlines even more. They both are the stronger out of the 4 big airlines.

 

Yeah, that's what I was going to say. That'd be the two you'd want to keep. Maybe they're just treating United and American as call options at this point.

[jeffsreng]

The problem with 13F or any sec filings or press releases is it's not real-time.  What if they sold it and brought some more.  That's why you have to do your own research.

[rb]

It's not a 13-f it's a 4. The trades were April 1st and 2nd. They're selling now.

[peluche]

https://finance.yahoo.com/news/warren-buffett-i-wont-be-selling-airline-stocks-142849303.html

 

Warren Buffett: ‘I won’t be selling airline stocks’

[Munger_Disciple]

It's not a 13-f it's a 4. The trades were April 1st and 2nd. They're selling now.

 

+1

 

Berkshire owned >10% of both the airlines, so they had to report transactions immediately. Now that they are below 10% of each, they no longer have to. For all we know, Buffett could keep selling and be out completely in the coming days. We wouldn't know if that is the case until Aug 15th when the Q2-2020 13-F comes out.

[Munger_Disciple]

https://www.bloomberg.com/news/articles/2020-04-03/u-s-airlines-apply-for-government-aid-with-sales-in-freefall?srnd=premium

 

U.S. airlines are rushing to apply for federal aid as their revenue plummets amid an unprecedented collapse in travel demand caused by the coronavirus pandemic.

 

Second-quarter sales will plunge 90%, Delta Air Lines Inc. said, and the carrier is burning through $60 million a day.

[Spekulatius]

https://finance.yahoo.com/news/warren-buffett-i-wont-be-selling-airline-stocks-142849303.html

 

Warren Buffett: ‘I won’t be selling airline stocks’

 

When facts change, You have got to change your opinion. These airlines are are likely zeros. They don’t last longer than few month without meaningful revenues and will go into prepackaged bankruptcy before thy run out of cash. By fall, they are done, imo.

[rb]

https://finance.yahoo.com/news/warren-buffett-i-wont-be-selling-airline-stocks-142849303.html

 

Warren Buffett: ‘I won’t be selling airline stocks’

 

When facts change, You have got to change your opinion. These airlines are are likely zeros. They don’t last longer than few month without meaningful revenues and will go into prepackaged bankruptcy before thy run out of cash. By fall, they are done, imo.

You're right. It's a pretty good value trade. The companies are bankrupt so why not take the money?

 

At $20 a share Delta is worth about as much as it was around 2013-2014 and it was actually flying back then. What changed since then? I don't see why these are not all zeros. Does the US taxpayer owe airline shareholders a duty of care, or airline bondholders for that matter? These companies have been bankrupt before and everybody lived. No reason why it can't happen again.

[spartansaver]

I wonder if this means his American and United stakes are completely gone. I've also been wondering if this means he may be in discussions with United or American.

[dpetrescu]

Berkshires annual meeting is on May 2. What does everyone think? Will Warren announce something similar to BNSF? Or will he say something he has said in the past, that sometimes you have to admit you’re wrong, change your mind, and move on?

 

There is no doubt that after this is over the fewer airlines that do survive will be even stronger over the long term after potentially even more consolidation. Warren has also said that he periodically sells to stay under the 10%. However, I’m now leaning more towards the latter. Airlines WILL be losing a lot of money over many months to more than a year.

 

I bought a few long 2 year out of the money call options for a few airlines. I realize there’s a good chance they could be worth zero.

[Gregmal]

The problem with airlines and oil companies is that filing bankruptcy and starting over is like asking for a piece of chewing gum or bumming a smoke. Routine, no shame, just normal course business. Competition doesn’t really go away.

[dpetrescu]

The initial deadline for airlines to apply for cash grants from the government is today.

[Guest cherzeca]

looks to me like the tide is rolling out and warren is wearing a speedo.  happens to the best of us...

[jasonchin]

Wonder whether the 10% rule applies to the convertibles? If yes, he may anticipate the convertibles and actually planning in advance. Pure speculation.

[Spekulatius]

looks to me like the tide is rolling out and warren is wearing a speedo.  happens to the best of us...

 

It’s just a flesh wound, as are his huge bank positions, which are also impaired. Anyways, my guess is that BRK hasn’t really bought anything substantial yet. He is likely waiting for much better bargains. He probably bought back a little stock, but that’s is most likely it.

[movys]

It's not a 13-f it's a 4. The trades were April 1st and 2nd. They're selling now.

 

+1

 

Berkshire owned >10% of both the airlines, so they had to report transactions immediately. Now that they are below 10% of each, they no longer have to. For all we know, Buffett could keep selling and be out completely in the coming days. We wouldn't know if that is the case until Aug 15th when the Q2-2020 13-F comes out.

 

As a 13G filer, doesn't BRK have to amend his 13G to disclose all transactions until he falls below 5%?

[Dynamic]

Yeah, I was thinking about that. I seem to remember that 13G rules are different when under 10% and give much longer before filing, but in one of the cases it seemed to indicate that every time the ownership stake moves by a whole percent, I think a further filing is triggered, with the specified deadline so many days after the event that triggered it. Need to look into those rules.

 

At the actual close on Tuesday March 31st, prices were a little on the higher end in recent times, and at Dec 31st they closed rather lower than the prices reached in mid February. I think that if it remained relatively unchanged the portfolio would have lost about $63 billion in market value over Q1, with a $13 billion deferred tax reduction, resulting in $50 billion of market value losses.

 

The WFC position, if unchanged from Dec 31st at $18.6 bn at $53.80/share would have declined in market value by 46.7%, but they may well have continued selling through Jan and Feb and saved some of the $8.6 billion in losses they would otherwise have recorded. They might even have reversed course and started buying it again at around $25 per share during March. Again, the rules on filing about changes in sub 10% positions would be relevant. I think they got rid of IBM before such filings were made public, but they might have to notify the SEC alone, without such reports being public.