Wednesday, May 13, 2020

High frequency data show a strong rebound

On March 19th I ventured to guess that we had probably seen the worst of the Covid panic. On April 6th I pointed to Covid green shoots. On April 19th I noted the beginning of the end of the shutdown. On April 27th I noted that things were looking up. A week ago I pointed to signs that showed the economy beginning to reopen. In today's post I show further evidence of what is looking like a fairly strong rebound in economic activity. All of the charts in this post use data that is as recent as today and no older than two weeks. All of the charts—with one exception—reinforce the view that that there has been a significant amount of financial market healing and a meaningful recovery in economic activity. I show the charts in no particular order:

Chart #1

Apple has compiled data from millions of user's iPhones all over the world to show that people are getting out of their homes and engaging in more driving, walking, and travel (see Chart #1). In the US, shown here, the low point in driving activity was Easter Sunday, April 12th. Since then, and using a 7-day moving average of the data (there is a distinct weekly pattern to the data, with the weekly low always falling on Sunday), there has been a substantial rebound of over 50% in the number of requests for driving directions. Not bad!

Chart #2

Chart #2 uses weekly data (last datapoint being May 8th) to show that the amount of motor gasoline supplied to the US market has increased 46% in the past four weeks. From that we can infer a significant increase in miles driven by individuals. Impressive!

Chart #3

Chart #3 uses data from TSA to show that the number of passengers processed at US airport security checkpoints has almost doubled since the mid-April low (again, I'm using a 7-day moving average to eliminate weekly patterns). Of course, that is still more than 90% below the level of activity from a year ago, when 2.34 million people passed through TSA checkpoints every day on average. But the longest journey begins with a first step!

Chart #4

Chart #4 is my favorite for tracking how the level of market fear and panic influence the stock market. Things have definitely improved since prices hit bottom almost two months ago, but there is still a lot of  caution in today's prices. Will the rebound we've seen so far continue? Will there be a new, sudden wave of infections? Another shutdown? How fast can businesses respond to the lifting of lockdowns? I would be worried if the market weren't worried about these sorts of things. There are so many variables in play that no one can confidently predict how things will evolve. My main guidepost is an intuitive trust in the resilience of the US economy, the resourcefulness of America's entrepreneurs, and the desire of the average person to work hard and enjoy life.

Chart #5

Chart #5 shows an index of key financial market indicators, compiled daily by Bloomberg. Here again we see a sharp rebound/improvement. This is extremely important, since healthy financial markets are essential to an eventual economic recovery. We're not out of the woods yet, but we have without question pulled back from the edge of the abyss that was looming in late March.

Chart #6
Chart #6 shows one of the indicators included in Chart #5, 2-yr swap spreads. I always keep tabs on this critical, leading indicator of financial market health which has frequently anticipated changes in economic activity. Swap spreads in the US are exactly where we would like to see them, while similar spreads in Europe are somewhat elevated, but not dangerously so. The disparity simply highlights the fact that the US economy is more dynamic and generally healthier than the economies of Europe.

Chart #7

Chart #7 compares the level of 10-yr Treasury yields (red) with the ratio of copper to gold prices (blue). Both of these indicators have shown a tendency to respond to changes in the global economic outlook. Both are still distressingly low, unfortunately, but neither one has deteriorated further since late March.

Chart #8

Chart #8 shows the level of the M2 measure of the US money supply. It's plotted using a semi-log scale on the y axis. Note how for the past 25 years M2 has risen at a fairly steady 6.2% annualized pace. Until recently, that is, when the Federal Reserve pulled out all the stops in an attempt to satisfy the world's sudden and gargantuan demand for money, money equivalents, and safe, liquid assets.

Chart #9

Chart #9 shows the year over year growth of M2. The recent surge, which began in mid-March, is without precedent in US monetary history.

Chart #10

Chart #11

Chart #10 shows the composition of M2. Bank savings deposits account of over 60% of M2, and they have increased by $930 billion since mid-March. This is strong evidence that the demand for safe money has soared as a result of the Covid crisis. Savings deposits pay little or no interest, so people hold them only if they value their safety and liquidity far more than their yield. Demand deposits and checking accounts, close cousins to savings accounts, have increased over $800 billion. Together, the increase in these three components account for almost all of the $1.9 trillion increase in M2 since mid-March. The Fed facilitated this increase by purchasing notes and bonds in exchange for bank reserves (see Chart #11, which is equivalent to transmogrifying notes and bonds into T-bill substitutes. (I've explained this process numerous times in the past.) But this is not the same as "printing money."

What the Fed has done was absolutely essential, since the Covid crisis and the sudden plunge in economic activity created an explosive demand for liquid, safe assets. As long as this demand persists, the huge expansion of the M2 money supply will not be inflationary. Indeed, recent inflation statistics suggests that prices of late have been falling. 

Inflation will pose a threat only if the Fed fails to withdraw its liquidity injections when and if the world's demand for safe, liquid assets begins to subside. For now, that is a tale for future, not for today.

UPDATE (May 22): Here's an updated version of the TSA Throughput data (Chart #3 above). On a 7-day moving average basis, TSA screening activity is up 150% compared to the low of April 17th. From this we can infer a significant recovery in air passenger traffic in the past 5 weeks.

Chart #12


Larry said...

Thank You, Scott
I check your blog everyday, you are the BEST!
Larry G

Johnny Bee Dawg said...

Outstanding post. Outstanding.

Buffett, Druckenmiller, Tepper all missed it.
Tepper has "10-15%" in equities. That means 10%. He missed it ALL.

These market mavens are WAY too negative. There is way too much good stuff going on right now.
Thank God for Bill Miller and his sober commentary.

Accounts hit all-time highs on Monday.
We cant be in the throes of a Great Depression if accounts just hit new highs.
We cant be in a debilitating "pandemic" if hospitals across the globe are empty.

Dozens of companies have adapted, and are absolutely kicking butt right now.
That is America. We adapt. We deliver. All these great charts in Scott's post are showing America's resiliency and resolve.
Screw the sheep sheltering in place.

The Swamp is deep and wide (Gowdy & Ryan are the latest LONG-TIME snakes finally exposed in the past week)...but the Swamp will never have the most important thing....We The People on their side.

This economic shutdown has absolutely nothing to do with a virus, at this point. It never did.
This is all about power and control, and the upcoming Election.
Aint gonna work. Markets know.
Truth will out.
Take the quick pullback, and get ready to rock.

Benjamin Cole said...

Great wrap-up, love the numbered charts.

The public health officials do not want to re-open, see Fauci. That is the risk to Scott Grannis' optimistic take.

Somehow we have gone to "flattening the curve" to "lockdowns for everybody until a vaccine is found."

Let us hope Grannis' admirable optimism is warranted.

WealthMony said...

I'm not sure I understand Buffett. In a recent interview he said, "Never bet against America." Yet his Berkshire Hathaway did not invest one dime during the market's recent swoon, as far as we know. He holds billions in Treasuries and cash equivalents equal to about 25% of its market cap. Over the past two years the S&P 500 has gained a mere 3.38% as of 5/13. The NASDAQ has gained 19.73%. Both far outpace Berkshire Hathaway B shares with a -14.4% loss. It is even worse over the past year where Mr. Buffett's company has lost -16.8% while the NASDAQ has added +15.9%. Buffett has always taken a value approach to investing, and value ain't happening right now. I am not about to suggest that Warren Buffett's outfit has lost its touch. After all, he was looking weak relative to equity markets back in 1999, but then shined in the burst. But it does show that no one is right all the time, and it looks to me that this is one of those times when Mr. Buffett is not right. His investors might do better over the next few years if they take the advice of Scott Grannis and some of the commenters to this blog. I say, "Don't bet against America."

Johnny Bee Dawg said...

San Diego County Supervisor Jim Desmond investigated & dug into the data and found that only SIX of their officially reported 195 COVID cases were legit. Only SIX "true" COVID19 deaths. Let that sink in.
The others were already sick & dying from something else.

COVID19 death reports are inflated all over the country. The virus panic is manufactured.
The panic and shut-down is all about the election.

Notice that the Red states are trying to shut down their citizens, while the Blue states are setting them free.
Markets see right thru it all.
The USA has the worlds greatest cheerleader for prosperity manning the helm, and leading us forward.
Pick a side: Freedom or Control

Link: San Diego Union Tribune

steve said...

Excellent post, Scott. gotta agree with Johnny here; Tepper, Druckenmiller and Buffet did not have the balls or smarts to buy when there was BLOOD in the streets and now they're trying to talk this market down.

As re Buffet, he is too old and addled to manage other peoples money. His performance over the past 10-15 years is average to poor. 4.6% and 8.4% over the past 5 and 10 years respectively Vs 8.4% and 11.5% for the S&P500 (VFINX, a surrogate index).

This country will get back on it feet faster than most think and I still think we'll have a vaccine sooner than most think too. Time will tell but for now stay long RISK.

Grechster said...

Steve: I'll bet you a dollar that both Tepper and Druck will outperform the SP500 this year. (And I wouldn't be surprised if one or both beat it by more than a thousand bps.)

Rick Jones said...

Excellent post, Scott. Very informative. Thanks!

steve said...

Grechster, we'll never get true results from either but philosophically, you're on. But you miss the point; they didn't buy the 'crash" and are trying to talk the market down with their influence. Kinda pathetic if you ask me...

Rick Jones said...

Steve said:

>...Buffet did not have the balls or smarts to buy when there was BLOOD in the streets...

I have no dog in the fight regarding Warren Buffett's investment decisions. But from what I've read, I got the impression he was going to try for a repeat of 2008 - 2009 and wait for companies to come to him, hat in hand, seeking cash to say alive. At that point he could have dictated great terms for BH. But the Fed surprised him -- and everyone else -- with its rapid pull-out-all-stops-and-save-the-economy moves. And he could not compete with the deals the Fed was offering.

I could very well be wrong, but that was the impression I got from a few things I read.

steve said...

Rick, no doubt there is veracity in what you say BUT BH has a record amount of cash, some $130B or so. You would think he and his lieutenants would have had a "wish list" to buy when prices became attractive and there was plenty of time to buy. They had the proverbial headlight in the eyes moment and froze when they should have acted. I acted and so did many others (including JBD!) and believe me it was gut wrenching moment but if you're not going to buy when prices are so egregious when will you?

Grechster said...

Steve: I'm pretty sure they didn't catch the big downdraft too, at least not fully. It just seems a bit harsh to be questioning their balls and their smarts. Btw, imo, neither one was trying to talk down the market, as you allege. Rather, I think they just gave frank answers to questions. Also imo, Druck is probably the single best investor over the past three or four decades largely because he's been so ballsy. But whatever. These guys don't need me defending them. Let's you and I try and discern if they beat the market at the end of the year. I suspect their performances won't be pathetic.

Johnny Bee Dawg said...

I think Rick is right about Buffett on this round. Have wondered why in the world he SOLD at the bottom, instead of bought. He has never done that before. He is smarter than that.
I think he might have sold to make room for his own special deals, which never came, as Rick said.

You could tell he was disappointed that the Fed came to the rescue in his video comments at the meeting last week. The Fed robbed him of his usual "Sugar Daddy" role to select large companies.

Nobody wanted to give Warren a 10% convertible preferred deal, when the high-levered garbage companies could just go to the market this time, and float a deal 7x oversubscribed at a full point less than asking price, and 300bp under Warren's requirements.

Warren was pouting when he said "every company that just came to market should get on their knees and thank the Fed for making that possible." He mad.

He's down over 24.% this year...more than twice as much as the market. One of the worst returns I've seen in the country.

In Jan he told CNBC that when the market has its next pullback, Berkshire stock would certainly outperform during that kind of period. That struck a nerve with me, because Warren never talks like that. I think he knew he shouldn't have said that, the minute it left his mouth.

steve said...

I stand by my opinions. Buffet is old and addled and way too much of a TV hog now. When he was unknown he was amazing. Druck and Tepper are PISSED they missed one of the best buying opportunities of this century and are scrambling for a way to buy in. Just because you were great doesn't mean you always will be. They're both wealthy beyond any means and it's all ego now which is a significant motivator.

rhapsody said...

I'm not sure I understand Buffett.

Just to be clear: WEB is smarter in his sleep than I am on 3 cups of java. That said…

I have been to several BRK meetings, including 2009. The WEB I saw 2 weeks ago was not the same guy. Now, I could write a book about my speculations regarding that last meeting. And, that is all it would be. Speculation. But, in brief, here are my guesses:

1 – He never should have bought the Airline stocks. He knows it. He broke a lot of his own rules doing it. And, now he just lost a few billion for his shareholders. He may just have his tail between his legs right now.

2 – I think Bill Gates is influencing him. When I read Gates articles right now, he does not sound like a guy that would be encouraging WEB to get aggressive.

3 – I think the stripped-down version of the shareholders meeting hit him pretty hard. He loves that annual bash! I don’t think he articulated his thoughts very well because talking to a big empty room threw him off his game.

4 – WEB is 89. If he thinks the next recovery is going to take several years, perhaps he doesn’t want to start a new trade that someone else is going to need to monitor going forward.

I have a few other “theories”, too. But, these seem the most likely.

steve said...

Rhapsody, your point about Gates influencing Buffet is a fascinating point that I had not thought of but have to agree with you on. At some point in our investment careers-I've been in the biz for 25 years, we are all humbled so I def don't want to suggest that I am infallible. I have had my moments but when you are wrong I count it as cathartic and worthwhile to stand up and admit your shortcomings-something not many are very good at.

Grechster said...

Gentlemen, we must separate Buffett from the other two. For the past quarter century or so Buffett's public market performance has been below average. If we ignore the insurance operations and the sweetheart deals that aren't available to you or me, and if we also consider the excess cash... well, his performance has been nothing special. (I know, kudos to him for having the idle cash to take advantage of the sweetheart deals but that's not what we're talking about here.)

But the other two are completely different. They've put up monster numbers in virtually every type of market. Druck is special not only for his incredible performance but for his ability to shift on a dime. I consider him THE best that I've ever seen. Tepper is certainly up there too.

Benjamin Cole said...

This is good news:

'We're the Wild West': Unmasked Wisconsinites crowd bars after the state Supreme Court struck down the governor's stay-at-home order---Business Insider.

I am a little puzzled that return to normal is defined as the "Wild West" in the headline, but the good news is that evidently the public is willing to congregate again. (I hope it is not a lot of alcoholics getting their fix.) This means people will go to ballgames and restaurants and shopping and so on, when the straitjackets are taken off.

I echo Johnny Bee Dawg's sentiments above. Age and co-morbidities play a large role in C19 deaths. Even the Grim Reaper picks his spots.

Good luck everybody.

rhapsody said...

Druck is special not only for his incredible performance but for his ability to shift on a dime. I consider him THE best that I've ever seen.

I don’t know enough to agree or disagree. I would simply say that it seems Druck, Tepper & WEB are not all playing the same game. So maybe it’s a little like comparing Tiger & Jordan. When WEB buys whole companies, it is for their stated purpose of holding them forever. Obviously, they also manage an investment portfolio with their float. But that isn’t really the same as managing an investment fund. WEB is forever calculating the amount of cash he needs to keep the company in a position that prevents them from “relying on the generosity of others”. I suspect that his opinion/concern over the insurance liabilities that COVID may pose to their insurance business is yet factor (I already listed 4) that may have influenced his decision to sell the Airline stocks.

I’m not saying your wrong. I’m just saying I wouldn’t tend to evaluate them using the same measures.

I will say this. Knowing what I know now. If the 20 year-old version of me had $100K to invest for my retirement (so 35 years ago), I would give that $100K to WEB (BRK.a) over Druck or Tepper (just for fun - assuming that would have been an option).

Again, I don’t know that there is a wrong answer. Just my preference.

cbt696 said...

“ For the third time, Peter Robinson interviews Dr. Jay Bhattacharya of Stanford Medical School for Uncommon Knowledge. Dr. Bhattacharya is cogent and articulate, and this conversation, a little under an hour long, is well worth your time. Among other things, he reports on a study he has just completed of COVID-19 in employees of major league baseball.
Dr. Bhattacharya brings bad news: 1) Only a small percentage of Americans, less than one percent in his study, maybe two or three percent nationwide, have had COVID-19. Herd immunity requires something like 70 percent or 80 percent to have antibodies. So the disease has a very long way to go before it has run its course. 2) There is no vaccine for COVID-19 on the horizon, and there may never be one. 3) The shutdowns that have paralyzed the developed world have, to some degree, slowed the spread of the disease, at tremendous cost. But that only delays the inevitable. There will never be a time when it is “safe” to stop the lockdowns. The disease isn’t going away. 4) Dr. Bhattacharya is also eloquent in describing the disastrous human toll, in lives and misery, that the shutdowns have inflicted around the globe.

On the other hand, Dr. Bhattacharya has good news, too. The fatality rate from COVID-19 is low–worldwide, somewhere between 0.1 percent and 0.5 percent, probably closer to the low end of that range. The typical seasonal flu is said to have a fatality rate of around 0.1 percent. So COVID-19 is probably somewhat worse than the average flu virus.”

Source article:


rhapsody said...

2) There is no vaccine for COVID-19 on the horizon, and there may never be one.

First of all, I am no expert. However, I have the good fortune of being related to some experts in this area. They have been a wonderful resource. There will be a vaccine. I don't know when.

Some of the companies working on this are using a chemical (RNA) approach - as opposed to biological. Some of their vaccines are already in clinical trials. My understanding is that drugs in this class have a good safety profile and are quicker to develop & manufacture.

They are hopeful that Pfizer & BioNTech will have a vaccine approved this fall.

steve said...

This whole virus scene is quite reminiscent of stock market opinions. To wit, there are NO experts. By definition, if many/most of the "experts" disagree then there are exactly zero or at least their opinion is pretty damn useless.

Re Dr. Jay Bhattacharya, IF his opinion were true then screw it and open everything NOW. I mean, if there's no vaccine and it takes 70-80% of the population to reach herd immunity and we're only at a fraction of that now, what the Hell are we doing?

Not saying I agree with him, BTW.

Johnny Bee Dawg said...

There is no vaccine for SARS or MERS.
How in the world did Mankind survive?

Do any of the Leftist Authoritarians and their Governors ever ponder Science?

MaineGuide said...

Hello everyone. A few comments ago someone wrote that Buffett and others missed one of the "best buying opportunities of this century." I think if you look at it, this is not nearly the case. Using the S&P500 as a marker, the price decline of March simply brings prices back to the end of 2018, and maybe into 2017, depending on if you use the absolute bottom price or not. That's not much of a drop. By comparison, in the Dot-Com bust, the deepest price decline of the S&P 500 eliminated at least 5 years of gains. In the 2008 financial crisis, the price decline of the S&P 500 eliminated anywhere from 6-12 years of gains, again depending on whether one used the absolute bottom or not. 2001 and 2008 were far better buying opportunities than this March. March, simply allowed folks, those who acted, to buy with a 30% off promo code.

As to Buffett, not keeping up or not doing anything, good traders and good card players (he is an excellent bridge player) don't tip their hands. Just because he hasn't been public about a big deal, doesn't mean he isn't negotiating one, or won't do one. If you look at BRK, I believe that the price gains over the last 3,5,10, 15 and 20 years relative to the S&P price change have been as good or better, up to March 31 of this year. Where the S&P 500 has an edge is in total return because of the dividends. The lack of dividend is a fair argument, but price wise, BRK.A hasn't been a disaster. Thanks.

rhapsody said...

I have greatly enjoyed the interviews with Dr. Jay Bhattacharya. I have found his thoughts and opinions on policy and procedure related to COVID to be very much in line with my thinking on the matter. However, below is Dr. Jay Bhattacharya’s profile on Stanford’s website. I have read it 3 times. I don’t see anything in there that would indicate to me that he would have any expertise in the area of drug development, application or approval.

I don't mean to suggest anything negative about him. I would simply say there are many people I know and read that I feel are better qualified regarding the matter of vaccination and are quite confident there will be an approved vaccine at some point. As I linked earlier, there already is a vaccine in trials. Many are hopeful it will be approved before year end.

Dr. Jay Bhattacharya is a Professor of Medicine at Stanford University. He is a research associate at the National Bureau of Economics Research, a senior fellow at the Stanford Institute for Economic Policy Research, and at the Stanford Freeman Spogli Institute. He holds courtesy appointments as Professor in Economics and in Health Research and Policy. He directs the Stanford Center on the Demography of Health and Aging. Dr. Bhattacharya’s research focuses on the economics of health care around the world with a particular emphasis on the health and well-being of vulnerable populations.
Professional Education
• PhD, Stanford University, Economics (2000)
• MD, Stanford University (1997)

cbt696 said...

‘We could open up again and forget the whole thing’
Epidemiologist Knut Wittkowski on the deadly consequences of lockdown.

“ “When the whole thing started, there was one reason given for the lockdown and that was to prevent hospitals from becoming overloaded. There is no indication that hospitals could ever have become overloaded, irrespective of what we did. So we could open up again, and forget the whole thing.

I hope the intervention did not have too much of an impact because it most likely made the situation worse. The intervention was to ‘flatten the curve’. That means that there would be the same number of cases but spread out over a longer period of time, because otherwise the hospitals would not have enough capacity.“”

Johnny Bee Dawg said...

Dividends matter. Berkshire is collecting all those dividends from all those stocks and businesses it owns, after all.
Warren loves dividends....he just doesnt like to pay them.

Investors can buy the market, and collect all those S&P dividends, or they can buy 89 year old Warren, instead.
FWIW, 60% of the investment returns of the past 50 years in the S&P 500 have come from the compounding of reinvested dividends. They matter.

Berkshire performance lost big to the S&P 500 thru March 31 for the 2,5, and 10 year periods. I didnt check 15 and 20, because I would have to log in to a different computer, and dont care enough on a Friday afternoon. Warren is now down over 25% this year...more than twice the market!

Lets just say that Warren beat everybody 10 and 20 and 30 and 40 and 50 years ago, and not so much anymore.

His underperformance over the past decade has coincided with his newer public propensity during that time to blather left-wing hypocritical nonsense that would not have served him well in his earlier outperforming days.
He has become comfortable with a mindset that is not conducive to profits.
He was suddenly willing to "invest" in wind energy just because of a government subsidy, despite lack of inherent investment merit. He loved Barack Obama and proudly voted for Him. "That's my Man!" Yet, when pressed, admitted that he thought all His policies were bad for economic prosperity. Couldn't name one that he thought was good.
That doesnt sound like the Warren of yesteryear.

Reap what you sow.

MaineGuide said...

I don't invest in BRK, but I have admired Buffett's patient,long-term approach. My comment was really about the great buying opportunity has not been as good as other periods in the last 20 years The Buffett comment was an aside. Be that as it may, it's usually not appropriate to confuse personal and political animus with investment results. A simple review of the Berkshire Hathaway annual letter, which doesn't require a different computer, will show the annual returns vs. the S&P500 with dividends included dating from 1965 through the end of 2019. Buffett got full control of BRK in 1964, I believe.
BRK vs. S&P500 (divs included) shows that BRK:
Outperformed in 3 of last 5 years
Outperformed in 7 of last 10 years
Outperformed in 10 of last 15 years
Outperformed in 13 of last 20 years
Outperformed in 37 of 55 years
BRK has averaged 20.3% annually vs. 10.0% annually for the S&P500, dividends included. That's a pretty decent record of success across multiple time periods.
In last 55 years, S&P has been negative in 12 years and BRK has been negative in 11 years.
Yet,when S&P 500 is negative, BRK outperformed in 10 of those years.
BRK has had relative underperperformance these past 3 and 5 years because the S&P 500 performance in 2019 was dominated by just a few tech companies, which Buffett doesn't typically invest in. I wouldn't hang my hat on the vast underperformance this quarter or these past couple of years. Buffett is in for the long game and there have been several years in which BRK's performance was far worse on a relative basis, just as there are many more years in which BRK's relative performance has been much better. But over time,even in the past few years BRK has done well. BRK was +2.8% in 2018 when S&P was -4.4%, for example.
Even if one doesn't like who Buffett supports politically, it would be hard to criticize his annual meeting a couple of weeks ago. This was a tour de force in support of American ingenuity, innovation, grit and resilience. Among his comments were "Never bet against America. That is as true today as it was in 1789, during the Civil War, and in the depths of the Depression." And "American magic has always prevailed, and it will do so again." Thanks.

Johnny Bee Dawg said...

That's a lot of words to say that Berkshire has underperformed the S&P 500 in the 1,3,5, and 10 year periods.

Last year Warren underperformed by 20%.
This year he is underperforming by 14%.
He is about 5% away from his low for the year.

I think he used to be better at investing.

steve said...

JBD is spot on re BRK. Investment performance is all about what have you done for me recently not 20 years ago and WB has seriously under performed BUT the media loves him and he loves them back.

BTW, I checked the data at Yahoo/finance. BRK.A up 6.97% acr over the past 15 years Vs 7.53% for VFINX so including the Great Recession he has under performed.

And on more point. At the lows the S&P was down 30% this year. I would call that a pretty damn good buying opportunity.

Johnny Bee Dawg said...

I keep relative strength charts of Berkshire vs the S&P 500, and vs. the S&P 500 Equal Weighted index (the hardest benchmark to beat, over time).
BRK.A divided by the price index, and plotted.

Those charts both peaked in Oct 2008. Let that sink in.
Berkshire's relative strength chart vs. the regular S&P currently resides at 2007 levels.
The relative strength chart vs the Equal Weighted S&P is now at 1998 levels.

An investment in Berkshire at the huge market bottom of Oct 2002 is up 242%
The same investment in the S&P with dividends is up 362%
The same investment in the Equal Weighted S&P 500 with dividends is up 445%

The Equal Weighted S&P 500 has the exact same stocks as the regular index. The difference is each stock has the same weight, instead of the regular S&P giving the larger companies more weight.

Adam said...

Rudy Giulliani, Common Sense ep. 37 on Covid mismanagement, very well said.

wkevinw said...

Buffett started having obvious problems in ~1998. Value-based stock picking has been difficult for about 30 years now, and that's his schtick.

Further note that a study (available via www search) showed that Buffett/BRK had ~ the 3rd most exposure/investment in firms that were bailed out in 2008-2009, Goldman, GE, etc.

So, in my book, BRKA was bankrupted except for the kindness of the US Govt (which by the way, myself and other US taxpayers kindly paid for). A lot of the good returns he had were allowed by the bailout and his ability to be the "bank of last resort" during that crisis. He made hundreds of millions (maybe billions?) of dollars via sweetheart deals with companies that needed money at that time.

Also note that my humble portfolio would not get bailed out. So, I would suggest the average small investor not depend too much on Warren's investments or style of investment.

Richard O'Neill said...

Regardless, Darwin always gets last bats.

MaineGuide said...

Yes, down 30% was a good buying opportunity in March and with the ex post facto knowledge that we have had a rebound. It, however, was not nearly as good as the opportunities in 2001 and 2009 time periods which was the point of the original response. Without the coordinated monetary and fiscal intervention, which came faster than most expected, prices would have been better. We may yet have an opportunity to buy again at the prices of March.
As for BRK’s underperformance YTD and in 2019, again it is likely a factor of the types of investments and sectors that have done well vs. what he invests in. No question, Buffett stumbled in Heinz and Occidental, but it really is about “Value",as a whole, getting its clock cleaned as someone else noted. Buffett states in his annual letter his disappointment in underperforming (as he has done in other years) yet gives a thorough analysis on why he is sticking with his process. Having a plan is what works long-term.

Buffett's BRK has outperformed the S&P 500 in 2012, 2013, 2014, 2016, 2017 and 2018. 6 of 8 years, including 3 of the last 4, is pretty good for someone who has stumbled in his recent investing prowess. As an aside, BRK, in a taxable account, is likely more tax efficient than the S&P 500 even if the returns are slightly in favor of the S&P500 because of the taxes due on dividends received.
Again, I don’t own BRK and never have. The point in all of this is tempering the overly harsh enthusiasm when judging short-term underperformance. The game is not yet over. We should all hope to be as sharp as Buffett when we are his age. Thanks.

wkevinw said...


All very interesting (your statements below), but Buffett would have been bankrupted if not for the bailouts in 2008-2009. "Outperforming" from a base of "0" (bankruptcy), is still "0".

From the post above (conveniently ignored in your reply): "Further note that a study (available via www search) showed that Buffett/BRK had ~ the 3rd most exposure/investment in firms that were bailed out in 2008-2009, Goldman, GE, etc.
So, in my book, BRKA was bankrupted except for the kindness of the US Govt (which by the way, myself and other US taxpayers kindly paid for)."

Buffett's BRK has outperformed the S&P 500 in 2012, 2013, 2014, 2016, 2017 and 2018. 6 of 8 years, including 3 of the last 4, is pretty good for someone who has stumbled in his recent investing prowess. As an aside, BRK, in a taxable account, is likely more tax efficient than the S&P 500 even if the returns are slightly in favor of the S&P500 because of the taxes due on dividends received.

Jay Balapa said...

Hi Scott,

Do you have any comment on GDP Now from Federal reserve of atlanta which is projecting -42% drop in 2nd quarter GDP?

Is this priced into the Market?


Regina said...

Dr. Raymond Peat's response in relation to RNA vaccine:

"The problem is that our bodies can copy foreign RNA and DNA and incorporate the copies into our chromosomes. If they are genes for viral proteins, it’s possible that during a future stress, those foreign genes could be expressed throughout our body, creating overwhelming amounts of those toxic proteins. The copies could be inserted into sperm cells and eggs as well as body cells, forming part of future generations. No sane person would consider doing it, if they understood how our cells respond to alien nucleic acids."

It sure looks like Fauci's partner Moderna [MRNA] is the "winner".

A bunch of mega-rich medical mafia doing whatever they feel like to us. We are just their lab rats. Gates loves getting up and spouting NAZI talk while smiling ear to ear. The "scientific community" is censored and gagged by WHO, CDC, FDA, Fauci, Gates, Gallo, Renfield, etc etc etc.