Atlanta GDPNow released on Friday showed negative growth of 2.1%, now we had negative growth of 1.6% in Q1. This technically qualifies as recession. Unlike in the recent past (when the inflation was so low), we have a pretty high inflation, so we may be experiencing inflation and recession at the same time.
What that means is while cost is increasing, revenue may not be growing, economy wide). How is Berkshire “operating businesses” impacted by this? Besides utilities, what other business has pricing power? Do you anticipate “operating business” profits to go down?
We’ve seen growth stocks hammered, are we in for a long period of stagnation in inflation adjusted terms?, all indicators point to that.
For the broad US economy?
For the broad US market?
For Berkshire’s business results and real value per share?
For Berkshire’s share price?
I expect answers which are quite different.
For sure, recessions aren’t good for business.
But they are a normal part of life. You see one from time to time, and any sensible valuation process already takes that into account.
If you want to calculate the average number of miles you can run per day in the next couple of years,
you have to take into account that sometimes you have a cold and won’t run.
If you’re coming down with something today, that shouldn’t change your conclusion.
Inflation isn’t good for most businesses, but historically it only really matters when it gets high enough for long enough that the economy breaks.
My guess is we won’t see that. It hurt too much last time. "“If a cat sits on a hot stove, that cat won’t sit on a hot stove again. That cat won’t sit on a cold stove either. That cat just don’t like stoves.” – Mark Twain
Just the general market, thinking about all those indexers…
Berkshire will perform better, however Berkshire owns utilities, railroads and other businesses that require large capital investments, they’re not typically seen as good bets in inflationary periods, unlike a See’s Candy (low capex and pricing power) it’ll also be a lot more difficult to generate returns from stock investments. Will Apple perform well in this environment? (Consumer belt tightening)
Interestingly Michael Burry has recently purchased Meta as his favoured inflation bet.
Interestingly Michael Burry has recently purchased Meta as his favoured inflation bet.
But why?
I can see that ad sales is very efficient pricing power and they don’t do significant long term contracts as far as I know, but it seems to have other headwinds. On the plus side they did cut back on hiring, maybe SW Engineers total compensation will get cheaper if a bunch of these questionable companies get knocked out of the market.
I bought some BRK last week, but not much. I previously sold to buy GOOG, but not sure I came out ahead. Can’t decide what to do with the rest of my cash so nothing probably will win.
We’ve seen growth stocks hammered, are we in for a long period of stagnation in inflation adjusted terms?, all indicators point to that.
Thoughts?
There’s a couple of factors just now. Hard to say what will happen when those factors change—which they will in the very near future.
One is political in the US. Everybody knows what that is, so I don’t need to say it.
The other is what’s happening just north of the Black Sea. Part of that situations will probably be resolved in the next few weeks/months. As the saying goes, "Slowly, then all at once.” Another part will be the (much longer term) fallout of of/when the international financial/money situation shifts from the US Dollar to something else.
Hard to predict how things will shake out, but things will shake out–probably soon-ish.
Yep, Turnip (damn predictive) 2024 and the US / China spat over Taiwan. Neither desirable. Ukraine is going to drag on for a long time, the UK will lead the European Nato collective and the US will focus on the South China Sea. This is the new reality.
Geopolitical risk is always there, bit unpredictable and generally have less impact on market. West arms supply to Ukraine only prolongs the conflict and the damage to developing/ poor nations are immense. They are the collateral damage. The unintended consequence of the economic sanction regime is many countries are going to face economic upheaval to the point, where regime change is inevitable. It already happened in Pakistan, which is a nuclear power. West indiscriminate/ irrational economic sanctions that protects their allies in EU, but punishes others is a morally, ethically indefensible.
Long-term, the world has to really question why we care about USD, or US/ West hegemony on world trade regime.
It’s about democracy vs autocracy and associated economic models. China is leaning further to the left and that’s political. Ukraine and Taiwan are “the line”.
China is leaning further to the left and that’s political. Ukraine and Taiwan are “the line”.
Talking oneself in to a trouble… that’s what West is doing with Taiwan. All the rhetoric doesn’t help. If you are China, the only conclusion you are coming to is, Taiwan is a long-term threat to our security, let us act now, when we can.
The mindless expansion of NATO is making Russia and anyone who is not part of US/ West alliance uncomfortable. It is US/West actions that directly resulted in Ukraine war. You may want to believe Ukraine is the line for West, but Putin made it that Ukraine is the line, hence we have a war on our hand.
US/ West needs to honestly review our actions and the rational.
One can argue, US/ West is leaning hard towards right, Nationalistic. Just saying. There is a logic, and reason for every side, however, you may dislike them.
