Buffett on Banks - Investing in Mortgages “Dumb” Difference between short and long-term thinking. Banks CEOs like most CEOs of publicly traded companies often only think from quarter to quarter. To accept zero yields in 2020 and 2021 as Buffett did would be unacceptable to such CEOs trying to hit quarterly earnings estimates in 2020 and 2021 and collect their sizable bonuses for hitting those quarterly numbers. Ultimately, such short-term thinking is bad for everyone but the CEOs and the analysts setting the earnings targets. Investors suffer as Buffett rightly pointed out. But society suffers as well. Banks go bust, we bail them out, people lose their jobs, etc.
Vanguard’s John Bogle called this the “agency society” in which the agents of investors, i.e., executives are the only ones who benefit. This problem could be alleviated if CEO bonuses and other compensation were shifted from short- term ones to long-term ones based on, say, a company’s three-year or five-year profitability and if analysts and Wall Street in general stopped being so short-term oriented. Raising the taxes on short-term capital gains from 20% to 30% or even 40% and lowering the taxes on long-term gains for stocks held 5 years to 15% or even 10% might “inspire” or incentivize Wall Street analysts, traders and money managers to think differently.
Importantly, most of Buffett’s wealth comes from his long-term ownership of Berkshire stock. His salary is minimal and I don’t think he receives a quarterly bonus.
Buffett on Banks - Investing in Mortgages “Dumb” ”In a recent CNBC interview, Berkshire Hathaway (BRK.A) CEO Warren Buffett criticized banks for investing in mortgage securities at historically low yields, calling them a ‘very dumb holding for banks.’The problem for mortgage securities holders is that effective maturities lengthen when interest rates rise, the opposite of what the banks want. It leaves banks with relatively low yielding portfolios for potentially long periods. BofA's bond holdings yield about 2.6%, which could weigh on its returns, particularly if it has to pay more for deposits. The portfolio has an estimated average life of eight years. Unlike the banks, Berkshire chose to invest its cash of over $100 billion largely in short-term U.S. Treasury bills. It accepted rates near zero in 2020 and 2021 but is now getting 5% on its holdings. If Bank of America had taken more of a Berkshire-type approach, it now could be earning twice the current rate. Berkshire is Bank of America's largest investor, with a roughly 13% stake—some one billion shares. It's notable that Buffett has decided against putting new money into Bank of America this year even after the stock's weakness.”
Excerpted from Barron’s April 24, 2023 (Print)
Article: “Bank of America’s $99 Billion Bond Problem” - Andrew Bary
New CBOE VIX1D Index
E.P.A. to Propose First Controls on Greenhouse Gases From Power Plants
Bloomberg Wall Street Week
Gold Stolen at Toronto Airport @hank - good one!
@msf - Yup, mass distribution messes with one's perception.
STUDY
E.P.A. to Propose First Controls on Greenhouse Gases From Power Plants Interesting to see how XLU and utility stocks perform on Monday:
https://nytimes.com/2023/04/22/climate/epa-power-plants-pollution.htmlIf the stocks rise or do nothing, it means Wall Street thinks the regs will never pass. The regs are bad news for the stocks, but good news for the planet. Such regs are long overdue. An excerpt:
WASHINGTON — President Biden’s administration is poised to announce limits on greenhouse gas emissions from power plants that could compel them to capture the pollution from their smokestacks, technology now used by fewer than 20 of the nation’s 3,400 coal and gas-fired plants, according to three people who were briefed on the rule.
If implemented, the proposed regulation would be the first time the federal government has restricted carbon dioxide emissions from existing power plants, which generate about 25 percent of the planet-warming pollution produced by the United States. It would also apply to future plants.
Almost all coal and gas-fired power plants would have to cut or capture nearly all of their carbon dioxide emissions by 2040, according to the people familiar with the regulation, who asked not to be identified because the rule has not been made public.
The proposed rule is sure to face opposition from the fossil fuel industry, power plant operators and their allies in Congress. It is likely to draw an immediate legal challenge from a group of Republican attorneys general that has already sued the Biden administration to stop other climate policies. A future administration could also weaken the regulation.
Debt ceiling jitters lift US credit default swaps to highest since 2011 @lewisBrahamYou are correct, but when only
50% of eligible voters actually vote, a minority can control a lot of stuff.
