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Warren Buffett is more worried than usual
The “Oracle of Omaha” initially exhibited his usual optimism on Saturday during Berkshire Hathaway’s annual meeting, held online for the first time. But, Andrew writes in his latest column, Mr. Buffett appears fairly gloomy if you dig deeper:
It was unsettling on Saturday to hear him repeatedly say “I don’t know.” He was careful to say the markets would improve in the long term — though his time frame for certainty was decades, not months or not even necessarily years from now. About the current climate, he said, “You can bet on America, but you kind of have to be careful about how you bet.”
The clearest sign of hesitation was his closed wallet, Andrew notes. Mr. Buffett didn’t buy up stocks during the recent market plunge, unlike his spending spree amid the carnage of the 2008 financial crisis. Back then, he wrote an op-ed in The New York Times a month after Lehman Brothers filed for bankruptcy: “In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.”
• Mr. Buffett missed his chance to strike the type of high-priced rescue deals like the one he offered to G.E. in 2008, Bloomberg notes, because the Fed quickly stepped in with a slew of bailout programs. Berkshire is now sitting on $137 billion in cash.
Mr. Buffett sold his holdings in the four biggest U.S. airlines, saying that the airline business “changed in a very major way.”
• All told, Berkshire sold $6.5 billion worth of stocks last month, putting most of the money into Treasury bills.
The meeting came after Berkshire reported a $50 billion loss in the first quarter. Mr. Buffett has long argued that swings in value of Berkshire’s investments aren’t a good indicator of the company’s health, but the conglomerate also recorded hits to wholly owned operations like its Burlington Northern railroad and retail businesses.
Mr. Buffett left investors with a sliver of hope: “The American miracle, the American magic has always prevailed and it will do so again,” he said.
Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut and Michael J. de la Merced and Jason Karaian in London.
J. Crew is the first big retailer to fall in the pandemic
The retailer plans to hand over control to creditors, led by the hedge fund Anchorage Capital, by exchanging $1.65 billion in debt. The company will keep Madewell, the denim brand it had once considered spinning off. E-commerce operations will continue to run, and stores will reopen once lockdowns lift.
• J. Crew was already in bad shape, struggling with a heavy debt load and strategic missteps like failing to focus on e-commerce and fashion trends.
It’s the latest sign of trouble for the retail industry. Sales of clothing and accessories in the U.S. fell by more than half in March, and April is expected to be even worse.
Who’s next? Neiman Marcus and J.C. Penney are still in talks with creditors about financial rehab plans, with Chapter 11 considered in both cases. Other retailers like Brooks Brothers have hired advisers to consider their options.
Business bailout roundup
Small businesses are afraid to spend rescue loans. Complicated rules about loan forgiveness and how to avoid potential fraud charges have left companies sitting on the funds.
The biggest recipient of small-business loans is returning the money. Hotel businesses linked to the publicly traded Ashford Inc. will return at least $70 million in loans, citing new government guidelines and the media uproar. Group subsidiaries had applied for $126 million.
More money on the way? Larry Kudlow, the White House economic adviser, said that a third infusion of funds may be needed, since the first $350 billion tranche was quickly used and more than half of the second $310 billion infusion is accounted for. Broadly speaking, discussions for additional stimulus measures are in “kind of a pause period,” he said.
Bailout fatigue is setting in. The former Obama economic adviser Austan Goolsbee writes in The Times’s Opinion section that a lack of transparency risks eroding public support for fiscal stimulus measures. In The Wall Street Journal, the former Fed vice chairman Alan Blinder is worried that “some people in the government and financial markets turn too much to the Fed for solutions.”
As the economic disruption from the coronavirus pushes into a new month, more publicly traded companies are disclosing what it means for their businesses.
After the markets closed on Friday, the industrial giant Ingersoll Rand provided an unusually detailed description of the issues facing the company in an unscheduled regulatory filing. Among other things, it said it planned to delay filing its quarterly earnings report, as allowed under a new S.E.C. rule written in response to the Covid-19 crisis.
Typically, large companies like Ingersoll Rand are required to file detailed quarterly reports with the S.E.C. 40 days after the close of the quarter, which this year would have been May 11. On Friday, it said it would file “no later than” May 19.
A delayed earnings report wasn’t the only reason for the filing. The company also disclosed a new risk factor that ran over 1,000 words, detailing all sorts of issues it is facing as a result of the pandemic. For example, it noted the potential for “decreased worker productivity as a result of remote working arrangements, increased medical, emergency or other leave.” It described daily “fitness for duty” checks of all employees, which include “temperature and symptoms checks and providing personal protective equipment.”
A spokesperson for Ingersoll Rand wasn’t available to comment over the weekend.
It isn’t the only company to talk about the need to monitor employees’ health for signs of fever, one of the common symptoms associated with Covid-19. But only one other company — Vivint Inc. of Provo, Utah — chose to describe this as a “fitness for duty.” More may follow as the crisis continues.
The week ahead
🤝 U.S.-Britain trade talks are to begin tomorrow. Post-Brexit Britain is eager to set a free-trade agreement with the U.S. (the destination for 19 percent of British exports), not least to put pressure on stalled talks with the E.U. (which accounts for 45 percent of exports).
🚗 Carmakers have been hit hard by coronavirus shutdowns: Dealerships are closed, factories are idle and consumers’ wallets are shut. Expect to see more on the damage from Fiat Chrysler tomorrow and General Motors on Wednesday.
📺 Streaming is up, but advertising is down: Disney (tomorrow) and ViacomCBS (Thursday) should explain the effects on their latest earnings.
🎮 Stay-at-home orders give people more time for video games, as reports from Activision Blizzard and Electronic Arts tomorrow and Zynga on Wednesday are expected to show.
💰 KKR reports quarterly earnings on Wednesday, revealing how hard the private equity group’s investments have been hit, and whether the crisis presents opportunities for discounted deals.
📉 Jobs numbers end the week on a grim note. Weekly data on unemployment claims on Thursday — improving, but still terrible — are followed on Friday by monthly employment data. Analysts say the April numbers could show a decline of more than 20 million jobs and an unemployment rate around 16 percent.
🗣 Other noteworthy companies reporting earnings this week include AB InBev, Air France-KLM, Beyond Meat, Bristol-Myers Squibb, InterContinental Hotels, News Corp., Siemens, Total, Tyson Foods and Wendy’s. (As well as The New York Times Company.)
The speed read
• Silver Lake agreed to invest $747 million in Jio, the Indian telecom, weeks after Facebook poured $5.7 billion into the business. (TechCrunch)
• U.S. and European banks are on track to book more than $50 billion in provisions for bad loans. (FT)
• Tesla shares plunged on Friday after the company’s chief, Elon Musk, tweeted that the carmaker’s stock price was “too high.” (CNBC)
• Elliott Management, the activist hedge fund, is reportedly funding a patent lawsuit against Quibi, the new streaming service. (WSJ)
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