Good morning. The United States and the United Kingdom have struck the first trade in the Trump era agreement yesterday. It was disappointing. In exchange for more purchase of American agricultural products and withdraw a price on American ethanol, the United Kingdom will be exempt from metal samples and will benefit from lower prices on (some) cars. Other promises and executives have been arranged, without any delay. Send us an email: Robert.armstrong@ft.com And aiden.reiter@ft.com.
How Berkshire has changed
Earlier this week, we presented A sketch of the success formula of Warren Buffett in Berkshire Hathaway. Buy safe and high quality assets; Found them with low-cost and long-term liabilities, many of which provided by a large sophisticated insurance operation; Use the lever effect but manage it carefully; And respect your strategy for many decades, make sure you a reputation for sterling books that acts as a powerful stabilizer for the company.
I think it is a fair image, although of high level, of Berkshire in the past 40 years or more. But although the model is stable, it is not static. Many things have already been written (part of Buffett itself) on the change in what the type of business has invested that Berkshire has invested-“cigarette butts” undervalued in the first years with high-quality stable franchises at fair prices as Berkshire grew.
But what constitutes a high -quality stable franchise has changed over the years, and Berkshire has managed to change with him, with adjustments and departures. One way to see this is to look at the greatest shares in the company's equity portfolio. Here are the five best holders of 1984, 2004 and 2024:
The staples (General Foods, Gillette, Coca-Cola) and Finance (Geico, Amex, Bank of America) are a continuous theme. But the publication (Washington Post, Time) fell and Tech (Apple) Rose. It is important to note that Berkshire never, that I know, has nailed the time of these transitions. He barely left the edition at the top, entered the technology too late by the admission of Buffett and got back into the food largely (Kraft / Heinz) just as this industry has lost its advantage in the face of the retailers and saw a structural decline in profitability. But the proof of the business model is that It didn't matter, Or did not do the things that end up doing things and continuously strengthening boring, generative insurance and fully belonging industrial segments.
Another point of change: Berkshire seems to have reduced the lever effect he has used in the past 25 years. Here is a coarse measure – net assets in cash divided into common equity:
Similarly, in the past 20 years approximately, cash and short -term treasures in proportion to total assets have increased and have jumped in the past two years:
Crying in cash and assets is widely understood to reflect the fact that short -term treasury bills now offer a real performance, and that there are few big assets in what Buffett and his team consider acceptable prices. They were net sellers of shares, in particular Apple, for several years.
It is interesting to determine if the leaders of Berkshire have decided to disengage the business because their risk appetites have changed – or have decided that, in a more risky world, Berkshire's deleverage is necessary to maintain the stable risk.
Taiwanese dollar, et al
This week has seen a lot of movement in Asian currencies, especially the Taiwanese dollar. He appreciated 6.5% in just two days, his biggest jump for decades. The Korean has won, Indonesian rupee, Thai baht and Singapore dollar also broke out:
This is a consequence of Donald Trump's prices. The appetite of the United States for foreign products lets its business partners rinse with dollars, which they invest in the United States (although the causal management is not always clear; there is something of a problem of “chicken or egg” here). Taiwan, which manages a massive trade deficit with the United States, is invested disproportionately in the United States, compared to the size of its economy; We recommend that you read Alphaville great series On this.
A large part of Taiwan's American assets belong to the island's life insurance companies, which took advantage of the dollar strength and high rates of the federal reserve to make what is equivalent to transport trade: their assets are in the weakest and lowest US and treasury. While Alphaville's documents take place, this business has been subcontracting. Insurers do not have many Taiwanese dollars, and their derived hedges are too small to cover all monetary risks.
This week's Rubs mainly reflected a conduct of these big dollars positions. Life insurers and other investors to a dollar in Asia rushed at local currencies when it started to look like a weakness of the dollar would be there to stay. Speculation has probably also played a role, especially in Taiwan. Investors, aware of the incompatible obligations, are probably piled up in the local currency. They could also have been inspired by rumors according to which the central bank of the Republic of China, the Central Bank of Taiwan – which facilitates the hedges of the money of insurers and would have intervened in the currency in the past – would not intervene to keep the Taiwanese dollar. The bank's management could see a strong currency as a means of softening the Trump administration in commercial negotiations, or thinking that the currency will inevitably be stronger in the new pricing regime, and has not seen any interest in putting myself on its way. The Taiwanese government denied The first, but the second could be at stake.
Things have settled, but most of the currencies ended the week against the dollar. This could be an early sign of a structural change, which could be solidified by commercial transactions. From Daleep Singh, Mondial Economist in Chief at PGIM:
There are many Asian countries. . . who are impatient to conclude trade agreements with the United States. Within the framework of these agreements, there could be greater tolerance for the appreciation of Asian currency (by the central banks of these countries). . . Trade wars are leading to capital wars. Asian currencies could be allowed to assess, while external surpluses in the region are authorized to shrink. This means that the surplus of the American capital account is declining, because there will be fewer foreign investors appear in our cash auctions.
If Asian currencies are appreciated significantly against the dollar, this has great implications. American consumers will be poorer in real terms because imports from silicon fleas to toys become more expensive. Treasury yields, all equal things will be higher. American risks could be cheaper, given a higher discount rate.
However, there are still rear winds behind the dollar. As James Athey notes at Marlborough, other currency risks could be discovered as Asian currencies appreciate it, especially if changes suddenly arrive or stimulate the currency higher than the values that global rate differentials would imply. Companies and central banks could then intervene by buying dollars and treasury bills or by selling interior currencies. In addition, high American rates remain attractive. “The Fed shows that it is not in a hurry to reduce rates … and most other central banks cut,” said Mark Farrington at Farrington Consulting, FX council.
Trump's prices involve less trade and fewer dollars flowing abroad and therefore stronger foreign currencies and less cash purchases. For the moment, the US dollar still has a lot of privileges. But the rotation far from the dollar may only have I just started.
(Reread))
A good reading
No, globalization doesn't hollow of the American middle class.
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