Friday Feb 21 2020
Markets Marking Time For Now
It shows he’s (Buffett) certainly willing to swing at a fat pitch when it comes across the plate
Thomas Russo, holder of Berkshire shares
Well Thomas, I would say it shows that even Warren Buffett has succumbed to expansive social mood at what is surely a broadening top of the stock market.
Buffett spent $36 billion upping its Apple stake according to its 2018 report. My point is that there are lots of contrarian plays going on, the exact opposite of how the same players began in the bull market of the 1980s.
Back then, Buffett turned Bill Gates down on an offer to buy Microsoft shares. Warren said he didn’t ‘understand’ the company. Granted, Apple is a computer/phone maker while MSFT is a software firm. But back then, Warren was buying Coke and later Dairy Queen, as well as his favored re-insurance shares. All are, well, easy to understand. Berkshire shares have underperformed the S & P 500 while Apple has tripled the S& P 2019 returns. It looks like Warren is playing catch-up.
Expansive social mood results in new market highs, and an urge to for an ‘inclusive let’s get together feeling. BRK buys Apple, Schwab spends $%26 billion oi TD Ameritrade and now, Morgan Stanley sped $13 B to buy E Trade.
This is the biggest deal, granted in stock, since the 2008 financial crisis. Of course it is as DJIA 29,000 is the biggest market plateau since then as well. Morgan Stanley CEO Gorman declares he is ready to take on Schwab and Fidelity. So Wall Street Wealth Manager Morgan wants to be Wal-Mart to eight million E Traders. A the market bottom of 1974, Merrill acquired White Weld and Shearson did the same with Loeb Rhoads, both on the cheap. At this market top, firms are paying big bucks for competitors, the exact opposite of when the DJIA was 577!
Meanwhile Victoria Secret has been sold at a one billion valuation, a fraction of what Lululemon went for with half the sales. The news article states Victoria Secret has ‘lost its way.’ We would argue the opposite, social mood towards racy lingerie has changed as the stock market has matured. In the1980s Victoria Secret was all the rage with gaga models gracing runway stages. Of course, expansive mood brings on that ‘Let’s Misbehave’ social attitude. Bear market attitudes are not so frisky. Are we seeing the first shot across the bull bow, remember there is always a mix of moods as markets slowly reverse.
Crude oil prices have managed a weak rebound after falling over ten dollars. This is in spite of a strong dollar. That strong dollar has weakened emerging markets and resulted in more narrow breadth in US Markets. Look for a needed pullback in stock prices and lower oil prices over the next month.
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