Financial News Digest May 12 2023: Key Takeaways From Berkshire Hathaway Shareholder Meeting

Financial News Digest May 12 2023: Key Takeaways From Berkshire Hathaway Shareholder Meeting

This week’s financial news digest covers a few pieces of news in the financial market, such as the current state of US CPI data, insights from the Berkshire Hathaway shareholder meeting, the US labor market, and Elon Musk’s announcement of Twitter’s new CEO.

Key takeaways from the Berkshire Hathaway shareholder meeting

Warren Buffett, the CEO of Berkshire Hathaway, recently hosted the annual shareholder meeting with Charlie Munger in Omaha, Nebraska, in the US. They talked about many topics during the 6-hour meeting, including Apple (AAPL), Artificial intelligence (AI), Taiwan Semiconductor (TSMC), investing in China, the banking crisis, their stake in Activision Blizzard (ATVI), and Elon Musk’s objectives.

The banking crisis: How did Buffett think?

Higher interest rates have rocked the banking industry, leaving banks unprepared for a sudden reduction in the value of their interest rate-sensitive assets, resulting in the failure of a few regional banks, including SVB Financial Group (SIVB.O) and First Republic Bank (FRCB).

Buffett is concerned about the growing frequency of bank runs. He continued, however, to suggest that such anxiety is unjustified, and he commended the government’s assistance in recent bank collapses, claiming that it prevented an even worse disaster.

As of the end of 2022, Buffett’s investments included:

  • a 13% stake in Bank of America (BAC),
  • a 3.2% stake in Bank of New York Mellon (BK),
  • a 2.8% stake in Citigroup (C), and
  • a 0.5% stake in US Bancorp (USB).

Inflation and the US dollar

Buffett praised Federal Reserve Chairman Jerome Powell, saying that he well understands the current economic situation. He did, however, voice concern about the Fed’s policy constraints. He was particularly concerned about the Fed’s money printing and the possibility of excessive inflation eroding people’s trust in the US dollar.

Buffett also stated that we are not as adept at managing inflation expectations as we once were, which might lead to a self-fulfilling prophecy.

Buffett’s thoughts on the replacement of the US dollar as the global reserve currency

Despite his apprehension about future purchasing power, Buffett dismissed the notion that the US dollar is at risk of losing its status as a global reserve currency. He highlighted that he sees no other currency as a suitable replacement for the US dollar as the world’s reserve currency.

The US debt ceiling

Congress and the White House are rapidly approaching the June 1st deadline for raising the limit on the amount that the US Treasury can borrow.

Buffett also addressed the debt ceiling briefly, stating that he could not imagine the US government permitting “the debt ceiling to cause the world to go into turmoil.” That means he believes the US debt crisis will be resolved shortly.

Why did Buffett sell Taiwan Semiconductor?

In February, Berkshire Hathaway (BRKA) stated that it had sold 86% of its shares in TSMC, acquired for US$4.1 billion just months before. Buffett justified his decision to sell Taiwan Semiconductor because of its position and anticipated geopolitical events in the surrounding area, implying tensions between China and Taiwan. He went on to say that deploying capital in Japan would be a better alternative.

How does Buffett think about AI?

What about the hot topic of artificial intelligence? What did they have to say about it? First and foremost, Charlie Munger is skeptical of some of the hype surrounding artificial intelligence. He believes that “traditional intelligence works perfectly well,” and he has indicated no interest in the development of artificial intelligence.

While Buffett is concerned about the long-term impacts of AI because we won’t be able to uninvent it once it can do everything, he compares the development of AI to the invention of the atomic bomb during World War II, which had a long-term impact on the globe for the next 200 years.

At last, “AI will not replace human genes,” he says emphatically. This could indicate a lack of interest in using artificial intelligence in the company’s operations.

The US CPI data was lower than expected

The US consumer price index, which measures the general price of a wide range of goods and services, went up 0.4% for the month, matching the Dow Jones projection. This means that the price index has gone up by 4.9% over a year, somewhat less than the expected 5% and the slowest increase since April 2021.

Although the CPI reading has decreased considerably since peaking at 9% in June 2022, inflation is still well above the Fed’s 2% annual target.

What does it mean when the US CPI is lower than expected?

The falling CPI implies that the Fed’s efforts to control inflation are working, although at a slower pace than they would like. And the market reacted favorably to the news. Following the release of the data, traders cut the odds of the Fed raising interest rates at its June meeting to less than 10%, according to the CME Group’s FedWatch tracker. That implies they believe the Fed is unlikely to raise interest rates in June, which is good news for the ailing banking industry.

The US labor market has shown cracks—US jobless claims climbed to the highest level since 2021

According to Bloomberg, US jobless claims increased to their highest level since October 2021, at 264,000. This increase in jobless claims may indicate potential cracks in the labor market’s resilience.

Economists believe that if jobless claims are between 270,000-300,000, the job market is deteriorating. The number of unemployment claims has recently increased and may continue to do so as a result of the Fed’s rate hikes, and companies are beginning to lay off workers in industries other than technology and housing because they anticipate lower demand.

Elon Musk says he has chosen a new Twitter CEO and will step down within weeks

Elon Musk said on Thursday that he had chosen a new CEO for Twitter and would step down in roughly six weeks. Musk, who oversees Tesla and SpaceX, did not reveal the identity of the new CEO. However, Linda Yaccarino, the head of advertising at NBC Universal, is rumored to be in the running for the role.

Musk announced that he will become executive chairman and chief technology officer, with a focus on “overseeing products.” Musk made the statement many months after saying he would leave Twitter as soon as he found someone “foolish enough to take the job” in December.

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