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Warren Buffett

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By Michael E. Russell

Michael E. Russell

After many years running the most politically active financial empire, Socialist George Soros is passing the baton of his $27 billion Open Society Foundation to his son, Alex.  

Those of us who cringed at many of George Soros’s comments and investment strategies longed for the day when he would retire. Unfortunately, the elder Soros who contributed unabashedly in excess of $1.5 billion to extreme causes has picked the second youngest of his five children to be the Foundation Chair. Alex will also serve as President of the Soros super PAC and is the only family member on the investment committee for Soros Fund Management, a private investment management firm.  

The younger Soros will now oversee a philanthropic empire, funded from the many billions that George Soros made from finance.  I am sure that many readers are impressed by his financial acumen. However, those of us who worked in the field remember that in 1992 Soros shorted the British Pound and reportedly made a profit of $1 billion dollars.  Unfortunately, he almost broke the Bank of England! A hero to some, certainly not me. I will leave it to the readers to do their own research on the Soros empire. Just trying to get you motivated to see how some people get filthy rich.  

Allow me to mention an investment icon to look up to, Warren Buffett. At 92 years of age, he appears to be as sharp and engaged as ever. Mr. Buffett has been extremely active in the stock market this year, as well as last year, highlighted by the purchase of 25% of Occidental Petroleum. He probably read my article last month about how I felt the Japanese market was undervalued because he now has holdings in five Japanese trading companies worth $20 billion dollars. Once again, another reason to subscribe to TBR News Media. I believe he has done very well on his own without my advice. Buffett’s Apple purchase is now worth more than $165 billion dollars, quite a bit more than the $30 billion he invested. 

In 1965, Warren Buffett took over Berkshire Hathaway. Due to his efforts over the past 58 years, the fund generates $35 billion dollars in annual earnings power. A $20 dollar investment in 1965 is now worth more than $500,000, an incredible $25,000-fold increase. No wonder he calls Berkshire Hathaway his Mona Lisa.

Another financial icon who I admire is Jamie Dimon, the CEO of JP Morgan Chase.  Jamie has few peers in his field. His advice is sought by many world leaders when he travels abroad. JP Morgan Chase is now the country’s top bank, putting distance between itself and Bank of America, the bank that loves charging client fees. 

Jamie has proven to be an exceptional CEO. The bank had a very strong 2022 when it had the highest return on tangible equity among its peers. Dimon avoided huge losses experienced by Bank of America by not investing assets in bonds at historically low rates in 2020 and 2021. JP Morgan stock returned 30% last year, tops among its rivals. Jamie Dimon was the leading advisor to Federal Chair Jerome Powell and Treasury Secretary Janet Yellen. I would have preferred that they had listened to him more often. Hopefully, now they have him on speed dial.

As far as the market — we can look for further rate increases due to continued inflation concerns. For those of us looking for safety, a 5% 2-year Treasury bill looks attractive. My favorite stock, Nvidia, has paused recently closing at $422, up a mere 195% year to date. 

For those of you Crypto folks, Tether’s stablecoin will rake in $6 billion dollars of profits this year. Tether Holdings is the issuer of the largest stable coin which are like crypto cash. Typically, they hold a $1 price backed 1/1 in reserves.  It now has $83 billion dollars in deposits.  With rates increasing, Bitcoin and most of crypto have dropped in value, while Tether has become the world’s most profitable digital asset. It has kept most of its assets in U.S. treasury bills; a 5% return on $83 billion dollars is not chump change.

I hope most readers realize that some things that I write are meant to be tongue in cheek, however not all! Have a wonderful July 4th and God Bless America.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael E. Russell

Michael E. Russell

My wife Barbara and I were lucky enough to spend the past week in Vermont. A respite like this gives one the chance to see what is occurring in the economy from a different perspective.

Sitting on the front porch in the morning I watched truckers hauling lumber and building supplies up and down the road. I decided to check out the nearby diner to hear what the local populace had to say. It sure sounded familiar: prices on the rise, shortage of employees and a real concern as to the direction the country was headed.

However, restaurants were full, many of whom were New Yorkers! Other tourists were taking in the beauty of southern Vermont.  So where are we?

The Federal Reserve is expected to raise short-term interest rates by three quarters of a percentage point later this month. This will lift the benchmark rate to approximately 2.5%. The probability of another one percentage point rate by the year’s end will hopefully cool down inflation which is approaching 9%.

The market has looked favorably on the current moves by the Federal Reserve that were done over the past two weeks. In the short-term there have been some widespread commodity-price declines and other signs of inflation slowing.

The bond market has responded in a positive way. The yield on the ten-year treasury has decreased by one quarter of a percentage point. It currently is at 3.1%, down from 3.1 in early June. This includes a 2% increase in the past week alone!

The S&P is currently projecting earnings for 2023 at under 16x earnings. The 2022 earnings is close to the same number. What this says is that the current 2022 projection on the earnings yield which equates to profits divided by the current index level is close to 6%, twice the ten-year treasury yield!

Looking at other indices is showing that that there may be opportunities in area other than the S&P 500, which most investors follow.

The S&P small cap 600 is currently priced at less than 12x estimated 2022 operating earnings. This a number that hasn’t been seen in a long time. This index and corresponding exchange traded funds may provide for portfolio growth.

As I have mentioned in past articles, the money center banks have provided dividend yields ins excess of 3%. These dividend yields have given support to their stock prices.  Bank of America, Goldman Sachs trade at near book value. Citigroup, which has improved its balance sheet by controlling expenses and increasing its net interest income, is trading at half its book value.

Even though short-term earnings are not looking robust due to a drop in mortgage origination fees and weaker investment banking opportunities, all dividends appear secure.

What is Warren Buffett up to? This week he added to holdings in Occidental Petroleum through Berkshire Hathaway. He now owns close to 20% of the company in a stake worth more than $20 billion.

By the way, Berkshire Hathaway is holding close to $100 billion in cash and cash derivates I expect Buffett to put several billion into picking up value stocks.  As an aside, the $100 billion in cash will give Buffett a profit in excess of $5 billion annually. NICE!!!

In summary, where are we? Not exactly sure. West Texas Crude Oil has dropped to $98 a barrel, some “experts” are projecting a drop to $65. We can only hope! Mortgage rates have dropped to 5.3% and the June jobs number beat expectations.

Boris Johnson is gone, Elon Musk says no to Twitter, Janet Yellen threatens China with sanctions, China threatens Taiwan, etc, etc. Now Monkey Pox!!! Can we just catch a break and enjoy the rest of the summer? Sure hope so. Until next time.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor.