He sold out his airlines. Not a surprise since the Form 4 of him dumping Delta and Southwest Airlines. He’ll be able to apply the capital losses to previous capital gains and do okay. He’s correct in saying that aviation will not be the same as it is today for a long time. Just looking at YVR inbound traffic, it is a dim shadow of its former self – apparently passenger flow is down about 90%. This is going to take a very long time to recover (indeed, if at all). You want to go to another country? Most of them will require you to spend 14 days in a virtual prison – in Canada, you get less of a jail sentence for most petty crimes!
We learn that Berkshire’s still sitting on over $130 billion in cash and equivalents, and there are a few ways to spin this:
1) “He’s holding onto so much cash, so the markets are still expensive!”
2) “He’s holding onto so much cash that will have to find its way into the market!”
3) “Buffett’s totally lost it, he missed out on the investing opportunity of the decade!”
Personally I think he’s at the point where if he isn’t going to be investing $50 to $100 billion into something, why bother? I would think that taking over Boeing would be in his ballpark, especially after his comments on the airlines… I will point out that Boeing’s market cap is $75 billion and needless to say, would be Buffet going out with a huge bang (one would have thought Burlington Northern was the crowning achievement, but I always remember the phrase “Planes, Trains and Automobiles”, and how would you get closer than by buying out Boeing?).
Either that, or he could pay a few bucks and put Bombardier out of its misery!
I think this is the most bearish he’s been in a long time. (1) Bet on America long-term, but make sure you don’t borrow money, have the psychological make-up to withstand big drawdowns, and remember that it took the market 25 years (until 1954) to recover the post-1929 losses, (2) sold the airlines because the industry will have excess capacity as travel will only recover to 70-80% for a while and zero marginal cost dynamics of the sector mean pricing will be challenged, (3) doesn’t see the attractiveness of share repurchases as materially different from prior repurchases done up to 30% higher – implying significant intrinsic value destruction as a result of the virus, (4) allusion to the potential for unintended consequences of Fed intervention (inflation) which would be negative for stocks, (5) wide range of potential exobomic outcomes generally.
I’m a fan of the site. Thanks for all your work!
Or he’s playing the “safety” card with all of his insurance subsidiaries and possibilities for future reserves for losses that may be incoming and wants to get a firmer idea as to what his capital situation is going to be.
The airline dynamic is going to be brutal for anybody involved in the sector, all the way to the contract airline mechanics. The only winners I can see in aviation are those facilitating passenger to cargo conversions (watch out Cargojet!) and runway storage.
Just watch this video and up-front it gives you an idea of the trouble the sector is facing:
https://youtu.be/zIbXai0l174?t=230
These aren’t ancient 727’s parked on the runway either, these were operating 737/767/A320s/etc that are being shoved aside…
Per #1, Prem Watsa said on the Fairfax call on Friday that markets are expensive but stocks are cheap. I think that is the correct way to look at it and my guess is that Buffett would agree.
I suspect that Warren will put some of that cash to productive use in 2020, probably in a grand way. He doesn’t buy markets, he buys companies. Its easy to argue that lots of companies are cheap, even if the markets are not.
Putting Bombardier out of its misery would be nice for investors with positions higher up in the capital stack but I suspect that the expectations of Quebec Inc. would make it unpalatable. As a BBD pref holder, I’d love to see it!
Markets expensive, but stocks cheap, I like that comment.
I don’t think there is a chance in hell of it happening (Bombardier) but Buffett does speak with high praise his fractional business jet ownership, and I do suspect the the growth in aviation, if any, is going to be in exactly the segment that Bombardier is actually still staying in. With commercial general aviation getting kneecapped, I would suspect demand for private will increase somewhat as a result.