“All flowers in full blossom make a beautiful spring.”
-- Chinese Proverb
Chinese President Xi remarked at the opening of the China International Import Expo.
As I watched Chinese President Xi’s speech at the China International Import Expo, he has used the words open and openness countless times, stressing globalization can't be reversed and noting that the law of the jungle where the winner takes all only represents a dead end. Xi presented himself as a defender of globalism. He stressed the history of openness and cooperation as a major dynamic, and essential for human progress. He talked about sharing the fruit of innovation. Interestingly, President Xi also derided protectionism, and the challenge it poses to globalism.
Xi promoted the notion of a China that will be fair, reasonable,and transparent.
1. Lower tariffs & customs along with import taxes
2. Increase in imports by increasing incomes and spending = $30T (the next 15 years)
3. Respect foreign-related laws put in a system of punitive compensation system to curb Intellectual Property (IP) theft
4. Free trade ports with distinct Chinese features
5. Promote international cooperation
During the speech, Xi has mentioned greater access to several sectors:
• Financial Services
• Medical Sector Opportunities
There was a lot of talk about the ambitious Belt & Road program, which has had a spate of bad news and even rejection of billions of dollars from previous partners. There are some good headlines ahead of the big meeting with President Trump at the G20 summit.
Berkshire Hathaway (BRK.B) posted its financial results, which were very impressive. The company is a cash machine, but one narrative from the third-quarter is Warren Buffett can’t find anything to do with the cash.
Consequentially, this has been the first share buyback since 2012. The $928 million isn’t a lot of money, considering the company finished the quarter with a $103 billion cash pile, but it does follow the announcement of looser internal rules governing buying back its own shares.
Operating profits climbed to $6.88 billion from $3.44 billion a year earlier, above consensus of $6.11 billion. One key focus is pricing power in rails as a consequence of a tight truck market.
Berkshire Revenue Trends
Berkshire Margin Trends
Buybacks to Rescue
Buffett may have had problems finding cheap stocks, but that was before the October swoon. Meanwhile, the buyback underscores that there will probably be an avalanche of buybacks as earnings season winds down.
Buybacks have long been controversial, but they are a market savior now.
According to Goldman Sachs (GS), there was a monumental surge in buybacks now on pace for $1,000,000,000,000, but corporations did other things with their newfound wealth:
• Capital Expenditures: +55b to $341 billion, or 19% and a 25-year high
• Research & Development (R&D): Is at $147 billion +14%
The third-quarter Gross Domestic Product (GDP) saw a dearth of business investments, but I think that was a temporary pause along with improvements in revisions.
Not All Jobs Created Equal
I looked at the last four October employment reports to underscore why the most recent report, while higher in total, is far better than the prior two. This is critical to know as an investor (and as a voter).
The economy was limping badly in 2016 with the last two-quarters of the GDP barely above 1% with employment floundering.
Blue-collar workers, especially had it bad as goods-producing jobs (mining, construction, and manufacturing) were non-existent in October, tallying up to a net of zero gains. Move to October 2018, and goods-producing jobs increased by 67,000.
It’s clear there is a shift from lower-paying retail and leisure into much higher-paying warehouse jobs for lesser-skilled workers and goods-producing for others. This trend is huge, and it is why wages surged 3.1% from a year ago – the largest gain in a decade.
October Job Trends
October Weekly Wage Trends
Once again, investors must understand what’s happening from doing the work themselves because media bias will not acknowledge how great things are going in America. I’m not talking about blades of grass that are the imagery of “green shoots,” but giant Sequoias growing to the skies, not knowing there are any limits.
If you want to make money as a long-term investor, you are going to have to filter the noise.
All Hands-On Deck
I would like to add one more note about the employment report. I happen to think that the employment-to-population ratio is a more important metric than the unemployment rate that improves as people drop out of the labor force.
Last month, the employment-to-population ratio got back to where it was in January 2009, up to a percentage point since January 2016.
Check out what’s happening to Black and Hispanic Americans, however.
The surge in the employment-to-population ratio has improved much faster than the general rate of change. What is even more improbable is the fact both categories have surged faster in less than two years than the previous eight years.
This is something all Americans should salute. The same economic "tide lifts all boats."
Employment – Population Ratio
Portfolio Balance Changes
20 equally-weighted positions
The futures have been slipping and the major indices will be flat to slightly in the red, with Nasdaq looking to the laggard. Apple (AAPL) will continue its downward streak after its earnings report from Thursday.
After being hit, WTI crude is in the green this morning, up .5% to $63.50 per barrel. The U.S. has put the sanctions back on Iran’s energy sector.
The U.S. benchmark 10-year Treasury is pulling back a bit today after last week’s run, and it is down 2 basis points to 3.19%.