Author: John Ingram

Hi,

Attached is Mike Arone’s latest Uncommon Sense, which discusses the likelihood of rising corporate taxes in the US.  Over the past 5 years, all the margin improvement in the S&P500 is attributable to lower taxes, which has undoubtedly provided a boost to earnings and prices.  These trends will be important to watch and is part of our rationale for peak margins in the US.

Thanks,

John

 

John R. Ingram CFA

Chief Investment Officer

Partner

 

Direct: 617.226.0021

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

 

On 5/2, Berkshire Hathaway reported Q1 earnings and held its annual shareholder meeting.  Key takeaways are as follows:

·         Berkshire is a collection of best-in-class businesses with an extremely conservative financial position – $137b in cash represents over $55 per share.

·         No major capital allocation changes.  Through this downturn, Berkshire has not made any meaningful acquisitions despite the large cash balance and the economic slowdown.  Their largest actions was to completely sell all their airline holdings.

·         BRK/B is selling at a 34% discount.  After some underperformance relative to the market, Berkshire is selling at a 34% discount to intrinsic value and below the value at which Buffett has stated he would buy shares.

Continue reading “Berkshire Hathaway – Q1 update”

On 4/21, Travelers reported a solid Q1 EPS of $2.62, slightly lower than estimates due to higher than expected catastrophe losses.  Travelers took an $86m pretax charge for Covid-19 which was a $0.27 drag on EPS.  While some operations are seeing modest effect from the shutdowns, the full effect is still unknown.  Balance sheet remains strong and Travelers continues to buy shares and raised its dividend.

Continue reading “Travelers (TRV) Q1 results”

Last week, Schwab hosted their Spring Update to discuss reported Q4 earnings of $.62.  Despite interest rate headwinds, asset growth was solid with healthy core asset growth of $73b (+7%).  Deposits grew sharply +$58.7b up 21% as investors sold stocks and increased cash.  Deposit levels grew mostly towards the end of the quarter and will support earnings moving forward.  Valuation remains attractive.

Continue reading “Schwab (SCHW) Q1 results”

It seems economists are waiting for the data to confirm a slowdown and reluctant to state what seems inevitable given the growing response to the continued spread of the coronavirus.

 

Prior to the onset of the coronavirus, 2020 GDP growth expectation were in the range of 1.5%-2.5% based on long term demographic drivers and growth in US productivity.  From quarter to quarter this target varies based on trade policies, Federal Reserve actions, government stimuli and extraneous items like the Boeing’s production issues with the Max 737.  Our concern for the economy is the lower the trend line growth, the more easily it can get tipped into a recession.  The expected coronavirus related shutdowns in the US have significantly increased the probability of a recession.  Safe to say we are on recession watch. 

Continue reading “He-Who-Must-Not-Be-Named (Recession) watch”

 

Schwab is selling down today (3/3/20) with the Fed’s surprise cut in interest rates.  Majority of SCHB’s income comes from investing customers deposits, so falling interest rates will over time compress net interest margins (NIM).  YTD, the finance sector is the third worst performing sector down -9.26%  (behind energy -21.7% and materials -10.47).  With today’s decline SCHW is down -11.4% YTD, so it is not an outlier.  There is no other news on Bloomberg outside of heavy volume on stocks and options.  As a point of reference BAC is down -5.5% today and down -16.6% YTD. 

 

As investors sell stocks and raise cash balances, the higher deposits will help Schwab offset NIM declines.  Also, it takes time as in several quarters for the NIM for SCHW and most banks to decline meaningfully.

 

Please let me know if you have any questions.

 

Thanks,

John

 

 

 

John R. Ingram CFA

Chief Investment Officer

Partner

 

Direct: 617.226.0021

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com