Hot Takes From The Oracle

Plus: Whistleblowing remains a growth industry. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 8, 2023

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TOGETHER WITH

Good morning and happy Monday.

It’s May, which means it’s officially summer in Hollywood. Disney rang in the blockbuster season with the release of Guardians of the Galaxy Vol. 3, the latest outing from its incredibly successful (though struggling of late) Marvel Studios. The flick debuted to $114 million in domestic box office receipts, a smash hit by any post-pandemic metric though just shy of most analysts’ expectations. Like the series’ scrappy band of heroes who can’t stop singing Blue Swede’s 1974 pop-rock earworm, movie-going audiences are still hooked on a feeling. Mostly.

Morning Brief

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Berkshire Hathaway finally feels the economic slowdown.

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A whistleblower scores big.

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China isn’t exactly post-pandemic, yet.

Corporate

What’s Eating Warren Buffett?

(Photo Credit: Serba Sembilan/Flickr)

It takes quite a bit to put Warren Buffett in a bad mood.

Everything from a lackluster market, to tense international relations, to the potential robot uprising was on the agenda for Buffett and his right-hand man Charlie Munger at the annual Berkshire Hathaway shareholders meeting this past weekend. Nothing a Cherry Coke and a game of bridge can’t fix though, right?

All is Well-ish

Firstly, don’t worry about Buffett. Berkshire is still worth a flush $700 billion after posting a $35.5 billion profit in the first quarter, but it’s getting a little bit harder for Buffett and company to decide exactly where to put their billions to work in a market that has grown less and less appealing.

In Q1, the conglomerate sold $13.3 billion worth of shares and invested just $2.9 billion. Another $4.4 billion went toward buybacks. Last month, Munger told the Financial Times that investors should have low expectations for stock market returns as the Federal Reserve raises interest rates and the economy slows.

Buffett is still confident Berkshire will navigate any lengthy economic slowdown or recession just fine, but he does expect declining earnings at some of its portfolio companies this year. “It isn’t that employment has fallen off a cliff or anything, but it is a different climate than it was six months ago,” he said. “A number of our managers were surprised. Some had too much inventory on order.”

Though hardly doomsayers, Buffett and Munger had some choice words for the global economy during the meeting as well:

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The China-United States trade war has intensified in the past year as the nations decouple from one another while pumping hundreds of billions of dollars into funding green tech and semiconductor chip production. Munger had three simple words for the situation: “stupid, stupid, stupid.” Buffett agreed and said both countries “have to get along with each other.”

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Industry leaders boast that artificial intelligence can do, well, pretty much anything you tell it to, and that doesn’t sit right with Buffett, who compared the superfast tech to nuclear weapons. “It was enormously important that we (built the atom bomb),” he said. “But is it good for the next 200 years of the world that the ability to do so has been unleashed?” Christopher Nolan might just have his next project after Oppenheimer releases in July.

Bank Shot: Like many Americans, Buffett is worried about the state of banks, but he doesn’t blame the banks themselves. He helped bail out Goldman Sachs and Bank of America during the Great Recession, and he invested in Wells Fargo throughout its scandals involving overcharging clients billions of dollars. Buffett is a big supporter of the banking industry but believes politicians, regulators, and the media have created an environment of fear around the failures of Signature, First Republic, and Silicon Valley Bank. “Fear is contagious,” he said, adding that “you can’t run an economy” when people worry if their money is safe in banks. The only thing to fear, it seems, is the angst of uninsured depositors.

– Griffin Kelly

Watchdogs

SEC Awards Largest Ever Whistleblower Payout

That must have been some tip.

The SEC set a new record late last week when it issued nearly $279 million to a corporate whistleblower. It’s a massive payout for a program that was nearly scuttled just a short time ago — and that research suggests has ethical issues of its own.

Whistleblow Up

For obvious reasons, the SEC closely guards the identities of tipsters. That means there’s no knowing who scored the big award, or even which companies and/or corporations were embroiled in a scheme. But here’s what we do know: the scope of the uncovered fraud must have been fairly massive, given that the SEC grants whistleblowers awards of 10% to 30% on collected fines for anything over $1 million. The payout more than doubled the agency’s standing record — a $114 million prize issued in October 2020.

It’s the latest uptick in a now-yearslong trend of whistleblower payout inflation:

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While the program began in 2010, all of the 10 largest payouts to date have come since 2018, according to Zuckerman Law, which specializes in whistleblowing protection and law. In fiscal year 2021, the SEC awarded a record $564 million to 108 whistleblowers.

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Last August, the SEC overturned a series of rules put in place in 2020 that limited the amount whistleblowers could receive. Under those short-lived curbs, the SEC could limit the size of awards if tips led to actions by other agencies.

Proponents of strong whistleblower laws say a return to large payouts can be key to snuffing out corporate crime. “This award will have a massive chilling effect on Wall Street frauds,” Stephen M. Kohn, a whistleblower attorney unconnected to this case, told The Wall Street Journal.

Blowing the Whistleblower Whistle: Still, Whistleblower Inc. is apparently a thing. A study published a year ago in the Yale Journal on Regulation by University of Kansas School of Law professor Alexander Platt found there may be something of a burgeoning whistleblower industrial complex. “Tipsters represented by lawyers significantly outperform unrepresented ones, repeat-player lawyers outperform first-timers, and lawyers who used to work at the SEC outperform just about everybody,” the study found. Sounds like somebody needs to blow a whistle.

– Brian Boyle

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International

A Reopening China is More Bust Than Blockbuster

Hey China, wake-up sleepyhead!

Western companies were no doubt licking their lips as Beijing began to drop its stringent zero-covid policies late last year. But five months into 2023, and it’s clear the post-pandemic era’s sleeping giant is still hitting the snooze button.

The Silk-Pajama Road

The prospect of 1.4 billion consumers returning to the economy en masse was quite tantalizing. But the reality proved much different. The WHO only just declared that covid-19 is no longer a global emergency last Friday, after all. In China, the end of zero-covid policies has spurred, at least initially, lots of covid cases. As the arguably draconian policies sunsetted last December, the country saw a massive spike in cases, headlined by 41 million new cases the week of December 19.

And with a covid surge comes a subsequent economic hangover — labor shortages, inconsistent business hours, and anxious consumers. The proof? Just look at Western companies’ most recent earnings reports, especially those in covid-sensitive sectors:

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Starbucks said economic growth in China had started to slow, especially with regard to international travel. Finnair dittoed that notion, adding the nation’s recovery has proven “slower than many anticipated,” while Hilton said “China won’t contribute” what the company had hoped.

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Meanwhile, when Estée Lauder said last week that the market’s economic recovery has been more gradual than expected, investors reacted by delivering the company’s largest-ever single-day share price plummet.

False Equivalence: “There is a problem with people thinking the pullback of Covid-zero measures is equivalent to the economy reopening, which it is not,” Leland Miller, CEO of research firm China Beige Book, told The Wall Street Journal in December. Half a year later, that still holds true.

– Brian Boyle

Extra Upside

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BanTok: TikTok influencers look to Instagram and YouTube for new business as possible US ban looms.

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If you charge it, they will come: Live Nation sees massive revenue jump despite ticket fiascos.

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