Millennial Money Trap

Plus: Warren Buffett loves buybacks, and you’re dumb to question him ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

February 27, 2023

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TOGETHER WITH

Good morning and happy Monday.

Here’s two nouns that rarely go together: “Los Angeles” and “blizzard.” This weekend, the typically sunny Southern California city and its surrounding sprawl witnessed its first major winter storm since 1989. It’s like the City of Snow Angels over there. Up to 8 feet of snow capped the San Gabriel Mountains just northwest of Hollywood, while the city faced up to 15 inches of heavy rain. That may not sound too bad to denizens of the midwest or northeast or anywhere else that experiences four full seasons… but just imagine you’ve never seen snow before… and that you drive a Prius.

Morning Brief

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How China got its groove back.

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We need to talk about 30-somethings.

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Buffett’s keeping busy with buybacks.

Corporate News

American Businesses are So Happy China is Back Open

(Photo Credit: Markus Winkler/Unsplash)

In Chinese astrology, rabbits are the luckiest of the 12 animals, and corporate America is hoping that with any luck a Chinese economic rebound in the Year of the Rabbit can help them withstand a potential slump at home.

US businesses, mostly consumer-facing ones, are getting even more bullish on China now that its “zero COVID” policy is a thing of the past, The Wall Street Journal reported Sunday.

West Goes East

Political and economic tensions between Washington DC and Beijing are high. China is standing strong in its support for Vladamir Putin’s invasion of Ukraine, and is even considering shipping lethal weapons: America doesn’t like that. The US is ramping up its microchip and electric vehicle production to compete with the Middle Kingdom: China doesn’t like that. Both nations have begun to blacklist a handful of each other’s respective companies. We haven’t even mentioned balloons. Corporate America, however, does what it wants unless Washington tells it not to.

For roughly three years, China maintained its draconian zero COVID policy. Whereas most countries took a “let’s learn to live with it” approach, China pushed on, closing down air travel, enforcing strict lockdowns, and hosting one of the most frustrating winter Olympics in history. But the economy started to tank and protests filled the streets, so at the end of 2022, China ditched the safety measures and essentially reopened the world’s second-largest consumer market.

US companies that continued to invest in China throughout the pandemic despite losses now see a reward on the horizon:

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Last year, McDonald’s opened 700 stores in China, and plans to open another 900 in 2023. Starbucks intends to get 3,000 new locations up and running by 2025. Both companies saw dips in year-over-year sales in 2022, which they attributed to COVID lockdown restrictions.

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Retailer Tapestry has $325 million set aside for capital and software spending, and roughly half will go to new stores and renovations in China, the WSJ reported. At the start of the month, CEO Joanne Crevoisera said China is fertile ground for long-term investments.

Disney is also having a field day now that China has lifted its three-year ban on Marvel films. While Chinese regulators never explained why the movies were prohibited in the first place, there were multiple theories: the ongoing trade war with the US, the presence of LGBTQ+ characters, and Eternals director and Chinese native Chloé Zhao criticizing the nation.

Russian Expansion: Meanwhile in Russia, Corporate China is making headway. With plenty of international companies scaling back or completely leaving Russia, China is filling in some of the gaps, CNN reported. The iPhone and Galaxy have been replaced by the Xiaomi and Realme. Forget Hyundai and Kia. Now the Russian auto market is all about Chery and Great Wall.

–Griffin Kelly

Personal Finances

America’s 30-Year-Olds Are Facing a Mountain of Debt

As the old saw goes, your twenties are for learning and your thirties are for earning.

Today, America’s 30-somethings are learning what it means for earning when you pile on debt. Since the pandemic, no other age group in the country has racked up debt at a faster pace than those aged 30 to 39, according to the Federal Reserve Bank of New York. Blame student loans, inflation, childcare, the housing market, and… the 30-something-year-olds in your life have probably already given you the whole spiel.

Millennial Mayhem

They may whine a lot, but the 30-somethings who make up the bulk of the millennial cohort have been dealt a pretty bad hand. Their working lives began in earnest right around the financial crisis of 2008. The pandemic arrived right when many began to turn a corner in their careers — and when the pitter-patter of tiny feet arrived. Then came rapid inflation that appeared almost designed to hurt approaching-middle-agers.

Between January 2020 and January 2023, the median price of an existing home spiked by $90,000 to $359,000, with prices in lower-cost “starter home” neighborhoods increasing the most dramatically, according to recent analysis by The Wall Street Journal. A survey last summer from child care hiring site Care.com found over half of parents with children younger than 15 spent at least 20% of household income on child care. Only around 30% of parents said the same in 2019.

The cost of living crunch has millennials struggling to stay afloat:

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Millennial borrowers’ average credit card balances jumped 26% from three years ago to $6,750 as of this January, according to credit score provider VantageScore Solutions. Gen X’s balances have barely changed, while Boomer’s increased roughly 15%.

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In all, Americans in their 30s saw their total balances hit over $3.8 trillion in Q4 2022, according to the New York Fed, up 27% from late 2019 and more than any other age cohort. Unlike older borrowers, TransUnion says, more millennials are behind on credit card payments since the start of the pandemic, while The New York Fed also found rising car prices have younger borrowers further behind on car payments than older generations.

Higher Learning: The crunch has happened even during a three-year stretch that included a moratorium on one of the group’s biggest expenses: servicing student debt. The age group owes more student debt than any other in the country. And with payments set to begin again soon and debt relief still an open question, the WSJ reports that some lenders have set aside rainy-day funds to account for the likelihood that younger borrowers will fall behind on their other bills. On the bright side, they’ll be battle-hardened by the time their actual mid-life crisis begins.

– Brian Boyle

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Stocks

Buffett Calls Buyback Opponents ‘Illiterate’ and ‘Demagogues’

Think Cherry Coke and a Dairy Queen dipped cone. That’s how much Warren Buffett likes stock buybacks.

In the Berkshire Hathaway CEO’s latest annual letter to shareholders, the nonagenarian investing icon defended the practice of companies getting high on their own share supply, and voiced his enthusiasm for investments in American companies.

Invest in Yourself

When a company starts buying up its own securities, it’s generally to increase its stock price and benefit shareholders. Last year, American firms bought $1.26 trillion worth of buybacks, a 3% increase year-over-year, Bloomberg reported.

But opponents like President Joe Biden, Senator Marco Rubio, and BlackRock CEO Larry Fink (sometimes) believe that instead of buybacks, companies should spend money on long-term investments like research and development, capital projects, more jobs, and employee benefits packages.

The Oracle of Omaha does not agree:

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In 2022, Berkshire spent $8 billion on buybacks, which seems like a lot, but it’s considerably less than the $27 billion spent on them the year prior.

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In his letter, the 92-year-old Buffett praised companies like American Express and Apple for their bullishness on buybacks. In 2022, Apple spent a whopping $90 billion on buybacks.

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett wrote.

America the Beautiful: The US is the world’s largest economy at a nominal GDP of $23 trillion, so it’s not absurd that Buffett would have plenty of faith in American business. Despite Berkshire Hathaway taking a roughly $18 billion liquidity hit between 2021 and 2022 mostly due to investment losses, he still remains enthusiastic about US businesses like the Alleghany holding company, which Berkshire acquired last year for $11.6 billion. “I have yet to see a time when it made sense to make a long-term bet against America,” Buffett said in the letter.

–Griffin Kelly

Extra Upside

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So crazy it just might work: Nokia is actually letting customers fix their property with personal phone repair kits.

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Help Wanted: An Ohio pizzeria asks for “non-stupid” employees to divisive reactions.

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Just For Fun

Walking in a cartoon.

Turbo thrusters.

Disclaimer

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