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Buffett Bailout 2.0? Berkshire Hathaway Misses Earnings By Most Since Lehman

It looks like it is time for Warren to get on the Obamaphone and make it clear this is unacceptable...  

Berkshire Hathaway announced (a 10% decline) $2,367 (Adjusted) EPS, missing estimates of $3,038 by 22.09% - the biggest disappointment since Nov 2008...

 

 

Worst still, Net income for the Omaha, Nebraska-based insurance and investment company fell to $4.01 billion, or $2,442 per share, from $6.4 billion, or $3,889 per share, a year earlier - a stunning 37% plunge.

The driver of the weakness appears to be a fall in the paper value of its investments and its insurance companies reported an underwriting loss.

Berkshire's insurance underwriting business, which includes Geico, swung to a $38 million loss.

 

In the same period a year earlier the business had posted a $411 million after-tax profit.

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Perhaps, as David Stockman previously noted, Warren's ride on the coat-tails of Fed exuberance is over...

During the 27 years after Alan Greenspan became Fed chairman in August 1987, the balance sheet of the Fed exploded from $200 billion to $4.5 trillion. Call it 23X.

Let’s see what else happened over that 27 year span. Well, according to Forbes, Warren Buffet’s net worth was $2.1 billion back in 1987 and it is now $73 billion. Call that 35X.

During those same years, the value of non-financial corporate equities rose from $2.6 trillion to $36.6 trillion. That’s on the hefty side, too—- about 14X.


Corporate Equities and GDP – Click to enlarge

When we move to the underlying economy that purportedly gave rise to these fabulous gains, the X-factor is not so generous. As shown above, nominal GDP rose from $5.0 trillion to $17.7 trillion during the same 27-year period. But that was only 3.5X

Next we have wage and salary compensation, which rose from $2.5 trillion to $7.5 trillion over the period. Make that 3.0X.

Then comes the median nominal income of US households. That measurement increased from $26K to $54K over the period. Call it 2.0X.

Digging deeper, we have the sum of aggregate labor hours supplied to the nonfarm economy. That metric of real work by real people rose from 185 billion to 235 billion during those same 27 years. Call it 1.27X.

Further down the Greenspan era rabbit hole, we have the average weekly wage of full-time workers in inflation adjusted dollars. That was $330 per week in 1987 and is currently $340 (1982=100). Call that 1.03X

Finally, we have real median family income. Call it a round trip to nowhere over nearly three decades!

OK, its not entirely fair to compare Warren Buffet’s 35.0X to the median household’s 0.0X. There is some “inflation” in the Oracle’s wealth tabulation, as reflected in the GDP deflator’s rise from 60 to 108 (2009 =100) during the period. So in today’s dollars, Buffet started with $3.8 billion in 1987. Call his inflation-adjusted gain 19X then, and be done with it.

And you can make the same adjustment to the market value of total non-financial equity. In 2014 dollars, today’s aggregate value of $36.7 trillion compares to $4.5 trillion back in 1987. Call it 8.0X.

Here’s the thing. Warren Buffet ain’t no 19X genius nor are investors as a whole 8X versions of the same. The real truth is that Alan Greenspan and his successors turned a whole generation of gamblers into the greatest lottery winners in recorded history.

That happened because the Fed grotesquely distorted and financialized the US economy in the name of Keynesian management of the purported “business cycle”. The most visible instrument of that misguided campaign, of course, was the Federal funds or money market rate, which has been pinned at the zero bound for the last 78 months.

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With The Fed on the verge of raising rates, perhaps the days of the Warren Buffet economy are indeed numbered.