That’s the problem under the hood at Warren Buffett’s Berkshire Hathaway


It’s midterm exam day in America, so pack your guns (where legally allowed), put your local election lawyer on speed dial, and get off the popcorn. USA, USA. More on that later.

The company lost $2.7 billion in the third quarter, though its earnings were highly volatile and the losses stemmed from fluctuations in derivatives and investments. Operating income rose 20% during the quarter, and there’s $109 billion in cash to play with. Definitely worth giving Buffett a pass, right?

Well, maybe not. The blog The Rational Walk, a longtime Buffett follower, examined Berkshire’s recent earnings and found that the conglomerate’s cash cow, auto insurer Geico, is struggling.

Granted, Geico had a great decade, and it thrived during the pandemic because people weren’t driving—easy money for an auto insurer. But it’s paying off now, not just because people are driving again, but because inflation makes auto accidents more expensive to repair.

Rival auto insurer Progressive PGR
It also says that the impact of inflation not only increases the value of used cars – bad news when you have to pay to replace them – but also its total loss and repair costs.

Rational Walk

Another point worth noting is that Geico is cutting costs – laying off employees and cutting back on advertising. Given that the industry is incredibly competitive, reduced advertising can affect existing policies and may do so in the future.

“While a couple of troubled quarters don’t necessarily indicate a turning point in Geico’s long-term prospects, recent results compare unfavorably to Progressive. “The reason I’m spending more time on Geico’s results is because it’s the Berkshire insurance group’s most troubled operation, and shareholders will want to keep a close eye on what’s going on,” the blogger says.

Markets

US stock futures ES00

NQ00
were pointing to a third day of gains in what appeared to be a rumored buying move ahead of the midterm elections. The main market movement was in cryptocurrency where bitcoin was BTCUSD
The cryptocurrency exchange was rocked amid issues with the token used by FTX.

Buzz

UK betting site Smarkets has a 90% chance that Republicans will take control of the House and a 68% chance that the GOP will take control of the Senate as voters head to the polls.

Lyft LYFT
shares fell in premarket trading after active driver numbers fell short of expectations and the midpoint of its revenue guidance also fell short of estimates.

TripAdvisor TRIP
shares fell, missing a gain. Take-Two Interactive TTWO
he gave up after cutting the booking forecast.

After closing, Walt Disney DIS
reports the results. DuPont DD
Shares rose as the chemical company beat analysts’ estimates.

Nvidia NVDA
It is developing an alternative microchip for China to comply with US export barriers.

The $1.9 billion Powerball game has been postponed.

The best of the web

Where would you store billions of dollars worth of stolen bitcoins? Apparently on a tablet computer submerged in a bowl of popcorn.

According to activists, the UN climate summit got off to a bad start.

Hedge fund manager who exposed accounting fraud at Luckin Coffee LKNCY
now supports the Chinese chain.

Top tickers

As of 6 a.m. Eastern, these were the most active stock tickers.

Ticker

Security name

TSLA

Tesla

GME

GameStop

DWAC

Digital World Acquisition Co.

AMC

AMC Entertainment

NIO

Nio

AAPL

apple

META

Meta platforms

AMZN

Amazon.com

MULN

Mullen Car

BBBY

Bed Bath & Beyond

Graph

The 60/40 model had a terrible year as both stocks (part 60) and bonds fell. It’s too early to throw in the towel, according to analysts at asset manager Glenmede, whose model for the next decade projects an average annual return of around 7%. Michael Reynolds, vice president of investment strategy, said the firm’s model uses valuations and returns as a baseline to forecast returns. “Glenmede’s empirical research has shown that while valuations are a poor market timing tool in the near term, they are one of the best determinants of long-term expected returns for investors,” he said.

Stock market valuations are based on a mix of normalized price-to-earnings, price-to-cash flow and price-to-book ratios, as well as dividend yields, which are then adjusted for the level of interest rates. The fixed income model is largely driven by the probabilistic progression of funds fed by inflation expectations and an associated term premium.

Reads casually

A hot culinary trend is … wearing black gloves.

These crypto-enthusiasts bought an English football club, with disastrous results, to say the least.

The founder of Oculus, currently run by Meta Platforms, has created a virtual reality headset that will kill the user if they die in the game.

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