Thanks for reading my Diary today

Enjoy the evening.

Be safe.

Wolf Street howls about Berkshire Hathaway's  (BRK.A)   (BRK.B)  cash equivalents.

From Charlie, here.

I have learned over the years that, increasingly, market participants follow price.

The narratives, too, follow stock prices - in both directions.

This is the heavy hand of market structure - products and services that worship at the altar of price momentum

And, in turn, that sometimes exaggerated price momentum feeds the animal spirits and underscores the emotion of being left out ("FOMO").

The decision of the markets' voting machine is clear since Thursday.

It remains to be seen how the voters will react.

For me, I am not getting emotional in a market I have determined to be overvalued.

I have covered the balance of my Paramount Global  (PARA) short for a profit.

Reason?

The downside risk relative to the upside reward is no longer appealing.

I have argued that the road to the rescheduling of cannabis and for recreational use in Florida will be bumpy. 

Nothing has changed my mind.

This just out, see here. 

The Oaktree Management team, here.

From Peter:

After the heavy economic calendar last week, it quiets down this week but we still get another flood of earnings to go through. As for the overseas data to start the week, the China private sector focused Caixin services PMI for April was 52.5 vs 52.7 in March and that was as forecasted. This part of their economy has certainly outperformed manufacturing. 

Caixin said "Central to the latest expansion in services activity was another rise in new business...Moreover, the pace of growth was the fastest since May 2023 and solid overall. Panelists attributed the rise in new work to improved demand conditions and a broadening of customer bases on the back of business development efforts." Specifically with exports, more tourists are coming on the easier visa situation with a bunch of countries.

Hong Kong's April PMI was down a touch to just above 50 at 50.6 vs 50.9 in March. Services too led the way but the overall business outlook still seems tough as "sentiment among Hong Kong SAR (Special Administrative Region) private sector firms remained pessimistic at the start of the 2nd quarter, with firms in the wholesale and retail sector being the most downbeat. Firms cited concerns regarding rising competition and subdued economic conditions affecting sales."

Singapore's PMI fell to 52.6 from 55.7 but "business sentiment improved among Singaporean private sector firms in April. The level of confidence rose to the highest since last November with twice the proportion of panelists anticipating better market conditions and business development efforts to support sales."

India's service sector, along with manufacturing, continues to shine in the region as it printed 60.8 for April, though down slightly from 61.7 seen in March.

As I said Friday, if you're looking for global growth of note in the coming years, Asia is where you will most likely find it. Europe will only grow very modestly and hopefully the US can see about 2-2.5% growth sustainably with productivity and labor force growth being the two key determinants.

Asian stock markets mostly rallied but following the US rally seen Friday. While the yen is giving back Friday's rally, other Asian currencies are rising vs the US dollar. As seen over the past few weeks, we've had the Japanese FX intervention, we've had a joint US, Japan and South Korea FX statement, we've seen intervention and a rate hike from the Bank Indonesia, verbal intervention from Malaysia, and likely a deferred rate cut from South Korea. 

This, all to stop the Asian currency weakness. Here is a chart of the Bloomberg Asia/Dollar index and we are bouncing again after retesting the lows of November.

Asia/Dollar FX index

The service sector is also carrying the economic weight in Europe as their PMI was revised up by .4 pts to 53.3 from the initial print seen a few weeks ago. That is up from 51.5 in March and the best read since May 2023 led by Spain and Italy and their tourism industries, both outperforming Germany and France. While the ECB is going to cut in June and we don't know when the Fed will, the drop in US yields last week has the euro nearing a one month high vs the US dollar.

Let's get to two earnings calls from Friday and I'll start with the rental side with its large influence on CPI and PCE inflation stats.

From Camden Property Trust, a stock we own and with a big sunbelt presence that is currently digesting most of the supply flood coming this year in multi family. They see 'Signed Blended Lease Rates' up just .6% y/o/y in April with a 1.8% fall in 'Signed New Lease Rates' mostly offset by a 3.4% rise in 'Renewal Rates.' Their 1st quarter, thru March, saw blended rental rates down .9% y/o/y.

The CEO in the call touched upon the factors influencing his business, the drop in rental growth and the sowing of the seeds of another rental increase after this year.

"Yes, we are at 30 yr highs for apartment deliveries, and yes, that is limiting rent growth in most markets for now. The good news is that the market is adjusting quickly to the post Covid low interest rate development frenzy. March apartment starts were the weakest since April of 2020, and are down 53% from peak volume and falling. Starts will likely fall to just over 200,000 apartments in 2025, primarily driven by low income properties using tax credits and other government support. New delivery should peak in 2024, falling by 41% in 2025 and 50% in 2026, which would be a 13 yr supply low point."

As for the demand side? "Apartment demand continues to be strong. During the first quarter, apartment absorption was over 100,000 apartments, the best first quarter demand in 20 years. The main drivers of apartment demand are population and employment growth, apartment affordability, and positive demographic trends."

And there remains a wide spread between rents paid and the average monthly mortgage payment to own a home. 

"Mortgage rates and rising home prices have kept move out to buy homes at historic lows. 9.4% of our move outs in the first quarter were attributed to residents buying a home, lowest in our history. The monthly cost of owning a home today is 61% more than leasing an apartment. This is not going to change any time soon. Demographic trends continue to be a tailwind supporting demand from high propensity to rent groups, including young adults age 35 and under. Apartments should take a larger share of household formations given these demand drivers. 2024 demand should be sufficient, in spite of supply concerns, to set up accelerating rent growth for 2025 and 2026, assuming the overall economy continues on the current trajectory."

A quick macro on the consumer from the Hershey call Friday:

"So we do know that we saw impact from the SNAP (food stamp) reductions in the business in the back part of last year. We are beginning to see some stabilization as we start to lap some of those reduction. Consistent with our expectations as we built our plan, we anticipated that would occur. However, we do continue to see value seeking behavior from consumers. So that still hasn't changed. I'd say it's improving a bit, but it's still there."

TechNova

(VKTX)  : Here we go again.

This time CFO sells 66,756 shares on May 3, and has control of 174,854 shares.

COO and CFO would not sell in such large quantities ahead of an imminent sale.

I am leaving my Call hedges on.

Reading61

TRUIST $VKTX BUY PT 120 Oral VK2735's Tolerability Continue To Look Pristine& MGT Has A High Class Problem On Their Hands oRAL VK2735 reported impressive weight loss & tolerability data in March showing 3..3% pbo-adj weight loss in 4 weeks with tolerability comparable to placebo.

Making sales in Freshpet  (FRPT)  (+$15) at over $124 now.

* Shorted SPY $513.55

* Shorted QQQ $437.04

* But this time without Charlie Munger...

"There have been times in my life that I've been awash in so many opportunities that I could have invested everything by nightfall, and then there's other times (like now) ... when we just haven't seen anything that makes sense, that moves the needle."

- Warren Buffett

It was a reflective Warren Buffett today:

"I shouldn't be taking on any four year employment contracts like several people are doing in this world at an age where you can't be that sure of where you are going to be in four years!"

- Warren Buffett

Key takeaways:

* Clearly feeling the loss of Munger and also here, and recognizing his own mortality, Buffett peered into the future.

Warren's sincere and succinct tribute to Charlie ("the architect of Berkshire Hathaway") on Saturday in Omaha:

"Go find your Charlie. And do it now."

The best question of the day came from a young boy, Andrew:

“Hi, my name is Andrew and I’m wondering if you had more day with Charlie, what would you do with him?“

* $189 billion in cash, up from $167 billion in the previous quarter (He views the appeal of earning a risk free rate of return of over 5% on his cash as superior to most equities). When asked what Berkshire Hathaway plans to do with its cash hoard that, Buffett was frank in his response:

"I don't think anybody's sitting at this table has any idea of how to use it effectively and therefore we don't. We only swing at pitches we like.... It isn't like I have a hunger strike or something like that going on. It's just, things aren't attractive and there are certain ways that can change. We'll see whether they do."

* Berkshire sold 13% (115 million shares) of Apple in latest three months - which accounted for most of the runup in cash equivalents at the company.

 Becky: Why did you sell Apple?

Buffett: Let me tell you the history of value investing, starting with my purchase of Ben Grahams book the intelligent investor.

* Berkshire sold its entire Paramount Global holdings for a large loss:

* Warren Buffett is still a value investor:

* He has tons of faith in Greg Abel - who will not only run operations but run Berkshire's investments.

Buffett accidentally calls Greg, Charlie - cute clip.

* He has not so much faith in the US controlling its deficit: "Jay Powell is not only a great human being, but he's very, very wise man. But he doesn't control fiscal policy. ...That's where the trouble will be if we have it."

* Buffett compared generative AI to nuclear weapons: "Last year, I said we let the genie out of the bottle when we developed nuclear weapons and that genie has been doing some terrible things lately and I don't know how to get the genie back in the bottle. The power of that genie is what scares the hell out of me. And on the other hand, I don't know any way to get the genie back in the bottle. And AI is somewhat similar."

He noted that the technology has enormous potential, but that potential also extends to scammers. He described a situation in which he saw an AI-generated video of himself that could have fooled his wife and daughter in which he said things he would never say: "We may wish we'd never seen that genie, or we may do wonderful things"

* Buffett thinks higher individual and corporate tax rates are likely: "The federal government may decide that someday they don't want the fiscal deficit to be this large because that has some important consequences, and they may not want to decrease spending. They may decide they'll take a larger percentage of what we earn, and we'll pay it."

Warren wrapped Berkshire Hathaway's Q and A period in Omaha in classic style:

"I not only hope you come next year, I hope I come next year." 

Freshpet gaps higher in premarket trading (+$10) on better than expected EPS.

12:50 PM: Fed Bank of Richmond Barkin (Voter) speaks to the Columbia Rotary Club, Columbia, SC (audience Q&A);

1:00 PM: Fed Bank of New York President Williams (Voter) participates in conversation before the Milken Institute 2024 Global Conference, Beverly Hills, CA (No text. Moderated Q&A expected. Livestream available)

Investment short  (MPW)  falls another -16% in premarket trading:

There were two new longs last week - Valvoline and DraftKings.

This morning Citigroup raises price target for  (DKNG)  from $50 to $57, while BMO goes from $51 to $54.

Desperado, you know you ain't gettin' no younger
Your pain and your hunger, drivin' you home
And freedom, oh freedom
Well, that's just some people talkin'
Your prison is walking
Through this world all alone

- Linda Ronstadt, Desperado 

* More signposts of overvaluation...

"If the world were perfect, it wouldn't be" - Yogi Berra

Bonus - Here are some great links:

Dollar, Oil and Treasury Yields 

US Dollar Peaking 

Are Rates Ready to Drop? 

There May Never Be a Market Like Bitcoin 

Wolf Street howls about Fed's Bowman.