Investing Warren Buffett Watch

  Thursday, 8 Mar 2018 | 8:00 PM ET

Several candidates have been approached to lead Amazon's health venture with Berkshire and JPM

Amazon, Berkshire Hathaway and JPMorgan Chase are searching for a CEO for their new joint venture to improve health care for their employees while lowering costs. The group is casting a wide net across the health care industry to find the right person, say several sources familiar with the search, who declined to be named because the details of the initiative are confidential.

Berkshire Hathaway's Todd Combs is taking the lead on the recruiting effort, several of the people said. Amazon has also been reaching out to people.

Among those on the short list for the position include former Medicare chief Andy Slavitt, former United States chief technology officer and Castlight Health co-founder Todd Park and ex-Aetna senior executive Gary Loveman.

Whether or not anyone in this group would take the job is another story. Slavitt recently disclosed plans to invest in health-tech start-ups via a new venture capital fund, and Park is working on a new insurance business called Devoted Health. Park told CNBC, "While I wish this new endeavor the very best, I am not a candidate to lead it." Loveman declined comment.

Slavitt also declined comment, but after this article was posted, he tweeted "This is interesting and filled with a lot of promise, but my passion is bringing health care to every American and closing the gaps for vulnerable communities & families," implying he was not interested.

Silicon Valley venture capitalist John Doerr has taken an informal role in the search, making calls to top health executives and even making a trip out to Nebraska to Berkshire's headquarters. Doerr, who's primarily known for his technology investments, has taken a personal interest in health care in recent years, including investing his money into the sector.

Doerr is a veteran partner at Kleiner Perkins Caulfield & Byers and an early investor in Amazon. He did not immediately return a request for comment.

What the joint venture's leader would actually do to improve the health care experience for U.S. employees of the three companies is still a mystery. The group has been vague on details, except to state with the initial announcement that they hoped their size and scale would be enough.

The three companies may disintermediate the middlemen in the drug supply chain, such as the pharmacy benefits managers and drug distributors, or bring in new technology like telemedicine to improve access to primary care for workers across the country.

Berkshire CEO Warren Buffett described the American health care system as a "hungry tapeworm on the American economy."

Right now, the CEO search process is as much about information-gathering as it is about making a hire, the people said, as the companies still haven't yet decided on a final direction for their initiative.

The ultimate choice will potentially shed light on where the companies intend to focus, as few people have a background that encompasses medical services, health insurance, pharmacy benefits management and health-technology.

Combs, the potential heir apparent to Warren Buffett, has been named the lead executive from Berkshire Hathaway on the health care project. The other execs that will be involved are J.P. Morgan's Marvelle Sullivan Berchtold and Beth Galetti, a senior vice president at Amazon. Berkshire did not return a request for comment.

The move comes amidst uncertainty and consolidation in the health care industry, driven by skyrocketing costs and growing dissatisfaction among employers, as evidenced by the Amazon-Berkshire-JPMogran joint venture.

On Thursday, insurance giant Cigna announced plans to acquire pharmacy benefits manager Express Scripts in a $67 billion deal, and Cigna CEO David Cordani called the current state health care market "not sustainable."

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  Thursday, 8 Mar 2018 | 9:52 AM ET

Cigna CEO on $67 billion deal for Express Scripts: 'The current marketplace is not sustainable'

The health-care marketplace in its current form is not sustainable, said Cigna CEO David Cordani.

The health insurer announced Thursday that it planned to acquire pharmacy benefit manager Express Scripts in a $67 billion deal, the latest in a string of health-care deals. Even corporate giants Jeff Bezos of Amazon, Jamie Dimon of J.P. Morgan Chase and Warren Buffett of Berkshire Hathaway are entering the mix, with the three saying they would partner to try and lower health-care costs.

Cordani said he sees their entry as more of an opportunity than a threat.

"Our view is that the current marketplace is not sustainable," Cordani told CNBC on Thursday. "The market demands more affordability, the market demands more personalization, the market demands more value, and whether it's the look of the new (joint venture) between the three organizations you identified or clients and customers wanting more value, we will be well-positioned. The franchise today delivered the best medical cost in the industry in 2017."

Cordani said he's spoken to at least two of the three CEOs in the partnership about their aspirations and Cigna's.

"This combination accelerates our movement to deliver more value," Cordani said. "That's the basic thing. We want to drive change. We're not trying to protect an insurance franchise. We've been driving service expansion, and it's about keeping people healthy and improving clinical quality for when people consume care and as a result, helping employers have healthy, productive, present employees and therefore healthier businesses."

The health-care industry is contracting as companies pursue vertical integration. Drugstore chain and pharmacy benefit manager CVS Health said in December that it would acquire health insurer Aetna for around $69 billion.

Cigna's deal with Express Scripts will combine a health insurer with a pharmacy benefit manager, which negotiates drug prices with manufacturers and administers prescription drug programs on behalf of health insurers, self-insured companies and government agencies.

"We evaluated the marketplace and couldn't be more excited about the move we took to further accelerate our strategy of improving affordability and personalization for customers and clients and driving more choice, great alignment with health-care professionals and more value for everybody," Cordani said.

PBMs have come into the spotlight in the debate over soaring drug prices, with manufacturers accusing them of contributing to inflating costs. UnitedHealthcare said this week it would pass drug rebates onto consumers.

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  Thursday, 8 Mar 2018 | 9:38 AM ET

Amazon's entry into health care may have just narrowed with the Cigna-Express Scripts deal

Health insurer Cigna's announced move Thursday to buy pharmacy benefit manager Express Scripts may have just narrowed Amazon's entry into health care.

If Amazon founder Jeff Bezos ever wanted to get into the health insurance industry, "the target that would have made sense for them is Cigna," Ana Gupte, senior health care services analyst at Leerink Partners, told CNBC's "Squawk Box."

On Thursday, Cigna agreed to buy Express Scripts in a $54 billion cash-and-stock deal, sending shares of the pharmacy benefit manager more than 15 percent higher on the open.

However, the Cigna offer represents a premium of about double that stock move based on where Express Scripts closed on Wednesday.

There was some speculation that Express Scripts could play a role in the health-care venture being put together by Amazon's Bezos, Berkshire Hathaway's Warren Buffett, and J.P. Morgan's Jamie Dimon. The three corporate titans are aiming to cut health costs for their employees by using their companies' sheer sizes as leverage to get more favorable pricing.

So-called PBMs, such as Express Scripts, negotiate drug benefits for insurance plans and employers.

David Cordani, CEO of Cigna, told "Squawk on the Street" on Thursday he's spoken with "at least two of the three" leaders of the Bezos-Buffett-Dimon venture "in the recent past" about their aspirations.

"Now neither of those entities are now available for Amazon," said Gupte, an analyst with more than 20 years of health care and strategy consulting experience.

The Express Scripts deal may surprise investors given that Cigna had said it was satisfied with its PBM arrangement with UnitedHealth's Optum unit, Gupte later told Reuters.

"It is possible that the threat of an Amazon entry into the healthcare and possibly the drug supply chain landscape, with the latest news of the Amazon-Berkshire Hathaway-J.P. Morgan employer coalition, has spurred Cigna and Express Scripts to tie the knot," she said.

Amazon did not immediately respond to CNBC's request for comment.

The move follows a trend in the health-care industry of companies acquiring assests that do not directly overlap operations. In December, health insurer Aetna announced a $69 billion merger with drugstore chain and PBM CVS Health.

Scott Sperling, co-president of the private equity firm THL Partners, told CNBC said the Cigna-Express Scripts deal makes sense after Cigna's deal with Anthem was blocked by antitrust regulators. "Everyone is looking for ways to reduce the cost of providing health care," he told "Squawk Box." "You're seeing a whole set of these vertical mergers now."

"Express Scripts was under some pressure" by investors to do a deal as well, Sperling added.

Ross Munken, an analyst at researcher Evercore ISI, told CNBC the deal, which will be led by the current Cigna chief Cordani, gives Cigna new capabilities on the PBM side.

The merger ultimately comes down to whether the government believes the deal saves money for the American consumer, he said.

"Obviously, there's not a ton of overlap here in terms of the ... businesses," Munken said. "This is all about if we end up with cheaper drugs as a result" of the deal.

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  Thursday, 8 Mar 2018 | 6:56 AM ET

Warren Buffett reveals his secret to great leadership success

Posted By Pattie Sellers, co-founder and partner of SellersEaston Media and executive director of Fortune MPW Summits
Warren Buffett, chairman and CEO of Berkshire Hathaway
David A. Grogan | CNBC
Warren Buffett, chairman and CEO of Berkshire Hathaway

Of all the things that Warren Buffett is good at — making money (his net worth: $67 billion), building a company (Berkshire Hathaway's stock market value: $500 billion) and teaching (he wants to be remembered as a teacher, he said) — there's another thing that is certainly his forte but doesn't earn the famous investor a ton of credit: storytelling.

And more than ever, storytelling is an essential building block of leadership success.

Consider Buffett's annual letter to shareholders. In his latest letter, accompanying Berkshire's annual report that came out two weeks ago, Buffett compares fund managers to monkeys and uses other analogies and stories to explain why investors, on average and over time, will do best with low-cost index funds.

In an era of increasing CEO distrust, Buffett relies on a couple of centuries-old methods — letter-writing and storytelling — to build trust in him and his company.

Whenever Buffett wants to share his take on the world, he often tells a story. I'll never forget five years ago Buffett called me at my Fortune office to tell me that he believed many CEOs were discounting women to their own detriment and to the harm of the U.S. economy — and would Fortune run an essay by him about this topic? Of course, we said yes.

In "Warren Buffett Is Bullish on Women," in the 2013 Fortune 500 issue, he brilliantly translated his take on diversity to a language that guys running Fortune 500 businesses can relate to: "No manager operates his or her plants at 80 percent efficiency when steps could be taken that would increase output," Buffett wrote. "And no CEO wants male employees to be underutilized when improved training or working conditions would boost productivity. So take it one step further: If obvious benefits flow from helping the male component of the workforce achieve its potential, why in the world wouldn't you want to include its counterpart? Fellow males, get on board."

What, beyond a point of view and a specific message to communicate, makes a great storyteller? After more than 30 years interviewing and profiling CEOs and world-changing entrepreneurs, I've learned that the leaders who best attract followers do four important things with their storytelling:

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  Wednesday, 7 Mar 2018 | 12:31 PM ET

There are a record 2,208 billionaires in the world, according to Forbes' 2018 rich list

There are more billionaires than ever and they are richer than ever too. That's according to Forbes' annual ranking of the world's billionaires, published Tuesday.

There are a record 2,208 billionaires in the world, up from 2,043 in 2017, according to Forbes. And the average wealth of the billionaires is $4.1 billion, a record high.

Taken together, the billionaires of the world are worth $9.1 trillion, up from $7.7 trillion last year, Forbes reports.

"The superrich continue to get richer, widening the gap between them and everyone else," according to a Forbes statement.

Many of the top spots on the list are held by self-made entrepreneurs.

Amazon founder Jeff Bezos is the richest person in the world with a net worth of $112 billion. Microsoft co-founder Bill Gates is the second richest person in the world with a net worth of $90 billion. Facebook founder Mark Zuckerberg is the fifth richest person in the world, with a net worth of $71 billion.

Indeed, 67 percent (1490) of the world's billionaires are self-made, according to Forbes.

As the rich get richer, however, economic inequality between the rich and the poor is a problem, according to some of those who hold top spots on the list of the world's richest people.

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  Tuesday, 6 Mar 2018 | 10:13 AM ET

Get ready for March Madness, a time when little office work gets done

Confetti falls as the North Carolina Tar Heels celebrate after defeating the Gonzaga Bulldogs during the 2017 NCAA Men's Final Four National Championship game at University of Phoenix Stadium on April 3, 2017 in Glendale, Arizona.
Getty Images | Christian Petersen
Confetti falls as the North Carolina Tar Heels celebrate after defeating the Gonzaga Bulldogs during the 2017 NCAA Men's Final Four National Championship game at University of Phoenix Stadium on April 3, 2017 in Glendale, Arizona.

March Madness is here, which means there are billions to be won and lost at the office.

College basketball fans or not, many get in on the NCAA tournament known as March Madness — or at least try their hand at filling out a bracket.

A whopping 70 million tournament brackets were completed last year, amounting to about $10.4 billion wagered in total, according to a report by WalletHub. That's about twice as much as during the Super Bowl.

Billionaire investor Warren Buffett, a long-time basketball fan, singlehandedly offered Berkshire Hathaway employees $1 million a year for life to anyone who guessed which teams make it to the NCAA men's basketball tournament's "Sweet 16."

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  Monday, 5 Mar 2018 | 7:10 AM ET

Amazon reportedly looks to offer checking accounts for customers via JP Morgan, other banks

Posted ByThomas Franck

Amazon is considering partnering with Wall Street's top banks in an effort to build a "checking-account-like" product for customers, according to a report.

The e-commerce giant is in early talks with financial institutions including J.P. Morgan Chase to help launch the accounts, aimed at younger customers and those without banking accounts, The Wall Street Journal reported Monday.

While people familiar with the situation tell the Journal the discussions are in early stages, such a venture would add yet another entity to Amazon's expanding portfolio, which now includes grocery stores and its digital assistant, Alexa.

"The underlying goal is to further grow its Prime membership through cross-selling into existing J.P. Morgan customers and this could lead to more initiatives down the road," Dan Ives, chief strategy officer and head of technology research at GBH Insights, told CNBC in an email. "Ultimately, Amazon is in fifth gear, trying to double down on the consumer and the finance vertical looks like the next step (through partnerships) of adding to the Amazon flywheel."

With Amazon's host of customers and impressive market value, some have wondered whether the e-commerce giant would eventually seek to disrupt the banking system. According to a LendEDU survey released Wednesday, roughly 45 percent of respondents were open to using Amazon as their primary banking account, while 49.6 percent would use a savings account created by the company.

It would appear Amazon is open to teamwork, especially since the company faces regulatory barriers should it wish to lend beyond its pool of Amazon sellers.

"Amazon can collect deposits so long as it's not issuing loans," said Dick Bove, equity research analyst at the Vertical Group. "I'd assume that if an arrangement is created that it would be like the Apple Pay arrangement. Apple has a relationship with a number of banks, using their payment systems, but clearly, Apple is not in the banking business."

A potential partnership with J.P. Morgan would also represent the second major agreement involving Amazon CEO Jeff Bezos and J. P. Morgan's chief, Jamie Dimon, in the past year.

Bezos, Dimon and Berkshire Hathaway's Warren Buffett recently announced a joint effort to reduce health care costs for their employees. The companies together employ more than 1.1 million workers.

Shares of Amazon rose 1.6 percent Monday, while J.P. Morgan added 1.5 percent.

Read The Wall Street Journal's full story here.

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  Saturday, 3 Mar 2018 | 11:43 AM ET

Goldman Sachs' investment in a gun retailer puts it in an awkward position

Posted ByLauren Hirsch
The gun library room of a Cabela's store in Gainesville, Virginia.
Matt McClain | The Washington Post | Getty Images
The gun library room of a Cabela's store in Gainesville, Virginia.

As consumers pressure corporate America to act in the wake of last month's mass shooting at Marjory Stoneman High School in South Florida, one of Wall Street's highest-profile companies finds itself in an awkward position: Goldman Sachs.

In 2017, Goldman's private equity arm helped finance Bass Pro Shops' roughly $4 billion purchase of hunting and sporting good retail rival Cabela's. The bank contributed approximately $1.8 billion in preferred equity to the deal. It was the largest investment of the bank's first new private equity fund since the financial crisis.

That bet makes it awkward for the bank to come out with a stance on gun control, as corporate America is now being called on to do. There is ongoing debate about the fairness of that expectation and what the appropriate response should be. Still, financial institutions like BlackRock and Bank of America have vocally weighed in on the matter.

In a statement provided to CNBC, Goldman Sachs said: "We are saddened by recent events, especially the tragedy in Florida last month. We are in touch with management at Bass Pro/Cabela's and know they are deeply concerned and focused as well."

Goldman Sachs' ownership stake in Bass Pro/Cabela's is small, and the company does not have a board seat. Its equity is "preferred" which, in layman's terms, means it is more akin to a financing tool than it is to ownership. It nonetheless forges a connection between Goldman and guns at a time at which scrutiny of the firearms industry is high. Goldman declined to disclose the size of the stake.

The alleged gunman who massacred dozens of people in Las Vegas is said to have bought a gun at Cabela's, according to multiple reports. (The retailer reportedly has since gotten rid of bump stocks, which are a legal attachment that makes guns fire faster.)

Goldman did not issue a statement in response to the Las Vegas shooting, though did provide a comment to Axios about its previous investment in SureFire, a high-capacity magazine that TMZ alleged was used in the massacre. (Goldman said SureFire moved into magazines after its investment, against its wishes. Its stake in the company is currently for sale, a source familiar with the matter tells CNBC.)

Cabela's/Bass Pro is one of the few national retailers that has not publicly issued new gun restrictions in the wake of the Florida shooting, despite vocal measures taken by Walmart, Kroger and Dick's Sporting Goods, among others.

It is also one of the most reliant on the industry, heavily steeped in hunting culture. Outdoor products including guns comprised roughly half Cabela's sales, according to securities filings from before its sale to Bass Pro. The retailer has gun libraries on its grounds and displays taxidermy in its stores. It is one of a thinning number of national stores that still sell AR-15 assault rifles, the weapon allegedly used by the Parkland shooter.

Neither Cabela's nor Bass Pro responded to CNBC's requests for comment.

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  Friday, 2 Mar 2018 | 1:14 PM ET

No-frills micro hospitals with as few as 8 rooms emerge as a new way to cut health-care costs

Dignity Health St. Rose Dominican neighborhood hospital in Las Vegas.
Source: Emerus
Dignity Health St. Rose Dominican neighborhood hospital in Las Vegas.

The future of health care looks small and digital.

Micro hospitals are emerging in some suburban and urban markets as a backup to community facilities — or in regions where there is not enough demand for full-sized hospitals. The facilities range from 15,000 to 60,000 square feet, substantially smaller than community hospitals, and offer as few as eight beds.

"We still have to be fully prepared to see and treat any patient that walks through our doors," Laura Hennum, a regional CEO of the Dignity Health St. Rose-Dominican Neighborhood Hospitals, told CNBC. She's responsible for four micro facilities in the greater Las Vegas area.

These smaller facilities can provide lower-cost care for patients compared with traditional community hospitals, Dr. Richard Zane, chair of the Department of Emergency Medicine at the University of Colorado, told CNBC.

Mega hospitals, which can offer as many as 1,000-plus beds, "have evolved into large, profitable, expensive, technology-laden institutions," Zane said.

By contrast, micro hospitals can perform many of the same services as larger ones, and through the advent of technology and shorter hospital stays, can lower patient costs, Zane said.

"Micro hospitals are the decentralization of health care," he said. "You can match the cost of care to the perfect environment." Zane, who has experience with implementing systems of emergency care and access, added patients typically follow up with their care providers virtually, thus lowering costs even more.

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  Thursday, 1 Mar 2018 | 10:14 AM ET

Ex-Fed Chairman Alan Greenspan: 'We are in a bond market bubble' that's beginning to unwind

Former Federal Reserve Chariman Alan Greenspan told CNBC on Thursday the decadeslong bull market in bond prices is coming to an end.

"We are in a bond market bubble" that's beginning to unwind, he said on "Squawk on the Street," as new Fed Chairman Jerome Powell appeared on Capitol Hill for the second time this week. "Prices are too high" on bonds, Greenspan added. Bond prices move inversely to bond yields, which spiked higher in the new year, recently hitting four-year highs of just under 3 percent.

Greenspan is in good company in predicting a bond price bubble.

Hedge fund manager Paul Tudor Jones, in an interview with Goldman Sachs, predicted a rise in inflation and a surge in the 10-year Treasury yield. Noted bond investor Bill Gross recently said the bear market in bond prices has begun. Billionaire investor Warren Buffett told CNBC on Monday he believes long-term investors should buy stocks over bonds.

"As real long-term interest rates rise, stock prices fall," Greenspan said, but added that's probably not the cause of the recent wild market swings.

"The last few weeks are responding to the good part of the tax cut," he said, meaning that any tax-cut inspired economic growth could increase inflation, which Wall Street worries could result in the Fed raising rates more aggressively than the projected three hikes for this year to tamp down rising prices and wages.

Greenspan said he's optimistic about growth in the short term due to the new GOP tax reform law, particularly the federal corporate rate cut from 35 percent to 21 percent.

But long term, he said he's "rather dismal" due to the "gradual encroachment of entitlement spending on gross domestic savings," which is defined as GDP minus total spending.

Powell talked on Thursday about the economy and interest rates before the Senate Banking Committee. On Tuesday, before the House Financial Services Committee, he made it clear the Fed could find reason in growth or inflation to increase rates more than three times this year.

That perceived hawkish tone sent the Dow Jones industrial average about 300 points lower on Tuesday and then 380 points on Wednesday.

Just before stocks and bond prices stared tanking in the beginning of February, Greenspan said in a Bloomberg interview on Jan. 31 that he saw bubbles in both markets. "The bond market bubble will eventually be the critical issue," he said.

The stock market got off to an incredibly strong start in January after a banner 2017, but tanked in early February after a higher-than-expected wage number in January's jobs report sparked fears of inflation and interest rates rising more aggressively than projected.

Stocks on a closing basis eventually bottomed out on Feb. 8, briefly plunging into 10 percent correction territory. Since then, the Dow and S&P 500 have recovered about 5 percent each, based on Wednesday's close.

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.