Buffett Watch

  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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  Tuesday, 27 Feb 2018 | 12:56 AM ET

Some 90% of hedge funds aren't worth the fees, but there's still a place for them, says expert

Posted ByCheang Ming

Hedge funds have received their fair share of criticism for their hefty fees, but there are still reasons to invest in them, according to an expert.

"There's 15,000 hedge funds out there and I think 90 percent of those hedge funds aren't worth the fees that people pay," said Donald Steinbrugge, chief executive and founder of Agecroft Partners, a consulting and marketing firm that focuses on hedge funds.

Warren Buffett, famously compared active managers to monkeys in his annual shareholder letter last year and took issue with what he perceived as exorbitant fees. In his latest annual letter released on Saturday, Buffett also discussed winning a 10-year bet against hedge funds. "Performance comes, performance goes. Fees never falter," he wrote.

Despite that, Steinbrugge said hedge funds were a good way to have a diversified portfolio, adding that the hefty fees mentioned in Buffett's letter last year were "coming down a lot."

"I do think there're 10 percent of the market that has very talented managers or has strategies that you can't get in a mutual fund. For example, reinsurance, a lot of CTA (commodity trading advisor) strategies, direct lending. I think all of those provide valuable diversification and can generate returns even after you've paid the hedge fund fees," he told CNBC's "The Rundown."

Still, Steinbrugge made the case that the pick-up in volatility earlier this month during the stock markets sell-off was good for hedge funds. Volatility is usually seen as a positive for active managers like hedge funds as stock price swings mean that equity managers can hit their targets more quickly.

"In a market correction, hedge funds that have market exposure are going to go down, but they should go down less than a long-only index," Steinbrugge said.

"I think there is a place for hedge funds. Should people invest all their money in hedge funds? Absolutely not. Is it part of a well-diversified portfolio? I think it is," he added.

Data from eVestment showed that a total of $14.12 billion was allocated into hedge funds last month, making it the strongest start to the year since pre-financial crisis times. Those figures also contrasted with the $111.64 billion in flows withdrawn from funds in 2016 and was the first time since 2014 inflows were recorded in January.

— CNBC's Leslie Picker contributed to this report.

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  Monday, 26 Feb 2018 | 4:16 PM ET

Apple rides Buffett's praise to a new all-time high share price

Apple shares hit a new all-time high on Tuesday, riding a wave of praise this week from famed investor Warren Buffett.

The stock rose to $180.48 a share in intraday trading, according to FactSet, passing the previous high of $180.10. Shares hit an intraday high of $179.39 in the regular trading session on Monday, just missing the all-time high after Buffett spoke to CNBC.

"Apple has an extraordinary consumer franchise," Buffett told CNBC's "Squawk Box" on Monday following the release of an annual letter to shareholders on Saturday. "I see how strong that ecosystem is, to an extraordinary degree. … You are very, very, very locked in, at least psychologically and mentally, to the product you are using. [IPhone] is a very sticky product."

Buffett added that his firm, Berkshire Hathaway, had bought "more Apple than anything else" over the past year. Apple is now Berkshire Hathaway's second-largest position in terms of market value behind Wells Fargo and ahead of Bank of America, the company said in regulatory filings.

Apple shares have risen about 30 percent over the past year amid early expectations that a slew of customers would upgrade to new models such as the pricey iPhone X. But excitement around Apple has waned slightly, and other big tech names, such as Microsoft and Amazon, have seen faster growth. Nonetheless, Apple remains the largest public company in terms of market capitalization by a wide margin.

— CNBC's Tae Kim contributed to this report.

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  Monday, 26 Feb 2018 | 2:56 PM ET

Warren Buffett wants to lower health-care costs — while eating and investing in junk food

Warren Buffett wants to lower health-care costs, but his fast-food-fueled diet and his food and beverage investments have historically been linked to costlier care.

The Berkshire Hathaway CEO, Amazon's Jeff Bezos and J.P. Morgan Chase's Jamie Dimon announced in January they would partner to cut health-care costs and improve services for their U.S. employees. On Monday, Buffett repeated his now-famous line that health-care spending is a "tapeworm on the economic system" in an interview with CNBC's "Squawk Box."

In a conversation earlier in the morning, the investing legend said he frequents McDonald's, Burger King and occasionally Wendy's. Buffett's Berkshire owns International Dairy Queen and holds stakes in Restaurant Brands International, the parent company of Burger King, as well as Kraft-Heinz and Coca-Cola.

"I think it's a little irrational wanting to improve health care and investing in companies that also produce highly processed, minimally nutritious products that are contributing to, are not the only cause of, but are contributing to a public health epidemic," said Las Vegas-based nutritionist Andy Bellatti.

More than one-third of American adults are obese, according to the Centers for Disease Control and Prevention. Obesity costs the U.S. an estimated $147 billion in medical expenses, according to a study published in Health Affairs in 2009.

Being overweight or obese can contribute to chronic, and costly, conditions such as diabetes and heart disease.

Type 2 diabetes was estimated to cost $245 billion in the U.S. in 2012, including $176 billion for direct medical costs and another $69 billion in indirect costs, according to the American Diabetes Association.

Heart disease costs the U.S. $200 billion every year in health-care services, medications and lost productivity, according to the CDC's National Center for Health Statistics.

Of course, not everyone who drinks a can of Coke or eats a cheeseburger is overweight or obese. But public health advocates have urged people to eat fewer processed foods and drink fewer sugary drinks while boosting consumption of whole foods such as fruits and vegetables.

As for Buffett, he has spoken very publicly about his love for breakfast at McDonald's and his penchant for Cherry Coke.

Buffett wasn't immediately available to comment.

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  Monday, 26 Feb 2018 | 1:58 PM ET

Warren Buffett remembers first meeting Charlie Munger: ‘We were sort of made for each other’

The chairman and vice chairman of Berkshire Hathaway, Warren Buffett and Charlie Munger, are legendary business partners.

And to hear Buffett tell it, the two didn't have to learn to like each other.

"We had dinner together in 1959," says Buffett, speaking to CNBC's "Squawk Box" on Monday, recalling how the two first bonded.

"We went to dinner and in five minutes, Charlie was rolling on the floor laughing at his own jokes — and I do the same thing," says Buffett.

"We knew we were sort of made for each other," adds the Oracle of Omaha.

Though the men both grew up in Omaha, Nebraska, and both worked at Buffett's grandfather's grocery store, they didn't know each other until Munger was 35 and Buffett was 29, according to Buffett.

Today, Munger is 94 and Buffett is 87. Munger is worth almost $2 billion and Buffett is worth $89 billion, according to Forbes.

The wife of a prominent Omaha doctor, who had invested with Buffett and also knew Charlie Munger, first brought the two men together for lunch at the Omaha Club, according to a 2015 piece about the two men in the "Omaha World-Herald." Munger was a lawyer in California, but his father, Alfred, had died and Munger had to return to Omaha to take care of his father's legal practice.

Soon after, Buffett and Munger were both invited to dinner at a local businessman's house. Later the two went for dinner together at Johnny's Dinner. That's the meal where Munger fell on the floor laughing, the "Omaha World-Herald" says, citing Buffett biographer Alice Schroeder.

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  Monday, 26 Feb 2018 | 1:54 PM ET

Buffett's hunting for deals and 'wouldn't rule out owning an entire airline'

Warren Buffett's newfound optimism for the airline industry appears to have grown.

"I wouldn't rule out owning an entire airline," the billionaire investor and Berkshire Hathaway CEO told CNBC.

In an annual letter published on Saturday, Buffett said the company is searching for deals but is struggling to find one for a good price. Airline stocks are trading at lower multiples than the S&P 500.

Buffett surprised investors in 2016 after Berkshire revealed it took stakes in the largest U.S. airlines. Buffett's stakes in American Airlines, Delta Air Lines, United Continental Holdings and Southwest Airlines were worth close to $10 billion based on Friday's closing prices and Berkshire's recently disclosed investments.

Buffett had long shunned airlines and had been so opposed to investing in airlines in the past that he told shareholders in a 2007 note that "if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

But airlines have recently enjoyed a stretch of profitability, helped along by a plunge in fuel prices in mid-2014 and record numbers of travelers who are taking to the skies.

Buffett told CNBC in an interview that the industry may not be out of the woods entirely.

"It's a business that's always subject to someone doing something very dumb, competitively," he said.

The chances of that happening are less now following a decade of mega-mergers, Buffett said.

"The industry was suicidally competitive for decades," he said. Now "it could turn into fierce competitive battles that wipe out earnings or it can be a business that's more decent but still subject to lots of competition. It's really hard to know for sure how it will develop. It's not risk-free."

Indeed, investors are still skittish about fare wars eating into company revenues as they compete with each other. Shares of United sank after the carrier announced plans for annual capacity growth of as much as 6 percent.

It wasn't clear which airline Buffett would purchase, if any. But he did say that the airline business climate allows carriers to form ultra low-cost airlines. Low-cost carriers Spirit Airlines and Allegiant Travel Company each have market capitalizations of around $2.7 billion, compared with the $25 billion market cap of American Airlines and Delta's nearly $39 billion.

Buffett last year told CNBC that many travelers are just focused on price and that they would rather fly for a lower fare than pay more for additional legroom or other perks.

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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.