Warren Buffett doesn't need the Fed's help. But he's getting it anyway
Excerpts below.
By Matt Egan, CNN Business
Jun 29, 2020
It's not that Berkshire needs or requested assistance from the Fed -- nor that the relatively tiny bond purchases will move the needle for Buffett's massive company. Other blue-chip names including Walmart, Boeing, ExxonMobil and Coca-Cola also had their bonds bought by the Fed facility, which launched this month. CNN owner AT&T is also on the list.
Still, the fact that Buffett's Berkshire, which is sitting on $43 billion in cash, now has some of its bonds owned by the Fed program underscores just how far the central bank is going to prop up the capital markets. And it raises concerns among some that the Fed experiment is distorting the normal functioning of markets.
The goal of the program is not to bail out specific companies but to make sure creditworthy firms have access to capital. Without it, a tidal wave of bankruptcies would happen all at once, potentially crashing the economy into a depression.
"This is a very clever tool," David Kotok, chairman and chief investment officer at Cumberland Advisors, told CNN Business. "The Fed wants to give incentives and inducements to Berkshire, Verizon, Apple and the rest to become more economically active."
Still, Kotok fears this intervention will distort the functioning of the capital markets.
"The Fed is now in the business of picking corporate winners and therefore by definition also losers," Kotok told CNN Business. "The corporate winners have the market perception that the wind is at their back, otherwise why would the Fed buy our bonds?"
That perception in the marketplace, Kotok said, will give the winners additional financial firepower in the form of cheaper borrowing costs. And by contrast, companies that didn't make the cut for the Fed's list will find it relatively harder to borrow.
"The divide between the winners and losers has now widened," Kotok said.
Read the full article at KTEN's website: https://www.kten.com/story/42305072/warren-buffett-doesnt-need-the-feds-help-but-hes-getting-it-anyway
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites. Sign up for our FREE Cumberland Market Commentaries Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
