Raphael Stevens

Charlie Munger at Berkshire Hathaway’s annual meeting in Los Angeles California. May 1, 2021.
Gerard Miller

The late investment icon Charlie Munger said Berkshire Hathaway, the conglomerate he and Warren Buffett built over the last five decades, could have doubled its value if they applied leverage, or borrowed money, when buying businesses and common stocks.
Munger, Berkshire Hathaway’s vice chairman who died Tuesday just a month shy of his 100th birthday, stressed that he and Buffett almost never used this common Wall Street practice, because they always put their shareholders first.

“Berkshire could easily be worth twice what it is now. And the extra risk you would’ve taken would’ve been practically nothing. All we had to do is just use a little more leverage that was easily available,” Munger said in CNBC’s special “Charlie Munger: A Life of Wit and Wisdom,” which aired Thursday.
“The reason we didn’t is the idea of disappointing a lot of people who had trusted us when we were young … If we lost three quarters of our money, we were still very rich. That wasn’t true of every shareholder,” he told CNBC’s Becky Quick in the previously unaired interview. “Losing three quarters of the money would’ve been a big letdown.”
The use of leverage is prevalent on Wall Street as it provides a way to boost buying power and enhance the potential return in any given investment. But it also significantly increases the risk as losses can multiply quickly if the investment doesn’t pan out as expected.
Beware an ‘unsettled mind’
Buffett, often called the “Oracle of Omaha,” previously explained the perils of using debt and leverage to buy stocks, saying it can make an investor short-sighted and panicky when times turn volatile.
“There is simply no telling how far stocks can fall in a short period,” he wrote in his 2017 annual letter to shareholders. “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

Munger said he and Buffett had been “very cautious” in handling their shareholders’ money over the years. Berkshire shareholders tend to be long-term investors like all the conglomerate’s top executives, often treating their stock like a savings account.
“If Warren and I had owned Berkshire without any shareholders that we knew, we would’ve made more. We would’ve used more leverage,” Munger said in the CNBC special.
Still, Munger acknowledged that Berkshire did use leverage in the form of its insurance float. Insurers receive premiums upfront and pay claims later, so they can invest the large sums collected — cost free — for their own benefit.
“Insurance float gave us some leverage. That’s why we went into it,” he said. More

Robinhood CEO Vlad Tenev defended payment for order flow (PFOF), saying it’s “inherently here to stay.”
PFOF describes the practice of routing trades through market-makers like Citadel Securities in return for a slice of the profits.
It is viewed as controversial because of the perceived conflict of interest it creates between the broker and clients.

Vlad Tenev, co-founder and CEO of Robinhood, rings the opening bell at the Nasdaq on July 29, 2021.
Source: The Nasdaq

Robinhood CEO Vlad Tenev says he doesn’t believe that the payment for order flow (PFOF) model of market-maker routing that the company incorporates in the U.S. is under threat.
That’s despite calls from notable consumer trading advocates and regulators for a ban on the practice.

Speaking with CNBC, Tenev defended the practice of PFOF, saying that it’s “inherently here to stay.” PFOF is the practice of routing trades through market-makers like Citadel Securities in return for a slice of the profits.
“If I’m a business that’s selling things, and I’m generating transaction revenue, the more you use it, the more money you get. Inherently, there’s a conflict there because I make more money by getting you to transact more,” Tenev told CNBC in an interview.
“I think it’s important not to take the baby out with the bathwater. What does that mean, you shouldn’t make revenue on a transaction-based business? That’s unreasonable. And I think the point has been politicised to some degree.”
PFOF is viewed as controversial because of the perceived conflict of interest it creates between the broker and clients.
Critics say that brokers have an incentive to direct order flow to market makers offering PFOF arrangements over the interests of their clients.

PFOF is banned in the U.K., where Robinhood announced plans to launch Thursday.
The U.S. Securities and Exchange Commission had looked at banning PFOF in light of concerns surrounding the practice, but opted not to, while the European Union has imposed a blanket ban on PFOF.
PFOF accounts for a small chunk of Robinhood’s revenues today, Tenev said, while much of its income today comes from net interest income which is generated from cash in user balances.
Transaction-based revenues, which includes PFOF, decreased 7% in Robinhood’s second fiscal quarter to $193 million.
“If you look at equities, PFOF in particular, it’s about 5%. of our revenue, so a much smaller component of the overall pie. And we’ve diversified the business quite a bit,” including other areas like securities lending, margin, and subscriptions.

Robinhood’s race to the bottom on commission fees has forced many major players in the wealth management world to slash their own fees to zero, in turn causing some companies to wind up or sell up to competitors.
TD Ameritrade was sold to Charles Schwab for $26 billion, while Morgan Stanley bought E-Trade for $13 billion.
“In the U.S., Robinhood came along and really changed the industry,” Tenev said. “The discount brokers that are charging commissions essentially ceased to exist.”
“They had to drop commissions to zero. A lot of them couldn’t survive that transition as standalone companies and ended up consolidating. And we’re still living through the the end result of that.” More

JOHANNES EISELE | AFP | Getty Images

Charlie Munger didn’t manage to help pull off one final deal with his lifelong partner Warren Buffett, but he remained hopeful that Berkshire Hathaway, with nearly $160 billion cash, will find its elephant one day.
“We have $160 billion in cash, plus a great credit rating we deserve. And who in the hell has that? Not very many,” Munger said in CNBC’s special “Charlie Munger: A Life of Wit and Wisdom,” which aired Thursday.

“It can’t be anything too small because it doesn’t matter how good it is, we’re of a size now where too small just doesn’t move the needle very much. So we need something big to come along and use up all our cash, and some borrowing,” he told CNBC’s Becky Quick in an interview conducted shortly before his death this week at age 99.
The Omaha-based conglomerate held a record level of cash — $157.2 billion — at the end of September. Buffett has been touting a possible “elephant-sized acquisition” for years, but his recent deals didn’t quite meet such lofty expectations.
Berkshire bought insurer Alleghany Corp. for $11.6 billion last year, while expanding its energy empire by purchasing Dominion Energy’s natural gas pipeline and storage assets for almost $10 billion. But Berkshire’s total market value now approaches $800 billion.
Squeeze new lemons
Munger, Berkshire’s late vice chairman, said such a mammoth deal may have to be done by the next generation of leaders at the conglomerate.
“I don’t think it’s hopeless. It may have to be done by some different people,” Munger said. “You know that next time, we may not be able just to squeeze a little more lemon juice out of the old lemons. They may have to squeeze some new lemons, meaning new people have to make the decisions.”

It could be Greg Abel, vice chairman of Berkshire’s non-insurance operations and Buffett’s designated successor, or Ajit Jain, Berkshire’s vice chairman of insurance operations, or Buffett’s two investing lieutenants, Ted Weschler and Todd Combs, Munger said, adding it could also be “somebody not yet identified.”
Berkshire’s huge war chest had been a cause for concern when interest rates were near zero, but with short-term rates topping 5% the cash pile is now earning a substantial return.
Over the years, Munger often defended Berkshire’s inaction, always seeing the virtue of sitting on the sidelines, biding its time, letting cash grow and patiently waiting for a good opportunity.
“There are worse situations than drowning in cash, and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back,” Munger once said. More

China’s retail sales have generally remained lackluster since the onset of the Covid-19 pandemic in early 2020.
“I’m hopeful we will see an incremental improvement over the next year,” said Daniel Zipser, leader of McKinsey’s Asia consumer and retail practice. “But there are no signs it should be a strong, v-shaped recovery.”
Zipser said there’s a clear shift in China for consumers to spend on services rather than goods.

Consumers eating shabu shabu at a restaurant in Lianyungang City, East China’s Jiangsu Province, Nov 26, 2023.
Future Publishing | Future Publishing | Getty Images

BEIJING — China’s consumer isn’t going to be spending big anytime soon, which means companies need to be more strategic to tap what’s still a massive market, according to McKinsey.
“I’m hopeful we will see an incremental improvement over the next year,” said Daniel Zipser, leader of McKinsey’s Asia consumer and retail practice.

“But there are no signs it should be a strong, V-shaped recovery,” said Zipser, who is also a senior partner at McKinsey and author of a new report called “China Consumption: Start of a New Era.”
China’s retail sales have generally remained lackluster since the onset of the Covid-19 pandemic in early 2020. Despite the end of Covid controls at the end of last year, falling global demand for Chinese goods and a slump in the real estate market have weighed on the country’s overall economy.
Looking ahead, growth is expected to slow. The government is tackling long-standing issues in the real estate sector, while tensions with major trade partners such as the U.S. have risen.

The overall economic recovery and the recovery of the property market has not been what people hoped for.

Daniel Zipser
senior partner, McKinsey

All that has kept Chinese consumer sentiment at the same level it was about 12 months ago, when the country was still living under Covid restrictions, Zipser pointed out in a phone interview Thursday.
“The overall economic recovery and the recovery of the property market has not been what people hoped for,” he said. “People are aware of the geopolitical tensions, very aware of … exports declining.”

“They don’t yet have the confidence this will be different [in] 2024, 2025.”

Clear winners and losers

Despite the overall gloom, there’s a divergence in how Chinese consumer companies are affected.
McKinsey’s analysis of 80 publicly listed consumer companies that generate most of their revenue from mainland China found a significant divergence — many saw double-digit growth while others saw double-digit declines.
“I think in the old days, you could invest in whatever you want[ed], everything will grow, most companies have been doing well,” Zipser said. “Those days are over.”

Today, the market is more competitive, he said, pointing out that the product is much more important and the “consumer is much more sophisticated.”
Those tastes have changed swiftly with the country’s economic boom of past decades, creating a lucrative market for American corporations such as Apple and Starbucks.
Between 2012 and 2022, China’s per capita GDP more than doubled to $12,720, according to the World Bank. U.S. GDP per capita rose by about 47% during those 10 years to $76,398 in 2022, the data showed.
China’s massive size means that even if the economy slows from a high pace of growth to around 4% or 5% a year, the country’s incremental increase in retail sales will be the same as the combined total retail sales of South Korea, India and Indonesia, Zipser said.
Slower growth is still growth. China’s retail sales rose by 7.6% in October from a year ago, beating analysts’ expectations.
Major e-commerce companies reported third-quarter revenue growth. While growth for most companies was modest, bargain-focused Pinduoduo saw revenue nearly double from a lower base.

What people are buying

Consumers in China are spending more on services, rather than goods, Zipser said.
“We see particularly the restaurant companies doing well,” he said, noting related categories such as alcohol are also getting a boost.
He said he expects people in China will travel more internationally as it gets easier to apply to visas and the cost of flights comes down.
The McKinsey report found that international travel is only about half of where it was prior to the pandemic.
Zipser added that in contrast to the rise of value brands in more mature markets, premium brands are generally doing well in China.
He said that’s because when consumers in China are “trading down,” instead of buying a cheaper brand, they are actually finding discounted ways to buy the same product, spending less overall or purchasing a smaller package size.
Companies that adapt to new consumer trends also do well.
During the latest Singles Day shopping festival that ended Nov. 11, traditional e-commerce channels saw gross merchandise volume — an industry metric of sales over time — fall by 1% from last year, McKinsey found.
In contrast, livestreaming saw GMV climb by 19% during that time, the report said. More

The SEC is formally engaging with asset managers ahead of a much anticipated decision on whether the regulator will approve a bitcoin exchange-traded fund.
SEC officials also met with representatives from BlackRock and the Nasdaq on Wednesday, according to a separate memo.
The growing confidence in the market that a bitcoin ETF will eventually be approved appears to have boosted the price of bitcoin.

Filip Radwanski | Sopa Images | Lightrocket | Getty Images

The U.S. Securities and Exchange Commission is formally engaging with asset managers ahead of a much anticipated decision on whether the regulator will approve a bitcoin exchange-traded fund, according to memos published this week.
The regulator said in a memo that it met with Grayscale on Thursday about the potential conversion of the Grayscale Bitcoin Trust into an ETF. The SEC had previously blocked this move, but Grayscale challenged that decision in court and won.

SEC officials also met with representatives from BlackRock and the Nasdaq on Wednesday, according to a separate memo. BlackRock filed for a bitcoin ETF in June, followed shortly by a handful of other asset management firms.
While the SEC could still decide to block crypto ETFs, many industry experts expect that such funds will launch in the U.S. early next year. The regulator has delayed decisions on several bitcoin funds in recent months and may choose to approve or deny all applications at around the same time.
SEC Chair Gary Gensler has been a vocal critic of crypto but has said in recent public appearances that he would listen to his staff’s input on a potential bitcoin ETF.
Grayscale also recently hired John Hoffman, a longtime Invesco ETF executive, as a managing director. Hoffman will serve as the head of distribution and strategic partnerships for Grayscale, a sign that the crypto asset manager is gearing up to launch the fund if approved.
The growing confidence in the market that a bitcoin ETF will eventually be approved appears to have boosted the price of bitcoin. The cryptocurrency was trading above $37,000 on Thursday after falling to about $26,000 late this summer.

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The share of days worked from home ballooned in the Covid-19 pandemic’s early days, and subsequently declined through 2022.
However, it has flatlined in 2023, suggesting more companies aren’t calling employees back to the office.
Long-term technological and demographic trends suggest the prevalence of remote work may grow in 2025 and beyond.

Morsa Images | Digitalvision | Getty Images

The share of workers being called back to the office has flatlined, suggesting the pandemic-era phenomenon of widespread remote work has become a permanent fixture of the U.S. labor market, economists said.
“Return to the office is dead,” Nick Bloom, an economics professor at Stanford University and expert on the work-from-home revolution, wrote this week.

In May 2020 — the early days of the Covid-19 pandemic — 61.5% of paid, full workdays were from home, according to the Survey of Working Arrangements and Attitudes. That share fell by about half through 2022 as companies called employees back to in-person work.
However, the story has changed in 2023.
The share of paid work-from-home days has been “totally flat” this year, hovering around 28%, said Bloom in an interview with CNBC. That’s still four times greater than the 7% pre-pandemic level. The U.S. Census Bureau’s Household Pulse Survey shows a similar trend, he said.

Meanwhile, Kastle data that measures the frequency of employee office swipe-ins shows that office occupancy in the 10 largest U.S. metro areas has flatlined at around 50% in 2023, Bloom said.
“We are three and a half years in, and we’re totally stuck,” Bloom said of remote work. “It would take something as extreme as the pandemic to unstick it.”

Why remote work has had staying power

The initial surge of remote work was spurred by Covid-19 lockdowns and stay-at-home orders.
But many workers came to like the arrangement. Among the primary benefits: no commute, flexible work schedules and less time getting ready for work, according to WFH Research.
The trend has been reinforced by a hot job market in the U.S. since early 2021, giving workers unprecedented leverage. If a worker didn’t like their company benefits, odds were good they could quit and get a job with better work arrangements and pay elsewhere.
Research has shown that the typical worker equates the value of working from home to an 8% pay raise.
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However, the work-from-home trend isn’t just a perk for workers. It has been a profitable arrangement for many companies, economists said.
Among the potential benefits: reduced costs for real estate, wages and recruitment, better worker retention and an expanded pool from which to recruit talent. Meanwhile, worker productivity hasn’t suffered, Bloom said.
“What makes companies money tends to stick,” he said.

Remote policies show ‘incredible diversity’

These days, most remote work is done as part of a “hybrid” arrangement, with some days at home and the rest in the office. About 47% of employees who can work from home were hybrid as of October 2023, while 19% are full-time remote and 34% are fully on site, according to WFH Research.
About 11% of online job postings today advertise positions as fully remote or hybrid, versus 3% before the pandemic, said Julia Pollak, chief economist at ZipRecruiter.
While remote work is the labor market’s new normal, there’s significant variety from company to company, Pollak said.

For example, 7% of workers are required to be in the office one day a week, while 9% are required in two days, 13% three days and 8% four days, according to a recent ZipRecruiter employer survey. Nearly 1 in 5, 18%, have discretion over their in-person workdays.
“The new normal is this incredible diversity,” Pollak said.
“There’s still a lot of experimentation going on,” she said. “But the aggregate effect is that remote work is steady.”

Why remote work will likely increase beyond 2025

While it’s unlikely that the prevalence of remote work will ever decline to its pre-pandemic level, it’s possible that a U.S. recession — and a weaker job market — may cause it to slide a bit, economists said.
“Employers say the biggest benefit of remote work is retention,” Pollak said. In a labor market with more slack, “retention gets much easier.”
However, since work-from-home arrangements also save companies money, it’s likely a severe recession would be necessary to see a meaningful decline, Bloom said.

Long-term trends suggest the share of employees who work from home is only likely to grow from here, possibly starting in 2025, Bloom said.
For example, improving technology will make remote work easier to facilitate, Bloom said. Younger firms and CEOs also tend to be more enthusiastic about hybrid work arrangements, meaning they’ll get more popular over time as existing business heads retire, he added.Don’t miss these stories from CNBC PRO: More