Finance

Investor sentiment toward intermediate-term Treasury bonds may be changing.
Schwab Asset Management’s David Botset is seeing more flows into bonds with maturity rates typically between three and five years — and sometimes out to 10 years.

“People are starting to realize that we’re kind of at the peak of interest rate increases,” the firm’s head of innovation and stewardship told CNBC’s “ETF Edge” this week. “So, they’re looking to reposition the fixed-income portion of their portfolio to take advantage of where interest rates are likely to go next.”
It’s a shift from last year when short-term bonds and money market funds saw large inflows. Unlike 2023, more investors are trying to come up with a game plan for when the Federal Reserve lowers rates — which could happen as soon as this year.
“When interest rates come down at such point, you not only get the income from that [intermediate-term] bond, you get price appreciation because yields and prices of bonds are the inverse,” said Botset.
In the middle of the yield curve, he added, it’s “less likely for [rates] to come down, and you’ll be able to capture that yield for a longer period of time.”
But Nate Geraci, The ETF Store president, cautions against betting too heavily on the Fed’s next move.

“Taking on some duration risk makes sense, but I wouldn’t go too far out on the curve,” he said. “The risk-return dynamics [of] getting too far out on the long end don’t make a ton of sense to me.”

‘Not a sure thing’

Geraci believes the Fed’s battle against inflation isn’t over, and that could change the timeline for rate cuts.
“If you’re starting to go out on the curve, you’re making the bet that the Fed is actually going to get everything right this time. And they very well may… but that’s not a sure thing,” Geraci said. “Inflation data could still continue to come in hot. The last print we saw was higher than the market anticipated. So, the Fed may stay higher for longer, and I just think you have to be cognizant of that as an investor.”
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“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” Buffett wrote.
“Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance,” Buffett said.

Warren Buffett and Charlie Munger at press conference during the Berkshire Hathaway Shareholders Meeting in Omaha, Nebraska, April 30, 2022.

Berkshire Hathaway’s Warren Buffett said his sprawling conglomerate may only slightly outperform the average American company due to its sheer size and the lack of buying opportunities that could make an impact.
The Omaha-based giant — owner of everything from BNSF Railway to Dairy Queen and 6% of Apple — has by far the largest net worth recorded by any American business and now reached 6% of that of the total S&P 500 companies, Buffett said in his annual letter released Saturday.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” Buffett wrote. “Some we can value; some we can’t. And, if we can, they have to be attractively priced.”
The last sizable deal Berkshire did was buying insurer and conglomerate Alleghany for $11.6 billion in 2022. The “Oracle of Omaha” has also acquired a 28% stake in energy giant Occidental Petroleum, while ruling out buying the whole company. These moves, while significant, didn’t live up to the expectation of an “elephant-sized” target that Buffett has been wanting to make for years.
Berkshire held a record $167.6 billion in cash in the fourth quarter.
“Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance,” Buffett said.
Berkshire did build a 9% stake in five Japanese trading companies — Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo, which Buffett intends to own long term.

The 93-year-old Buffett said Berkshire’s group of diversified, quality businesses should provide “slightly better” performance than the average U.S. company, but anything more than that is unlikely.
‘With our present mix of businesses, Berkshire should do a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital,” Buffett said. “Anything beyond ‘slightly better,’ though, is wishful thinking.”
Berkshire recently hit consecutive record highs, trading above $620,000 for Class A shares and boasting a market value above $900 billion.
The conglomerate’s stock has gained about 16% in 2024, more than double the S&P 500′s return, after climbing 16% in all of 2023. More

Berkshire Hathaway posted operating earnings — which refers to profits from businesses across insurance, railroads and utilities — of $8.481 billion in the fourth quarter.
Operating earnings rose to $37.350 billion in 2023, up 17% from $30.853 billion in the prior year.
Berkshire held $167.6 billion in cash in the fourth quarter, a record level that surpasses the $157.2 billion the conglomerate held in the prior quarter.

Warren Buffett ahead of the Berkshire Hathaway Annual Shareholder’s Meeting in Omaha, NE.
David A. Grogan | CNBC

Berkshire Hathaway on Saturday reported a big rise in operating earnings in the fourth quarter, thanks to huge gains in its insurance business, while its cash pile expanded to record levels.
The Omaha-based conglomerate posted operating earnings — which refers to profits from businesses across insurance, railroads and utilities — of $8.481 billion in the quarter ending December. That’s 28% above the $6.625 billion from the year-ago period.

For the full year 2023, that brought operating earnings up to $37.350 billion, up 17% from $30.853 billion in the prior year.
Berkshire also held $167.6 billion in cash in the fourth quarter, a record level that surpasses the $157.2 billion the conglomerate held in the prior quarter.
Berkshire Class A shares have rallied roughly 16% this year.

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Berkshire Hathaway Class A shares

Geico, the auto insurer considered Buffett’s “favorite child,” reported a profitable year, with net underwriting earnings of $5.428 billion in 2023. The improved earnings was driven by premium rate increases and lower claims last year.
Meanwhile, Burlington Northern Santa Fe (BNSF) reported full-year net earnings of $5.087 billion last year, a 14% drop from $5.946 billion in the prior year.

Insurance underwriting surged to $848 million in the fourth quarter, spiking 430% from $160 million from the year-ago period, driving operating earnings for the conglomerate.
Insurance investment income also rose to $2.759 billion on a quarterly basis, up 37% from $2.0 billion in the same period in the year prior.
But operating earnings from railroads fell in the fourth quarter, as it did in utilities and energy. Operating earnings from railroads dropped to $1.355 billion, down from $1.469 billion a year ago. Operating earnings for utilities and energy fell to $632 million, down from $739 million the prior year.
Overall Berkshire earnings, which include the company’s investment gains from publicly traded companies, more than doubled during the quarter from the year-earlier period, reaching $37.57 billion. For the full year, overall profits came in at $96.22 billion.
The conglomerate, however, included its usual disclaimer advising investors to look past fluctuations in quarterly results.
“We believe that investment gains and losses on investments in equity securities, whether realized from dispositions or unrealized from changes in market prices, are generally meaningless in understanding our reported periodic results or evaluating the economic performance of our operating businesses,” read a statement in the annual report. More

Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.
David A. Grogan | CNBC

Warren Buffett shared a heartfelt tribute to the late Charlie Munger, calling his business partner of 60 years the architect of today’s Berkshire Hathaway.
In his must-read annual letter Saturday, the 93-year-old “Oracle of Omaha” detailed Munger’s instrumental role in helping him expand his conglomerate and reflected on his fruitful and loving relationship with his right-hand man.

“In reality, Charlie was the ‘architect’ of the present Berkshire, and I acted as the ‘general contractor’ to carry out the day-by-day construction of his vision,” Buffett wrote. “Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father.”
Munger died in November, about a month shy of his 100th birthday. Munger’s investment philosophy rubbed off on a young Buffett, giving rise to the sprawling conglomerate worth $900 billion today. Buffett reminisced the beginning of acquiring Berkshire, then a textile mill, and how Munger instilled a blueprint in him to transform the company.
“Charlie, in 1965, promptly advised me: ‘Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.’ With much back-sliding I subsequently followed his instructions,” Buffett wrote in the letter.
Buffett studied under fabled father of value investing Benjamin Graham at Columbia University after World War II and developed an extraordinary knack for picking cheap stocks. It was Munger who made him realize this cigar-butt investing strategy could only go so far, and if he wanted to expand Berkshire in a significant way, it wouldn’t be enough.
“Many years later, Charlie became my partner in running Berkshire and, repeatedly, jerked me back to sanity when my old habits surfaced,” Buffett said. “Until his death, he continued in this role and together we, along with those who early on invested with us, ended up far better off than Charlie and I had ever dreamed possible.”

The Omaha-based conglomerate — owner of everything from Geico insurance to BNSF Railway to Dairy Queen ice cream — recently touched consecutive record highs, trading above $620,000 for Class A shares and boasting a market value above $900 billion.
“Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect,” Buffett said. More

Buffett Watch

Berkshire Hathaway Portfolio Tracker

Warren Buffett tours the floor ahead of the Berkshire Hathaway Annual Shareholder’s Meeting in Omaha, NE.
David A. Grogan | CNBC

Warren Buffett released Saturday his annual letter to shareholders.
In it, he renders a tribute to his longtime friend and right hand man Charlie Munger, who died late in 2023. He also discusses his outlook for the company. Check out the PDF below for the full letter: More

Credit card interest rates are at all-time highs.
Consumers who carry a balance paid an average annual percentage rate of 22.8% at the end of 2023, according to federal data.
APRs have jumped as the Federal Reserve has raised borrowing costs.
Issuers have also been increasing their profit margins, according to the Consumer Financial Protection Bureau.

Runstudio | The Image Bank | Getty Images

Credit card interest rates have ballooned to record highs in recent years — and the growing portion of the formula that generates profit for card issuers is partly to blame, according to a new analysis by the Consumer Financial Protection Bureau.
The average consumer paid a 22.8% interest rate on their credit card balance at the end of 2023, the highest since the Federal Reserve began tracking data in 1994.

Interest charges, expressed as an annual percentage rate, are up about 10 points in the past decade, from 12.9%. Total credit card debt and average balances are also at record highs.
“By some measures, credit cards have never been this expensive,” wrote CFPB’s Dan Martinez, senior credit card program manager, and financial analyst Margaret Seikel.
More from Personal Finance:Here are some ways to maximize your financial aid for collegeWith mortgage rates high, renting is less expensive than buyingHere’s how to avoid unexpected fees with payment apps

Credit card issuers have raised ‘APR margins’

Credit card APRs began moving sharply higher in 2022 as the Fed raised its benchmark interest rate to tame inflation. Interest rates on credit cards — and other consumer loans — generally move in tandem with Fed policy, according to a barometer known as the “prime rate.”
However, credit card companies have also simultaneously raised their average “APR margin,” according to the CFPB.

APR margin is the difference between the total APR and the “prime rate.” It’s a proxy for card issuers’ profits commensurate with their lending risk, the CFPB said.
Those margins are at record highs. They averaged 14.3% in 2023, up from 9.6% in 2013, according to the watchdog’s analysis, issued Thursday.
Almost half the increase in total credit card interest rates in the past decade is due to issuers raising their APR margins, the analysis said.

However, the CFPB authors questioned if those higher profits were justified since issuers don’t seem to be taking more risk by extending credit to more consumers with lower credit scores, for example.
The share of consumers with “subprime” credit scores who hold a credit card has been “relatively stable,” they said.
Major credit card issuers got $25 billion in extra interest by raising their average APR margin over the past 10 years, the CFPB estimated. The average consumer with a $5,300 balance across credit cards would have paid an extra $250 in 2023 due to this increase, the agency said.
“Increases to the average APR margin … have fueled issuers’ profitability for the past decade,” Martinez and Seikel wrote. “Higher APR margins have allowed credit card companies to generate returns that are significantly higher than other bank activities.”

Risk may be a factor, too

The Consumer Bankers Association, a trade group that represents credit card and other financial companies, disputed the CFPB’s characterization of margins and profits.
“The CFPB claims that rising credit card interest rates over the past decade have been against a background of a ‘relatively stable share of cardholders with subprime credit scores,'” CBA president and CEO Lindsey Johnson said in a written statement. “This simply isn’t true.”
For example, about 42% of “deep subprime” borrowers had a credit card as of year-end 2022, its highest point since at least 2013, according to CFPB data. “Deep subprime” borrowers have the worst credit relative to other groups. Their credit scores are below 580.

“Lenders will only lend at a rate at which they’re compensated for the risk they’re taking,” said Greg McBride, chief financial analyst at Bankrate.
The shares of other “below-prime” borrowers — “near-prime” and “subprime” consumers — holding a credit card have been relatively flat for the past several years, according to CFPB data. Their credit scores range between 580 and 659.
Credit card delinquencies may be an additional risk factor driving card issuers’ rationale to raise margins, McBride said.
For example, “serious” card delinquencies — payments that are 90 days or more overdue — have increased across all age groups, a signal of financial stress, according to the Federal Reserve Bank of New York.
About 9.7% of credit card balances were seriously delinquent in Q4 2023, up from 7.7% a year earlier. While up in recent months, the current share of seriously delinquent balances is flat relative to 2013.

Industry concentration may also play a role

However, industry concentration is another reason card companies may have raised APR margins, McBride said.
“A greater concentration of market share does tend to produce greater pricing power,” he said. That’s also generally the case for all sorts of industries, including airlines and cable companies, he added.
Large lenders account for most of the credit card market. The 10 biggest control 83% of it, according to CFPB data.
There may be additional consolidation soon. This week, Capital One Financial announced a $35.3 billion acquisition of Discover Financial. They’re among the nation’s biggest credit card issuers. The merger still requires regulator approval.

How to manage credit card interest

There’s a way consumers can sidestep higher interest rates entirely. For instance, consumers can pay credit card bills on time and in full each month, according to experts.
In other words, don’t carry a balance. Such cardholders won’t pay interest. Importantly, making a card’s minimum monthly payment doesn’t equate to paying one’s bill in full.
Paying in full and on time each month is also a good way to raise one’s credit score, which may make lower-interest-rate cards available to consumers, McBride said.
Consumers with good credit may also be able to transfer an existing balance to a new credit card with a 0% APR introductory offer, McBride said. Some issuers are currently extending such 0% offers for up to 21 months, which “gives you quite a runway to get the debt paid off without the headwind of high interest rates,” he said.Don’t miss these stories from CNBC PRO: More

The German central bank on Friday reported an annual distributable profit of zero, after it released 19.2 billion euros ($20.8 billion) — the entirety of its provisions for general risks — and 2.4 billion euros from its reserves.
The Bundesbank can bear the financial burdens, as its assets are significantly in excess of its obligations,” Bundesbank President Joachim Nagel said in a press conference.
The ECB on Thursday posted its first annual loss since 2004, of 1.3 billion euros, even as it also drew on its own risk provisions of 6.6 billion euros, as higher interest rates hit central banks’ securities holdings.

Joachim Nagel, president of Deutsche Bundesbank, during the central bank’s “Annual Report 2023” news conference in Frankfurt, Germany, on Friday, Feb. 23, 2024. 
Bloomberg | Bloomberg | Getty Images

Losses incurred by the German central bank rocketed into the tens of billions in 2023 due to higher interest rates, requiring it to draw on the entirety of its provisions to break even.
The Bundesbank on Friday reported an annual distributable profit of zero, after it released 19.2 billion euros ($20.8 billion) in provisions for general risks, and 2.4 billion euros from its reserves. That leaves it with just under 700 million euros in reserves, the central bank said.

Net interest income was negative for the first time in its 57-year history, declining by 17.9 billion euros year-on-year to -13.9 billion euros.
“We expect the burdens to be considerable again for the current year. They are likely to exceed the remaining reserves,” Bundesbank President Joachim Nagel said in a press conference.
The central bank will report a loss carryforward that will be offset through future profits, he said.
Nagel added: “The Bundesbank’s balance sheet is sound. The Bundesbank can bear the financial burdens, as its assets are significantly in excess of its obligations.”

The German central bank — and many of its peers — have significant securities holdings exposed to interest rate risk, which have been significantly impacted by the European Central Bank’s unprecedented run of rate hikes.

The ECB on Thursday posted its first annual loss since 2004, of 1.3 billion euros, even as it also drew on its own risk provisions of 6.6 billion euros. It follows the euro zone central bank’s near-decade of financial stimulus, printing money and buying large amounts of government bonds to boost growth, which are now requiring hefty payouts.
The central bank of the Netherlands on Friday reported a 3.5 billion euro loss for 2023.
Central banks stress that annual profits and losses do not impact their ability to enact monetary policy and control price stability. However, they are watched as a potential threat to credibility, particularly if a bailout becomes a risk, and they impact central banks’ payouts to other sources.
In the case of the Bundesbank, there have been no payments to the Federal budget for several years and, it said Friday, there are unlikely to be for a “longer” period of time. The ECB, meanwhile, will not make profit distributions to euro zone national central banks for 2023.
Nagel further said Friday that raising interest rates had been the right thing to do to curb high inflation, and that the ECB’s Governing Council will only be able to consider rate cuts when it is convinced inflation is back to target based on data.
On the struggling German economy, he said: “Our experts expect the German economy to gradually regain its footing during the course of the year and embark onto a growth path. First, foreign sales markets are expected to provide tailwinds. Second, private consumption should benefit from an improvement in households’ purchasing power.” More

Block reported strong revenue growth in Cash App and Square revenue.
The company saw $5.77 billion in revenue for the fourth quarter.

Jack Dorsey, co-founder and chief executive officer of Twitter Inc. and Square Inc., listens during the Bitcoin 2021 conference in Miami, Florida, on Friday, June 4, 2021.
Eva Marie Uzcategui | Bloomberg | Getty Images

Block stock rose as much as 14% in extended trading Thursday after the payments company reported fourth-quarter earnings that beat analyst estimates on gross profit and showed strong growth in its Square and Cash App revenue.
Here’s how the company did, compared to an analyst consensus from LSEG, formerly Refinitiv:

Earnings per share: 45 cents, adjusted. Not comparable to estimates.
Revenue: $5.77 billion vs. $5.70 billion expected

Block posted $2.03 billion in gross profit, up 22% from a year ago. Analysts tend to focus on gross profit as a more accurate measurement of the company’s core transactional businesses.
The company raised its adjusted EBITDA forecast to at least $2.63 billion from $2.40 billion.
Block, formerly known as Square, ended the year with 56 million monthly transacting actives for Cash App in December, with most of those customers using it for either peer-to-peer payments or the Cash App Card.
Its Cash App business reported $1.18 billion in gross profit, a 25% year-over-year rise.
The company, which is run by Jack Dorsey, said its Cash App Card has 23 million monthly actives in December, up 20%. That is more than two times the growth rate of total monthly actives.

“We believe this strategy will enable us to build the largest network in the long run, with a highly engaged customer base using Cash App as their primary banking solution,” Dorsey said in a note to shareholders.
The payments firm has focused on slimming down operations in recent months. In January, the Block CEO reportedly said in a note to staffers that the company had laid off a “large number” of workers. This followed another round of layoffs in December. More