This week finished with the largest buy skew of the year, with L/Os driving the magnitude of demand to the tune of $11bn (not a typo) while HFs were net sellers of ~$1bn.
Warren Buffett Controls 3% Of Treasury Bill Market, More Than "International Organizations, Stablecoin Issuers ..."
Berkshire Hathaway has struggled to find sizable deals in recent quarters, leaving Warren Buffett sitting on a mountain of cash and cash equivalents. According to JPMorgan analysts, Buffett now wields control over a staggering 3% of the entire US Treasury Bill market.
At Berkshire's annual meeting in May, Buffett told the audience, "It's a fair assumption" that its cash pile would exceed $200 billion at the end of this quarter amid the dearth of big-ticket deals due to very few opportunities.
Buffet's growing cash and or cash equivalents stockpiles intrigued fixed-income analysts at JPM, including a team led by Teresa Ho, who wrote in a recent note to clients that Berkshire Hathaway keeps excess cash primarily invested in T-bills.
"Over the years, their T-bill position has grown so large that, as of March-end, it owned $158bn in T-bills, comprising 3% of the market," Ho said.
She continued, "Berkshire Hathaway currently holds more T-bills than international organizations, stablecoin issuers, offshore MMFs, or LGIPs."
Berkshire Hathaway's current cash position is about 17.5%, which is in line with its long-term average when measured against the firm's total assets. Since 1997, the firm has kept cash on its balance sheet at an average of 13%.
Current figures from Bloomberg show Berkshire's cash and cash equivalents total $188 billion.
"We'd love to spend it, but we won't spend unless we think there's really something that has very little risk and can make us a lot of money," Buffett said at last month's annual meeting.
Buffett and his companies are cautious about finding deals as the high-for-longer interest rate environment unfolds, especially after Friday's screaming hot payrolls data forced Citi to shift its first rate cut forecast from July to September.
Fed swaps are only pricing in 1.58 cuts through the end of the year.
The absence of deals will only mean Berkshire's giant cash and cash equivalents pile will continue growing until valuations become more attractive.
German coalition attacks ‘beer tent’-style speech by Deutsche Börse chief
Stock exchange CEO Theodor Weimer’s populist tirade reflects growing frustration among business leaders
Chancellor Olaf Scholz’s coalition has reacted with outrage to a rant from Germany’s stock exchange chief that savaged the government’s policies and said the EU’s largest economy risked becoming a “developing country”.
The speech by Deutsche Börse chief executive Theodor Weimer, which has gone viral on social media, reflects growing frustration among business leaders with Scholz’s government, a fractious coalition of Social Democrats, Greens and liberals, as it struggles to boost the economy.
They accuse it of not doing enough to deal with Germany’s woes, including a growing skills shortage, excessive bureaucracy, high energy prices and a heavy tax burden. Germany was the worst-performing major economy last year and the government has forecast that gross domestic product will only grow by 0.3 per cent in 2024.
But politicians from the governing parties were shocked by the populist tone of Weimer’s tirade, which some said evoked the rhetoric of the far-right Alternative for Germany.
“The bizarre . . . speech is more beer tent than Dax-listed company executive,” Verena Hubertz, deputy leader of the Social Democrats’ parliamentary group, told the Financial Times.
“Concrete criticism is always welcome but the indiscriminate bashing of politicians . . . damages our political culture and the prestige of the German economy,” Sandra Detzer, economic spokesman for the Greens, told the FT.
A spokesman for Deutsche Börse described Weimer as a “man of clear words” who is “not known for putting lipstick on the pig”. He said the chief executive’s comments were “largely based on conversations with international investors”, and he had already expressed them publicly “on various occasions”.
A former Goldman Sachs banker and chief executive of HypoVereinsbank, Weimer made the 17-minute speech on April 17 at a meeting of the Bavarian Economic Council, a conservative-leaning business lobby in the southern German state.
But it only surfaced on social media platform X on Friday. It was then widely shared by conservatives and rightwing economists who have long been highly critical of the coalition’s policies.
Weimer said international investors found the Berlin government “stupid” — a view he said was shared by many of the country’s bosses — and were increasingly shunning Germany as a place to do business.
“Our image was never as bad as it is now,” he said.
Weimer, who is due to step down at Deutsche Börse by the end of the year, said international investment was only flowing into German companies because they were so undervalued. “We’ve become a junk shop,” he said.
He said he had held 18 meetings with Robert Habeck, the economy minister from the Green party, and “I can tell you: it’s an utter disaster”. The minister had started well, listened to business and done a few things right, he said, but “now the fundamentalists are coming through more and more”.
Weimer also criticised the government for, as he put it, “destroying” the country’s vital auto industry, pointing to the planned phaseout of petrol and diesel cars. Many critics of Germany’s auto-bosses have said that the car companies themselves are to blame for failing to invest enough in electric vehicles.
Weimer contrasted the situation in Germany with the attractiveness of the US, praising the way the Biden administration has provided billions in subsidies to clean technology providers under the Inflation Reduction Act.
Weimer said Germany had to stop being a “public economy” and be a “private economy”, adding: “In the US they say it doesn’t matter which old man is president — we as businessmen lead the country, and so we don’t care”.
Some German economists on social media pointed out the contradiction of demanding a smaller state on the one hand and more government subsidies on the other.
A spokesman for Scholz declined to comment.
But officials in Habeck’s economy ministry dismissed Weimer’s outburst as “pretty trite polemics”. They said the government had made huge strides in reducing bureaucracy, expanding renewable energy and simplifying immigration rules to help fill the skills gap.
They also rebuffed the suggestion that Germany was being shunned by international business, pointing to significant investments by Intel, TSMC, Eli Lilly and other big companies over the past three years.
“Most of the business chiefs I talk to have understood that the necessary modernisation of our economy won’t succeed by moaning about how ‘everything was better before’ but with energy, drive and innovation,” said Hubertz. “The dialogue with them seems to me to be a lot more productive.”
Netanyahu’s Chief Rival Quits Israeli Government to Try to Topple It
Move by Benny Gantz is aimed at forcing early elections but could complicate U.S. diplomatic effort to end war in Gaza
A centrist member of Israel’s war cabinet quit the government on Sunday over Prime Minister Benjamin Netanyahu’s handling of the war in Gaza, after a daring Israeli commando mission to rescue four hostages threatened to trip up efforts to end the conflict and free the remaining captives.
Benny Gantz, who leads the National Unity party and was one of three war cabinet members, said he was leaving the government due to a lack of long-term strategy for the war in Gaza, among other reasons.
“Fateful strategic decisions are stuck due to hesitancy and procrastination out of political considerations,” Gantz said, in televised remarks.
The Israeli government shake-up comes as U.S. and Israeli officials are set to renew a push to strike a deal with Hamas to free hostages and halt the war. But after the Israeli military rescue operation on Saturday, Israel’s strategic position in Gaza remains little changed, while the fallout may give both sides reason to harden their positions.
U.S. Secretary of State Antony Blinken is slated to sweep through the Middle East this week to invigorate efforts for a cease-fire and a broader deal with Saudi Arabia that would reduce Israel’s isolation and put the Palestinians on a path to their own state.
“By far the most effective, certain and right way to get all of the hostages out is to get a comprehensive cease-fire and hostage deal that President Biden described in public a few days ago,” U.S. national security adviser Jake Sullivan told CBS’s “Face the Nation” on Sunday.
Gantz’s move was aimed at toppling Netanyahu’s religious and right-wing coalition. But the strategy risked backfiring by empowering hawkish lawmakers less aligned with the Biden administration as Washington makes a renewed push to end the war in Gaza and free hostages held there.
In a response, Netanyahu called on Gantz to remain in the government.
“This isn’t the time to abandon the battle—it’s the time to unify forces,” Netanyahu wrote in a social-media post.
Gantz, a former head of the Israeli military, took his party into the government from the opposition shortly after Hamas’s Oct. 7 attacks. With Israelis mired in domestic unrest before the attack, the move was done to unify the country as it entered into a war. It also gave the Biden administration a like-minded moderate in the war cabinet who communicated often with officials from Washington.
Gantz’s departure from the government signifies that Israel’s unity at the start of the war has passed. The move is expected to fuel antigovernment protests and demands for early elections. Elections could happen as early as this summer, but more realistically early next year, if at all, analysts say. Gantz, in his speech on Sunday, called on Netanyahu to set an election date in the fall.
How Gantz’s strategy will affect Israel’s handling of the war is unclear.
Netanyahu could replace Gantz with hard-line lawmakers currently in the opposition or coalition partners who oppose the U.S.-backed Israeli proposal to end the war and free Israel’s hostages. He could also dissolve the war cabinet, bringing decision-making back to the regular security cabinet where his far-right coalition allies could have more sway. This could heighten divisions within the coalition itself as internal disagreements eventually become public.
Gantz and Israeli Defense Minister Yoav Gallant have both publicly complained their seats at the war cabinet table haven’t given them much influence over the war’s management.
Netanyahu, analysts say, along with the army’s top brass, is tightly in control of the war’s direction as well as the negotiations to free the hostages and end the war.
On Sunday, Israeli Foreign Minister Israel Katz said that Israel’s policy hadn’t changed and that it would continue to press Hamas militarily and pursue any avenue to free hostages while also pursuing a diplomatic solution to achieve its aims.
“Without military pressure, there won’t be any deal,” said Katz in an interview with Israel’s public broadcaster Kan.
The operation, said Yohanan Plesner, president of the Jerusalem-based Israel Democracy Institute think tank, could fuel demands in Israel for the government to agree to the deal on the table because it demonstrated that some of the hostages are still alive and how much their freedom means to Israelis. But overall, he said, there wasn’t likely to be any immediate change.
The rescue operation “has no strategic implications in terms of the grand scheme of things,” he said.
On Saturday night, thousands of demonstrators marched in Tel Aviv, protesting the way the government is conducting the war in Gaza and chanting “Now!” for a cease-fire deal.
Plesner said Saturday’s rescue operation could also strengthen those resolved to free hostages and defeat Hamas purely through military means.
The operation, wrote Israel’s hard-line National Security Minister Itamar Ben-Gvir in social-media posts, “shows there’s hope and it’s possible to defeat our enemies and return the hostages without giving in.”
Israel’s military doesn’t share that point of view.
“We know we cannot do operations to rescue all of them,” said Israeli military spokesman Rear Adm. Daniel Hagari to reporters on Saturday. “This is why we need to do everything possible to make it happen that the hostages come back home.”
Blinken is set to arrive Monday in the region, where he is expected to discuss the rescue operation and push for a cease-fire, according to an Israeli official. He will find that the country is facing many challenges beyond the war in Gaza, including a potential war with Lebanon and increasing international isolation, as well as political instability.
“Alongside the justified joy we must remember that all of the challenges Israel was dealing with…still remain,” Gantz said Saturday.
On Sunday, he said he would support the government if it backs the current Israeli proposal to free the hostages and potentially end the war.
For Hamas, the rescue operation could reinforce its request for guarantees that Israel will cease its operations in Gaza.
Yahya Sinwar, Hamas’s leader in Gaza, has said the current proposal to release hostages—broached by President Biden himself in a news conference a week ago—is unacceptable for Hamas because, in the group’s eyes, it doesn’t guarantee an end to the war.
Netanyahu has criticized the way the proposal has been characterized by Biden, arguing the outline allows for Israel to renew the war if it believes later-stage negotiations to reach a cease-fire are proving futile.
Iran promotes hardliners as presidential candidates
Guardian Council disqualifies prominent moderates but gives green light to one reformist MP
Iranian authorities have disqualified prominent moderates as candidates in the snap presidential election scheduled for later this month, narrowing the field to five hardline candidates and one mid-ranking reformist.
The Guardian Council, Iran’s constitutional watchdog responsible for vetting election candidates, announced the approved list on Sunday. Iran is set to hold early polls following the helicopter crash that claimed the life of Ebrahim Raisi, the country’s president.
Mohammad Bagher Ghalibaf, the current parliamentary Speaker, is seen by analysts as the leading hardline candidate.
The council disqualified Ali Larijani, Ghalibaf’s predecessor and a key figure in the 2015 nuclear deal, as well as Es’haq Jahangiri, a former reformist first vice-president. Both disqualified candidates had campaigned on platforms promising to steer the country away from its current hardline trajectory and to seek the easing of US sanctions. The Guardian Council did not provide reasons for its disqualifications.
Saeed Jalili, a former nuclear negotiator known for his opposition to engaging with western powers, was one of those approved. Among the staunchest hardliners, he is expected to be a strong rival to Ghalibaf.
In an attempt to introduce some competition from outside the hardline camp, authorities also approved Masoud Pezeshkian, a reformist member of parliament.
However, the main challenge for reformists will be to mobilise their voters, amid widespread scepticism about whether the election will have a real impact on the country’s future direction given that real power lies with the Supreme Leader Ayatollah Ali Khamenei. Analysts believe a victory for Pezeshkian would require a high turnout among the urban middle class and would depend on how the votes for hardliners were shared among the five candidates in that camp.
Reformist analyst Saeed Laylaz was hopeful that Pezeshkian’s approval marked a new chapter in Iran’s history. “His candidacy is beyond all expectations,” he told the Financial Times, predicting that it would promote a high voter turnout.
Former reformist vice-president Mohammad-Ali Abtahi said in a post on X that the main contenders were likely to be Ghalibaf and Pezeshkian. Other candidates include hardliners Mostafa Pourmohammadi, a former minister, Amir-Hossein Ghazizadeh Hashemi, a conservative politician, and Alireza Zakani, mayor of Tehran.
The economy remains the foremost challenge for the next president, with high inflation and a dramatically weakened national currency straining the nation. While the Islamic republic tries to keep the race under control, two people who have previously criticised Ghalibaf and his affiliates over corruption allegations were jailed on Sunday after being convicted on charges of “spreading misinformation and disturbing public opinion”.
Khamenei has meanwhile urged candidates not to undermine each other during the election campaign, which will begin on Wednesday.
Laylaz said reformists would throw their full weight behind Pezeshkian in the two weeks before the election. “The positive point about Pezeshkian is that he is not opposed to any of the main elements of power within the establishment. He also has a huge support base among the large Azeri-speaking community in north-western Iran. I can easily imagine him as Iran’s next president,” he said.
For Diamonds, It Matters Who De Beers Hooks Up With Next
As more American couples opt for lab-grown stones, whoever buys the diamond producer needs to be as sharp at marketing as mining
Is it more romantic to buy a diamond that formed in the bowels of the earth than one grown in a lab? Young American couples don’t think so.
That is awkward for diamond miner De Beers, especially now that it is looking for a new owner. Mining conglomerate Anglo American, which has been a top shareholder in the world’s best-known diamond producer for almost a century, wants to sell or separately list it as part of a radical breakup plan.
The diamond industry is going through a rough patch, so the timing isn’t great. Jewelry sales boomed in 2022 as consumers splurged on luxury goods, but last year they pulled back. Weak demand has sent diamond prices to 2003 levels, says Liberum analyst Ben Davis.
Moreover, traditional diamonds are increasingly being challenged by lab-grown ones, which cost a fifth of the price. In April, 45% of all engagement rings sold in the U.S. had a synthetic stone, according to Edahn Golan Diamond Research & Data. It is impossible to tell whether a diamond is natural or lab-grown with the naked eye, and they have the same chemical makeup.
Some thrifty grooms may be buying lab-grown stones and passing them off as the real deal. Yet the trend also reflects the different spending priorities of a new generation of couples.
The average federal student-loan debt is more than $37,000, according to the Education Data Initiative. After a run-up in house values, a 10% down payment on a median-priced home has risen 45% to $43,000 compared with the end of 2019. Some couples are choosing to scrimp on the ring to splurge on a memorable honeymoon instead.
Even without this upheaval, De Beers would be a difficult business to sell because of its mix of assets. It has huge mining operations, producing a quarter of global diamond supply by volume. But it also runs 40 high-end jewelry stores and is one of the most famous luxury brands in the world. De Beers has been associated with romance since its 1947 “a diamond is forever” marketing campaign.
No buyer is an obvious fit for all these different skills. Diamond industry analyst Edahn Golan says De Beers could attract a trophy-hunting private buyer from the Middle East or a sovereign-wealth fund, but they wouldn’t necessarily have mining expertise. The government of Botswana, which jointly owns some diamond mines with De Beers, is another possibility, as is a consortium of Indian diamond buyers.
Ideally for the diamond industry, a luxury goods company would buy it and use its marketing flair to make the mined stones shine to young consumers again. Cartier’s owner, Richemont, has already ruled out a bid. The world’s biggest luxury company, LVMH, wants to push into fine jewelry and splashed out $16 billion on Tiffany & Co. in 2021. But luxury companies will be reluctant to get their hands and reputations dirty in mining pits.
The worst outcome for the industry would be for De Beers to be sold to a buyer that wants to extract profit rather than invest in the long-term appeal of diamonds. “It would be a fundamental change for the industry if De Beers was no longer the steward of natural diamonds,” says market analyst Paul Zimnisky.
If De Beers opts for an initial public offering, coming up with a realistic valuation will be a challenge. The diamond miner is valued at $7.6 billion on Anglo American’s books, but outside estimates range anywhere from $600 million to $4 billion.
De Beers might try to pitch itself as a luxury brand rather than as an old-school miner. The company plans to more than double its number of stores worldwide to shine a brighter spotlight on its jewelry business. The two industries fetch dramatically different valuations: Miners BHP and Anglo American trade at enterprise values equivalent to roughly six times earnings before interest, taxes, depreciation and amortization, compared with 13 times for Richemont.
But De Beers doesn’t have the high margins or earnings consistency of the best European luxury companies. Its Ebitda rose 29% in 2022 before plunging 95% to $72 million last year. No one is quite sure where its finances will settle, with the diamond industry in a funk and U.S. consumers abandoning natural stones.
Assets like De Beers don’t come up for sale often. Minus the mines, cash-rich luxury tycoons might snap it up for the power of the brand alone. Perhaps the company should be broken apart, just like its owner Anglo American. Natural diamonds won’t necessarily be forever unless De Beers makes a good match.
Chinese companies reportedly plan to ask authorities to open an anti-subsidy investigation into imports of some dairy products from the EU - Global Times
Biotechs line up for IPOs in bullish sign for US listings market
Two developers of drugs for inflammatory diseases are latest to disregard poor performance of newly listed companies
Alumis and Upstream Bio, two US start-ups developing medicines for inflammatory diseases, have confidentially filed for initial public offerings as dozens more biotechs gear up to go public this year, according to people familiar with the matter.
The biotechs both submitted private filings with the US Securities and Exchange Commission in recent months, with a public offering expected before November’s presidential election which investors fear could roil markets, the people said.
In a bullish sign for the US biotech IPO market, dozens more life sciences companies have confidentially filed, according to advisers, undeterred by the poor performance of the 11 listings so far this year.
Alumis earlier this year completed a $259mn funding round — the biggest of the year — at a valuation of around $1bn, according to PitchBook, off the back of investor hype around its lead drug, which targets severe plaque psoriasis, a skin disease. Upstream’s lead drug helps to treat severe asthma, and is being studied in mid-stage trials. Both companies would probably list on Nasdaq, which is home to most biotech stocks.
The IPO market has been slow to recover after a sharp market downturn and rapid interest rate rises put most deals on hold in 2022, though there have been tentative signs of improvement in recent months.
Biotechs raised $1.7bn through US initial public offerings so far this year, up 64 per cent year on year according to Dealogic data. Fundraising by previously listed companies has rebounded faster, with so-called “follow-on” deals rising more than 100 per cent year on year to $16.5bn.
A revival in follow-ons is often seen as a key requirement to encourage riskier new listings.
Mike Perrone, a biotech analyst at RW Baird, said the listings market was much healthier than it had been for most of the past two years. But he cautioned that investor enthusiasm had dampened in the second quarter as traders pushed back expectations for how quickly the Federal Reserve will cut interest rates.
“People are being a little more guarded about new ideas . . . [new listings] will have to price in a way that is attractive to new investors,” he said.
Most of the biotechs that have listed in the US so far this year are trading below their IPO price. Bladder cancer specialist CG Oncology has been a notable exception, however, jumping around 80 per cent.
Johnson & Johnson-backed neuroscience start-up Rapport Therapeutics also had a good start to life as a public company on Friday, raising $136mn and climbing 22 per cent on its first day of trading. Australia-based Telix Pharmaceuticals also plans to list on Nasdaq in the coming weeks.
Given the patchy performance of recent deals, Perrone added that IPO candidates with less urgent funding requirements may choose to delay listing until after the presidential election, and to when there is more clarity over rate cuts.
Submitting a confidential public filing to the SEC does not oblige a company to list within a certain timeline, but it would put Alumis and Upstream on a footing to list quickly when a window opens. Alumis and Upstream declined to comment.
Alumis could also elicit some strategic interest before it goes public as its lead drug is in late-stage trials, and large pharmaceutical groups are hunting for drugs to replenish their pipelines.
“Anybody with a phase-three asset has a big target on their back . . . for obvious reasons,” said one person familiar with the company’s thinking.