Dirty little secret

MARKETS

• Trade: When things are going well...you gotta keep up the momentum. President Trump delayed the deadline for a tariff increase on Chinese goods as a result of "productive talks." We'll be watching how markets take the news.

INVESTING

Buffett Mad, Buffett Glad

Read Saturday’s annual letter and you’ll see: This 88-year-old investing legend is grumpy about some things...and grateful for others.

Buffett mad: He’s pinning much of Berkshire Hathaway’s Q4 loss of $25.4 billion on mac and cheese and bologna. Kraft Heinz (in which Berkshire is the largest shareholder) wrote down the value of two of its best-known brands by $15.4 billion. Its stock dove about 27% last week.

Buffett glad: Most of the conglomerate’s other businesses are performing well, especially railroads, energy, and utilities. Buffett described the company’s clusters as “groves,” some of which “are diseased and unlikely to be around a decade from now,” while others “are destined to grow in size and beauty.” Berkshire’s net earnings in 2018 came out to $4 billion.

Buffett mad: He’s sitting on $112 billion in cash but is having trouble finding good deals due to exorbitant prices on the market. Still, the prospect of making an “elephant-sized acquisition” gets him out of bed every morning. “Just writing about the possibility of a huge purchase has caused my pulse rate to soar.” Take it easy, Warren.

Buffett glad: Expect Buffett and his longtime business partner Charlie Munger to buy back more stock, a practice they hadn’t always preached...but are coming around to because of the lack of acquisition targets. In 2018, the company repurchased about $1.3 billion of its own stock.

Buffett mad: New accounting rules get everyone a little grumpy, including Buffett. One new rule requires companies to record unrealized gains and losses in their net income, and since Berkshire had an equity portfolio worth almost $173 billion at the end of 2018, wild stock swings will show up in its earnings.

Buffett glad: The U.S. economy continues to dominate. And ever since Buffett made his first investment in 1942 (buying three shares of Cities Service preferred stock for $114.75), he’s ridden what he and Charlie call “The American Tailwind” to incredible success.

RETAIL

Victoria’s Secret Has a New Competitor Coming for Its Wings

Target. Everyone’s favorite “how did this get in my cart?” store is launching three new brands next month to sell women’s bras, underwear, and pajamas, per the WSJ.

The skinny on these skivvies: Target expects the new lineup will do more than $1 billion in sales per year (compared to the $7.4 billion VS did in 2018). The new bras will cost under $22 (compared to the $60 or so you’re out for a VS bra) and include plus sizes.

Zoom out: The undergarment competition is getting fiercer than a VS Fashion Show casting. In addition to Target’s line, other lower-priced rivals include Amazon’s Mae and American Eagle’s Aerie. And on the luxury end, VS is pitted against popular startups like ThirdLove and Lively.

It’s tough news for L Brands-owned Victoria’s Secret. Even though VS still claims about a quarter of the U.S. market for women’s underwear, things are changing. Comparable sales at the retailer fell 2% last year, and the company plans to slash its dividend in half starting in March.

TECH

Microsoft’s New Reality

We’ll know we’ve made it as a newsletter when a) we become the largest U.S. city by population and b) we get invited to Microsoft’s HQ to demo the HoloLens 2, the updated mixed reality headset it unveiled at MWC yesterday.

What is it? It’s a device you wear that overlays digital images (like holograms) onto the real world. And instead of going after individual consumers, Microsoft is selling the HoloLens 2 to corporations with employees who work with their hands—think factories.

And because we’re not salty at all, let’s get more insight from tech journalists who actually got the invite to Redmond, WA:

• Cnet’s Scott Stein: “The best way I can describe it is like Google Maps' turn-by-turn directions for real world instructions—or like a floating Lego manual for reality.”
• The Verge’s Dieter Bohn points out the HoloLens 2 (a “technical marvel”) reflects Microsoft’s strategy to serve “corporate and enterprise needs instead of trying to crank out hit consumer products.”

CALENDAR

The Week Ahead

You know it’s a big week in economic data when we measure both consumer confidence and consumer sentiment (here’s the difference, btw).

Monday: Wholesale trade; earnings (Etsy, Shake Shack); MWC officially starts in Barcelona

Tuesday: Housing starts; consumer confidence; earnings (Home Depot, Scotiabank, AutoZone, Macy’s); 100th anniversary of the Grand Canyon becoming a National Park

Wednesday: President Trump and North Korean leader Kim Jong-Un start face-to-face talks in Vietnam; international trade in goods; earnings (TJX Cos., Lowe’s, Rio Tinto, HP, Square, Booking Holdings, Campbell Soup, Best Buy, Box, Fitbit)

Thursday: GDP; jobless claims; earnings (AB InBev, TD Bank, Keurig Dr Pepper, VMware, Marriott, JD.com, PG&E)

Friday: Consumer sentiment; PCE price index; earnings (Foot Locker, Tribune Media); February turns to March; Women’s History Month kicks off

CALENDAR

The Week Ahead, Part Deux

The jam-packed week we’re staring down has enough horsepower to rattle the most even-keeled of markets. It deserves a closer look.

First, let’s talk trade. Your countdown to Friday had been a countdown to the March 1 deadline when U.S. tariffs on Chinese imports increased. But now, President Trump has extended that deadline following “substantial progress” in talks that wrapped yesterday. If that momentum continues, Trump and Chinese President Xi Jinping will meet in sunny Mar-a-Lago.

And Brexit faces a test. PM Theresa May is facing calls to postpone her March 29 “exit day” as long as three months. On Wednesday, May takes Brexit matters to a general vote (which Parliament could use to enact a delay).

Plus, a big week on the Hill. Fed Chair Jerome Powell appears tomorrow and Wednesday, while U.S. Trade Representative Robert Lighthizer takes the stand to give a trade update Wednesday, too.

Bottom line: The slew of geopolitical and economic events will be a breeding ground for risk and uncertainty. That hasn’t been the case thus far in 2019, with volatility (as measured by the VIX) down nearly 47% year-to-date.

WHAT ELSE IS BREWING

• Green Book won "Best Picture" at the hostless Oscars, stopping (for now) Netflix's Hollywood party crashing. Alfonso Cuarón did win "Best Director" for the company's film, Roma.
• Huawei just upped the ante, releasing a foldable smartphone that’ll cost $2,600.
• BMW and Daimler are joining forces to invest more than $1 billion in developing ride-sharing, parking, and charging services.
• A nearly 100-strong group of Microsoft employees is demanding the company cancel a $480 million contract with the U.S. Army.
• Twitter co-founder Ev Williams is leaving the company’s board after a dozen years.

BREAKROOM

Business Word Games
The following clues contain two answers, both of which are anagrams of each other.

Ex. A lightbulb goes off for the helper = “idea” and “aide”

1. Boeing and Airbus CEOs’ position on Brexit
2. A Buffett stock in fossil fuel
3. Educators explain units of land measurement
4. Going Gangnam Style on your biggest competitor

Breakroom Answers