#152 - The Collapse of Nations At The Hands of Environmentalists, Food Delivery is Dead and Drew League Marketing
In this week's episode of Reformed Millennials, Joel and Cam talk geopolitics and the collapse of Sri Lanka at the hands of Global Elites, the impacts of the USD strength and marketing strategies for successful sporting leagues.
PS: The links at the bottom of the newsletter are fantastic this week.
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Do you see what happens when the US Dollar is falling?
Stocks and Crypto go up.
This IS the catalyst.
Do you want to know what will get stocks and crypto back into bull markets?
It's not the fed, it's not the president, it certainly isn't a former president, it isn't a war or any kind of "news" event.
It's the US Dollar.
The stock market had all the reasons to sell off last week and it didn’t. Many stocks managed to hold and even rally after record and accelerating inflation data.
It feels wrong to be bullish while the Fed is still tightening but it is double-wrong not to take long setups when they appear. And we saw some relatively constructive price action towards the end of last week.
Some names stood out: SWAV, LNTH, CELH, CCRN, OPCH, LRN, VERU, etc.
Keep in mind that none of those has reported earnings yet. One earnings report can end their enthusiasm overnight.
This is exactly what happened with the stocks that were showing relative strength during the previous earnings window.
Biotech has held the best during the more recent market volatility. XBI tested its 10-day EMA a couple of times and it bounced. The dips are getting bought in the sector. We continue to see constructive price action.
The new earnings season has just begun.
JP Morgan missed estimates sending most financials to new 52-week lows last Thursday only to see them bouncing strong back the next day.
NFLX was last night and TSLA tomorrow alongside a bunch of financials.
As always, the reaction to earnings will be a much better signal than actual numbers because it will reveal the current market sentiment.
Prices move based on sentiment in a short-term perspective.
Last week, Berkshire Hathaway filed a Form 4 disclosing it purchased another 4.3 million shares of Occidental Petroleum (OXY) for ~$250 million. Berkshire now owns 179.7 million shares of OXY, in addition to the Series A Preferred Stock that it acquired through its 2019 agreement with the company (more on this in a moment). At Friday’s close of ~$59 per share, Berkshire’s stake in the common is now worth ~$10.5 billion (~19% of the company).
This story started in May 2019, when Berkshire committed to a $10 billion investment in Occidental preferred stock, contingent upon the completion of its ~$38 billion takeover of Anadarko. (CEO Vicki Hollub in May 2019:)
“The Berkshire deal was important to make… the timing was critical… Berkshire could do it in an hour and they could do it on public information… Given the timing that we had, there was no other choice.”)
As part of the financing, Berkshire also received warrants; Berkshire has the option to purchase 83.9 million shares at an exercise price of $59.62 per share. (“The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing in 2029 at a redemption price equal to 105% of the liquidation preference plus any accumulated and unpaid dividends, or is mandatorily redeemable under certain specified capital return events. Dividends on the preferred may be paid in cash or, at Occidental’s option, in shares of common stock. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock.”)
When Buffett committed to the $10 billion back in May 2019, here’s what he told CNBC’s Becky Quick about how it came together (by the way, Buffett told Becky in this interview that he was willing to put up $20 billion if needed):
“I got a call yesterday evening [on May 5th], which is the first time I’ve talked to Occidental since last Sunday [April 28th]. They told me they were going in this direction, which I like, but I had nothing to do with it. We committed $10 billion, and it had nothing to do with how they framed their offer, how much they offered, or anything else – all they knew was that would be sure that they could get $10 billion from us if they completed the deal with Anadarko.”
The ”direction” Buffett referred to was Occidental’s ability to avoid a shareholder vote on its Anadarko bid by raising $10 billion from Berkshire. In (lightly) defending management’s actions, which was loudly questioned by investors like Carl Ichan in his letter to Shareholders here.
“I would think if you owned Occidental, you’re bullish on oil over the years – and you’re probably bullish on the Permian Basin because they have such a significant portion of their assets there. So, the idea that they will use less stock and more cash as part of the deal… I would think, net, if I had been an OXY holder at the time, I probably would like that kind of a deal… It’s a bet on oil prices over the long-term more than anything else. It’s also a bet the Permian Basin is what it’s cracked up to be… If oil goes way up, you make a lot of money… You have to have a view on oil over time. Charlie and I have some views on that… We feel good about doing the financing.”
(From an Oct 2021 EIA report: “The Permian Basin, which spans western Texas and eastern New Mexico, represents the most prolific hydrocarbon production region in the United States. They accounted for about 30% of U.S. crude oil production and 14% of U.S. natural gas production in 2020.”)
After that comment, Becky asked Warren why he didn’t just go ahead and buy all of Anadarko if that’s how he felt; his response was noteworthy:
“Well, that might have happened if Anadarko had come to us [directly], but we wouldn’t jump into some other deal that we heard about from somebody coming to us and seeking financing. We hope people come to us on businesses, but I had no idea this transaction was going to happen…”
Three years later, in March 2022, it became apparent that Buffett’s interest in OXY went beyond the preferred and the warrants. As discussed in detail at the 2022 Berkshire Hathaway shareholder meeting (held on 05/03/2022) and disclosed in SEC filings, Berkshire started buying OXY common on February 28th, 2022 (it didn’t own a single share before that date). Over a three-week period, Buffett went on a major buying spree: he invested ~$7 billion to buy ~136.4 million shares of OXY (at an average price of ~$51 per share).
The initial purchase timing is notable: on February 24th, just a few days before Buffett began buying OXY, Russia invaded Ukraine. Buffett didn’t specifically talk about these geopolitical developments during the shareholder meeting, but he did note that something changed his perception of the bet: “Somebody asked a very good question:"
Why weren’t you doing anything on February 20th and why were you doing it, in the case of Occidental, on February 28th? It’s because things developed in a way, and in the case of Occidental specifically, they had an analyst presentation that I read over the weekend… It made nothing but sense, and I decided it would be a good place to put Berkshire’s money… Two weeks later we had 14% of the company… The world changed… We should be very happy that we can produce 11 million barrels a day in the U.S. rather than being able to produce none and having to find those 11 million barrels a day somewhere else in the world to keep the American industrial machine working.”
If you're at all interested in why the team and Berkshire are using Oxy as their proxy for energy exposure, i highly recommend listening to the most recent BRK breakdown from colossus podcasts here.
💸Reformed Millennials - Post of The Week
"Is your business model broken? Are you still making losses after a decade in business? Come talk to the team at TIGER GLOBAL, the leader in bag-holding since 2001!
From a valuation of $3B to $88M over the past year, after a total of $1.63B in funding. I don’t think there’s been a category with as terrible ROI as food delivery in recent years.
Tiger Global is also going from source of envy to ridicule in record time.
🐦 Twitter Thread of The Week 🐦
Great twitter rant from the ex-ceo of Reddit Yishan.