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Warren Buffett Torches Corporate America, Spells Doom for Stock Market

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  • Warren Buffett is 89 years old, but he certainly hasn’t mellowed with age. The “Oracle of Omaha’s” latest annual report is full of fire.
  • His 2019 letter to Berkshire Hathaway shareholders minces no words. Buffett issues scathing rebukes of corporate governance and greed.
  • Further, his $128 billion cash pile remains unspent. His most epic stock market snub in history is terrifyingly bearish.

Warren Buffett’s 2019 Berkshire Hathaway (NYSE:BRK.A) report and letter to shareholders is a savagely bearish document. While the stock market benchmarks edge out new record highs week after week, Buffett’s incendiary letter drops napalm all over the euphoria.

He calls out a number of wasteful, misleading, and downright greedy corporate practices in the 2019 letter. At times he sounds like Bernie Sanders. While finance analysts are spinning Berkshire’s recent moves as bullish, Buffett continues to prefer letting a fortune slowly evaporate to inflation than invest in the stock market.

Wall Street Remains Bullish on Stock Market

Wall Street bulls have found plenty of plausible reasons to remain bullish as market capitalization expands into uncharted territory. Americans are about the most optimistic they’ve been since 9/11. They’re also working harder than they have in half a century.

Information technology continues to spawn titanic digital platforms that unlock vast stores of value by fueling increased productive possibilities, and saving money in all kinds of ways we could not have expected even just years ago.

But leave it to corporate America to take good opportunities and push them beyond their limits. Warren Buffett points out a number of ways corporate greed is killing the goose that lays the golden eggs. He paints a bleak picture of corporate corruption…

Buffett Says Corporate Earnings Are Fake

Buffett’s 2019 letter is soaked through with his conviction that much of corporate America’s numbers are fake. He begins with the same admonition in his 2018 letter against the new Generally Accepted Accounting Principles (GAAP) rule for reporting unrealized capital gains and losses. He thinks this causes companies to report faulty numbers:

The adoption of the rule by the accounting profession, in fact, was a monumental shift in its own thinking… Now, Berkshire must enshrine in each quarter’s bottom line… every up and down movement of the stocks it owns, however capricious those fluctuations may be.

Buffett is saying here that the corruption of corporate boardroom self-deception has now infected the accounting profession. This was the focus of his introductory remarks at the most recent Berkshire Hathaway Annual Shareholder meeting.

Further, Buffett goes on to say many CEOs fudge their company’s numbers, and that audit committees are powerless to stop them:

Audit committees now work much harder than they once did and almost always view the job with appropriate seriousness. Nevertheless, these committees remain no match for managers who wish to game numbers, an offense that has been encouraged by the scourge of earnings ‘guidance’ and the desire of CEOs to ‘hit the number.’

Remember Warren Buffett’s classic advice to be fearful when others are greedy.

Buffett Slams Corporate Corruption

He goes on to state that executive compensation is shrouded in complicated payment schemes. And that corporate communications to shareholders are “mind-numbing” to read. To add insult to injury, companies shell out massive consultant fees to weave these webs of opacity and concealment:

Compensation committees now rely much more heavily on consultants than they used to. Consequently, compensation arrangements have become more complicated – what committee member wants to explain paying large fees year after year for a simple plan? – and the reading of proxy material has become a mind-numbing experience.

Buffett also says corporate mergers often enrich executives at the expense of shareholders. He says “don’t hold your breath” waiting for this to change:

But I have yet to see a CEO who craves an acquisition bring in an informed and articulate critic to argue against it… Overall, the deck is stacked in favor of the deal that’s coveted by the CEO and his/her obliging staff… The current system, whatever its shortcomings for shareholders, works magnificently for CEOs and the many advisors and other professionals who feast on deals.

Finally, Buffett outlines how CEOs select corporate board directors who won’t challenge their compensation plan. They essentially bribe directors with exorbitant pay to keep them docile:

Think, for a moment, of the director earning $250,000-300,000 for board meetings consuming a pleasant couple of days six or so times a year. Frequently, the possession of one such directorship bestows on its holder three to four times the annual median income of U.S. households.

Buffett says a CEO looking for a director will ask the director’s current CEO if they’re a “good” director. And “good” is “a code word” for someone who has not “seriously challenged his/her present CEO’s compensation or acquisition dreams.”

Buffett Spells Doom for Stock Market

Some analysts are spinning Berkshire Hathaway’s position and Warren Buffett’s letter as bullish on the American economy. This couldn’t be further from the truth.

For example, Yahoo Finance published an analysis by GuruFocus claiming “Buffett Bets on America Again.” This article interprets Berkshire’s unprecedented decision to purchase ETFs that track the S&P 500 as “still bullish on the American economy.” But Berkshire has hardly taken a big bite out of index funds.

Nowhere in the analysis does it mention how much of Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF (SPY) Berkshire actually bought.

The reality is Warren Buffett stuck one toe in the water. His 2019 report shows the $128 billion cash pile hasn’t moved. Berkshire is still clutching its cash pile, cash equivalents and short term Treasury bills. (See page 86 of the report.)

Warren Buffett remains terrifyingly bearish on the stock market. He’d rather keep $128 billion in cash that nets zero long-term returns than invest in the stock market. That’s a fortune slowly rotting away to inflation like so much cabbage on the shelf. Buffett would rather hold $128 billion in rotting leafy green back cabbage than go for a swim in the stock market. “The Oracle” clearly predicts the tide is about to go out.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice

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Toronto continues investigation into cause of massive power outage – CP24

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Hydro One says it will take “several days” to repair hydro lines that were damaged after an upright crane in the lake slammed into them and caused a massive power outage downtown on Thursday.

The outage occurred in the city’s financial district at around 12:30 p.m., leaving approximately 10,000 customers without power at its peak.

A portion of the Eaton Centre was left in the dark, forcing hundreds of stores to temporarily close. The outage also knocked out power in parts of the Hospital for Sick Children’s campus.

Traffic lights were down in some intersections causing heavy traffic and significant streetcar delays. However, the outage did not affect subways.

Toronto Fire said crews responded to a number of elevator rescues, but no injuries connected to the outage were reported yesterday.

Hydro One says the outage was caused when a barge moving an upright crane in the Port Lands area hit overhead high voltage transmission lines.

“Now, what happened when that crane hit the line resulted in a downstream effect where a surge of power affected a nearby station on the Esplanade that we were actually using to reroute power to Toronto Hydro,” Hydro One Spokesperson Tiziana Baccega Rosa told CP24 Friday morning.

The City of Toronto says the barge was being operated by a subcontractor to Southland-Astaldi Joint Venture (SAJV), which is a contractor for the Ashbridges Bay Treatment Plant outfall project.

Crews were reportedly preparing to move equipment into the lake for the project when the incident occurred.

“We’re going to use stone that needs to be placed out in the lake and the subcontractors were going to do that work for us but they were moving equipment. The event occurred off-site while they were doing their preparatory work,” Lou Di Gironimo, Toronto Water’s general manager told CP24 Friday.

Outage

Baccega Rosa said Hydro One crews were able to reroute about 50 per cent of the power shortly after the incident, which resulted in power being restored in some areas quicker than others.

Crews then had to stop their efforts and wait for the fire department to clear the site for workers to safely enter and reroute the rest of the power.

Outage

Once crews gained access, they were able to reroute all power to Toronto Hydro and power was fully restored downtown by 8 p.m.

Baccega Rosa said there are established safety protocols to stay a minimum of 10 metres away from power lines, which were not followed yesterday.

“And that’s (for) anyone whether, you know, you’re a barge passing under them (power lines) or if you’re doing work around your house and you need to trim the tree branches around the line connecting your home. You know, everyone was very lucky yesterday that there was not a safety incident and no one was hurt as a result of this,” she said.

The city has launched an investigation into the incident and has requested a full report from SAJV to understand what happened.

“So the big thing that we’re going to look at is what happened? Who was in charge of the subcontractor work? What were the safety procedures in place at the time? And then what exactly happened when the crane hit the wires?,” Di Gironimo said.

Di Gironimo could not confirm if the subcontractors will face any consequences for the incident.

“That will be part of the investigation to find out what happened. What were those precautions that were supposed to be in place. What was followed? What wasn’t?”

He said the city is meeting with SAJV next week and plans to complete the investigation within a matter of weeks.

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B.C. couple still owes $19M despite bankruptcy, appeal court rules – Business in Vancouver

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B.C. couple still owes $19M despite bankruptcy, appeal court rules – Economy, Law & Politics | Business in Vancouver


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​Rogers, Shaw formalize planned Freedom sale to Quebecor – BNN Bloomberg

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Rogers Communications Inc., Shaw Communications Inc. and Quebecor Inc. announced Friday they reached a definitive agreement for the previously-announced proposed sale of Shaw’s Freedom Mobile wireless business.
 
The three companies said that the terms of the definitive pact are “substantially consistent” with their original announcement on June 17, when they said Montreal-based Quebecor agreed to pay $2.85 billion to purchase Freedom. Originally, July 15 was the target to reach the definitive agreement.  

“We are very pleased with this agreement, and we are determined to continue building on Freedom’s assets,” said Quebecor president and chief executive officer Pierre Karl Péladeau in a release Friday. “Quebecor has shown that it is the best player to create real competition and disrupt the market.”
 
The transaction is conditional on Rogers receiving final regulatory approvals for its planned $20-billion takeover of Shaw, which was announced in March 2021.
 
The road to regulatory approval has become more treacherous for Rogers after Competition Commissioner Matthew Boswell stated his objections to the plan, warning it would diminish competition in the telecom market, notwithstanding Rogers’ long-stated intent to divest Freedom Mobile.
 
Rogers’ legal counsel has argued vociferously against Boswell’s claims, saying in a June 3 filing with the Competition Tribunal that Boswell’s stance “is unreasonable, contrary to both the economic and fact evidence presented to the Bureau, and not supportable at law.”
 
The Competition Tribunal is currently scheduled to begin a hearing on the matter Nov. 7.
 
Rogers also has to clear another regulatory hurdle: its planned acquisition of Shaw requires approval from Innovation, Science and Industry Minister François-Philippe Champagne, who has previously said he won’t allow the wholesale transfer of Shaw’s wireless assets to Rogers.
 
The process became more complicated for Rogers after a national network outage knocked out service to its customers in early July.

Champagne subsequently said the outage would “certainly be in [his] mind” when weighing the merit of the Shaw sale.
 
For its part, the Canadian Radio-television and Telecommunications Communications announced its conditional approval of the transaction in March.
 
Shaw investors have consistently demonstrated skepticism that the deal will go ahead as planned, as evidenced by its shares never once attaining the $40.50-per-share takeover offer from Rogers since the takeover was announced last year.

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