Here’s the problem under the hood of Warren Buffett’s Berkshire Hathaway

The company lost $2.7 billion in the third quarter, although its earnings are notoriously volatile and the losses were driven by fluctuations in derivatives and investments. Operating profit rose 20% in the quarter and it has $109 billion in cash to play. Surely worth giving Buffett a pass, right?

Well, maybe not. The Rational Walk blog, a longtime Buffett watcher, dove into Berkshire’s latest results and found the conglomerate’s cash cow, car insurer Geico, was in trouble.

Granted, Geico had a terrific decade, and it thrived during the pandemic because people weren’t driving — easy money for an auto insurer. But he’s paying it now, not just because people are driving again, but because car accidents cost more to fix, due to inflation.

Rival car insurer Progressive PGR
also says that the impact of inflation not only increases the value of used vehicles – bad news when you have to pay to replace them – but its total loss and repair costs.

The other point to note is that Geico has cut costs by laying off workers and cutting advertising. Given that the industry is incredibly competitive, the reduction in advertising may have weighed on current policies, and may do so in the future.

“While a few quarters of adversity do not necessarily indicate a turning point in Geico’s long-term outlook, recent results compare unfavorably to Progressive. The reason I spent more time on Geico’s results is that this is clearly the Berkshire Insurance Group’s most troubled deal and shareholders will want to watch future developments carefully,” the blogger says.

The steps

US Equity Futures ES00

NQ00
were pointing to a third day of gains in what appears to be a rumored buying act ahead of the midterms. The main market action has taken place in the crypto space, where bitcoin BTCUSD
was in shock amid issues with the token used by cryptocurrency exchange FTX.

The buzz

As voters head to the polls, British betting site Smarkets has assigned a 90% chance the Republicans will take control of the House of Representatives, and a 68% chance the GOP will also control the Senate.

ELEVATOR ELEVATOR
the shares fell in premarket trading after its active runner count fell short of expectations, and its revenue guidance midpoint was also below estimates.

TripAdvisor TRAVEL
the shares slumped due to a shortfall. Take-Two interactive TTWO
declined after slashing its bookings outlook.

After closing, Walt Disney DIS
reports the results. DuPont DD
shares rose as the chemical company beat analysts’ estimates.

Nvidia NVDA
manufactures an alternative electronic chip for China to comply with US export barriers.

The $1.9 billion Powerball draw has been delayed.

The best of the web

Where would you store billions of stolen bitcoins? Apparently, on a single board computer immersed in a box of popcorn.

UN climate summit off to a bad start, campaigners say

The hedge fund manager who exposed accounting fraud at Luckin Coffee LKNCY
now supports the Chinese channel.

Best Tickers

These were the most active stock tickers at 6 a.m. Eastern Time.

Teleprinter	Security Name
TSLA	You’re here
EMG	GameStop
DWAC	Digital World Acquisition Co.
CMA	AMC Entertainment
NIO	Nio
AAPL	Apple
META	Metaplatforms
AMZN	Amazon.co.uk
MULN	Mullen Automotive
BBBY	Bed bath and beyond

Table

The 60/40 model had a horrible year as stocks (the 60 part) and bonds crashed. But it’s too early to throw in the towel, say analysts at wealth manager Glenmede, whose model for the next decade predicts average annual gains of almost 7%. Michael Reynolds, vice president of investment strategy, said the firm’s model uses valuations and yields as the primary basis for projecting returns. “Glenmede’s empirical research has shown that although valuations are a poor tool for short-term market timing, they are one of the best determinants of expected longer-term returns for investors,” he said. he stated by e-mail.

Market valuations are based on a combination of normalized price/earnings, price/cash flow and price/book ratios, as well as dividend yields, which are then adjusted for the level of interest rates. The bond model is primarily driven by inflation expectations and the likely future path of fed funds with associated term premia.

Random plays

The culinary trend in vogue… is to wear black gloves.

These crypto enthusiasts bought an English football club, with, it must be said, disastrous results.

The founder of Oculus, now owned by Meta Platforms, has created a virtual reality headset that will kill the user if they die in-game.

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