Berkshire Hathaway makes a killing on Snowflake IPO debut

Abraham George Macro View

I have stated many times when an incumbent president who has actively sought a second term in war time have a 6-0 record of being re-elected. President Trump and his administration are in a war scenario with China but it is an economic one. But can it turn out to be a military one, before the election? We do not know. The situation calls for some assessments of risk.

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US has stepped up rhetoric and action with bans on Chinese technology companies, condemnation of China’s human rights abuses, and calling out the broad threat of the Chinese communist party to the future of the free world. While China has continued to make more provocative moves with the handling of the virus, expansionist action in the South China Sea , Taiwan and Hong Kong. To top it all they have escalated a border dispute with India.

For the past several months China has ramped up the bullying of India, over a long disputed stretch of Chinese/ India border . This has resulted in plenty of military flexing. The editor of the Global Times, China’s mouth piece to the outside world has been posting threats and war propaganda.

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Trump has shown his willingness to be a mediator. But Pompeo has been traveling in Europe and Asia in an effort to build up an alliance against China. In a recent Congressional testimony he named India as a friend (along with Australia, Japan and UK ) who all are working in coordination with the US to discourage China’s actions in the South China Sea. We will have to measure how this will play out in the coming days as surely none of these risks are being priced in the markets.

Snowflake a provider of some sophisticated cloud storage company, which is hard to explain debuted on the public market yesterday as the most valuable software startup ever to go public.

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Berkshire Hathaway and Salesforce had each agreed to buy $250 mio of stock at the IPO price of $120. In a second agreement Berkshire not known for investing in tech startups double dipped the stock to buy and additional 4 mio odd shares again at $120. As the shares soared 130% to about $277 right out of the gate Buffett’s House made sure that this snow is not going to melt on them, making them $1 billion in a day. The ticker symbol ‘SNOW’ on the New York stock exchange is a cool one too.

Equities

The Fed again made it clear yesterday that it will keep interest rates at zero for a long time until inflation is running at moderately above 2% for sometime. Don’t know all of a sudden how they could get inflation above 2 % when they have completely failed in their efforts for nearly 10 years. 60 % of pandemic related business closures have now become permanent. The Fed really cannot control the market or investors. The Japanese movie is close to town. On the S&P 500 resistance at 3430 should cap any upside.

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Bonds

There is no change on the bond analysis from the previous report.

Euro

A decline below 1.1750 should strengthen the bearish case. Otherwise our mentioned resistance levels in the past reports should hold.

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Gold

Gold analysis has got very murky and confusing. Recently our preferred scenario had shifted to a break above 2072 before it turns down again. The more it remains capped under 1993 the risks for a move down are also increasing. For the upward sloping triangle to work it is very important gold does not trade below 1902 . Should gold break below 1870 all bets are off for any further upside.

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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.