👀 Morgan Stanley’s 2024 vision

What’s going on here?

Warren Buffett’s Berkshire Hathaway sold yen bonds for the second time this year, and there’s little chance the money made will leave Japan.

What does this mean?

Warren Buffett pocketed the equivalent of $810 million in yen by selling Japanese bonds through Berkshire Hathaway. But don’t take that as a sign of retreat: 32 of Berkshire’s last 40 bond deals were made in the Japanese currency, and Buffett himself has made no secret of his fascination with the country’s stocks. In fact, when he last sold Japanese bonds in April, Buffett funneled that cash straight back into Japanese trading houses. No wonder, then, that many expect Buffett to use that stack of yen to double down on his investments in the Land of the Rising Sun.

Why should I care?

For markets: Currency matters.

If you transferred all your cash into a different currency and back again whenever you went on vacation, the foreign exchange costs would be worth more than a few mojitos. The same goes for investors who buy foreign assets from abroad. So it makes sense that Berkshire buys and sells in yen instead of converting the trades into US dollars, especially when the investment powerhouse wants the flexibility to react to fresh Japanese opportunities. And for good reason: Japan’s decades of falling prices have deflated the country’s stocks, but with corporate reforms and the return of inflation potentially on the cards, that could soon change.

The bigger picture: Cash is king (again).

Buffett is set to make over $6 billion in dividends alone next year, plenty of which is thanks to just three stocks: Bank of America, Occidental Petroleum, and Apple. And even though the Oracle of Omaha has a nearly $160 billion cash pile, Buffett recently cashed out from top-tier stocks including General Motors, UPS, HP, and Chevron. He’s not in a hurry to spend that cash, either, especially since savings-boosting interest rates are nestled above 5%.

What’s going on here?

UK retail sales dropped to their lowest in two years, an ominous sign worth watching ahead of the usually lucrative festive season.

What does this mean?

Economists had expected retail sales in the UK to tick up by 0.3% from the month before, presumably partly made up of carve-ready pumpkins and multipacks of sugary treats. But Brits were clearly playing it safe with their spending: sales dropped 0.3% instead, landing nearly 3% below last October’s level. That’s all down to a toxic combination of higher prices and low financial confidence. Case in point: budget-conscious Brits bought 3.1% fewer goods than the pre-pandemic control month of February 2020, yet they spent nearly 17% more. When a shopping trip is that unsatisfying, it’s hardly worth braving the winter weather. And that doesn’t bode well for the holiday season, usually retailers’ most wonderful time of the year.

Why should I care?

For markets: At least someone’s happy.

The UK’s sluggish economy could be a cause for celebration for bond investors. See, the worse the economy is, the more likely a central bank is to cut rates. And because bond prices and interest rates move in opposite directions, lower rates would increase the value of bonds. Investors will be watching Britain’s stats closely, then: if inflation keeps moving in the right direction and the economy continues to falter, the Bank of England (BoE) may be able to lay off the high rates.

The bigger picture: Softly, softly.

The BoE could nail the elusive “soft landing” by pulling inflation back to target without triggering a recession. So far, so good: inflation’s inching down and the economy isn’t free-falling – yet. But that retail data shows that rate hikes have just started denting on the economy, and because their impact only shows after some time, it’s impossible to rule out an economic spiral.