Disclaimer
LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.
All content on this website and publications, as well as all communications from the author, are for educational and entertainment purposes only and under no circumstances, express or implied, should be considered financial, legal, or any other type of advice. Each individual should carry out their own analysis and make their own investment decisions.
As we announced this week, we have officially launched our website. We will be gradually migrating all content and subscriptions to the new platform. If you have an active subscription on Substack, we encourage you to cancel its automatic renewal (we have already transferred it to the website). We are no longer accepting new subscriptions via Substackâyouâll notice the high prices set there are meant to discourage new sign-ups. On our website, you can subscribe at the same prices we offered here (âŹ50/month or âŹ500/year).
In the short term, we understand that migrating your subscription may be a bit inconvenient, but we believe weâll be able to deliver much more value on our own platform. Thank you for your trust, and sorry for the inconvenience!
What have we done to make this easier?
If you already had an account on LWS and used the same email as on Substack, we have automatically transferred your subscription. No action is needed.
If you didnât have an LWS account or used a different email, weâve created the account for you with a random password. You just have to hit âforgot passwordâ and set the one you want.
How to proceed from now on:
Click on âSign in.â
If you already had an LWS account, your Free subscription is already active.
If you didnât have an account, click âSign up,â complete the form, and your Free subscription will be automatically created.
Weekly macro summary
There have been quite a few interesting events to analyze this week, and below I list the most noteworthy news. Let's get started:
The announcement of Warren Buffett's retirement as CEO of Berkshire Hathaway marks a historic turning point, not only for the company but also for the investment world. Few assets on the planet have been so closely tied to the figure of a single person. Buffett not only built a conglomerate worth over $1.1 trillion, but also a culture: one of long-term thinking, patience, profitability without theatrics, trust in well-aligned incentives, and austerity as the norm.
The succession of Greg Abel, though planned for years, raises inevitable questions. Will Berkshire's cultural and reputational premium remain intact? What will happen when the headlines no longer carry his signature? The concern is not irrational. Abel is competent and respected, but he does not have the aura or personal brand of Buffett. And, of course, Berkshire's current valuation has always included the Buffett premium.
Abel has promised continuity with operational autonomy for the subsidiaries, though he hinted that he would be more active in management. This could mark an interesting phase: a more executive-oriented Berkshire, less of a collector of businesses, and perhaps more willing to sell underperforming assets, which has been one of its unresolved issues in recent years. It's also possible that the eternal debate about dividends could resurface: something Buffett avoided, but which could be revisited with a more institutional and less personal approach.
Beyond that, the fundamentals remain. Berkshire continues to generate massive cash flows, has a diversified asset base, and a deeply rooted corporate culture. The true test will come with time: if the coming years offer the same stability and discipline, Buffett's legacy will have transcended the man. If not, we will have witnessed the epilogue of the greatest investment story of the 20th century.
On Wednesday, India and Pakistan experienced one of the most severe confrontations in the last two decades, marking a dangerous escalation in their conflict, which has been fueled by the historic dispute over the Kashmir region. India launched airstrikes against several "terrorist infrastructure" sites in Pakistan as part of Operation Sindoor, in retaliation for an attack by Islamist militants that killed 26 Hindu tourists in Kashmir last month. In turn, Pakistan claimed to have shot down five Indian aircraft, although India denied such claims.
The Indian strikes targeted facilities linked to militant groups such as Jaish-e-Mohammed and Lashkar-e-Taiba, accused of being behind the attack on the tourists. Despite India's statements on the accuracy of their strikes, Pakistan denied the presence of terrorist camps on its territory and called the incursions an act of aggression. At least 26 Pakistani civilians were killed and 46 others were injured in the bombings, further escalating tensions. In addition to the airstrikes, both countries exchanged artillery fire and heavy gunfire along the Line of Control (LoC) in Kashmir, leaving casualties on both sides. The situation was exacerbated by violence spread through the media, with images of explosions and columns of smoke rising in several cities in Pakistan and Pakistani Kashmir. The international community reacted with alarm, calling for maximum restraint, with countries such as China, Russia, the United Kingdom, and the United States urging both governments to avoid further escalation. This is no small matter, as both countries are nuclear powers.
Despite diplomatic efforts to curb the conflict, nationalist rhetoric intensified in both India and Pakistan. In India, many celebrated the strikes as justified revenge, while in Pakistan, the population defended their right to respond to what they considered an act of aggression. This escalation comes at a critical time for Pakistan, whose economy is still recovering from a recent crisis and faces additional challenges with the IMF loan program. Economically, the impact was immediate. Uncertainty triggered volatility in financial markets, with losses in the stock markets of both countries and a weakening of the Indian rupee against the US dollar. Several airlines, including major ones such as IndiGo, Air India, and Qatar Airways, canceled flights due to airport and airspace closures. This confrontation not only increases the risk of large-scale war but also severely impacts the economies of both countries, which are already dealing with multiple structural challenges.
The recent bilateral trade agreement between the United States and the United Kingdom, announced by Donald Trump and Prime Minister Keir Starmer on Thursday, maintains the 10% tariffs on British exports and expands agricultural access between the two countries. While the agreement does not completely eliminate barriers, it introduces some significant changes, such as a reduction in tariffs on British vehicle imports, which will drop from 27.5% to 10% for a quota of 100,000 vehicles, nearly all of the UK's vehicle exports to the U.S. in 2024. Additionally, tariffs on British steel will be reduced to zero, and the UK will allow tariff-free access for 13,000 metric tons of U.S. beef.
However, the agreement has also been criticized for not including the removal of the 10% tariffs impacting other British products (which seem to already be set as the baseline for any future deals), including vehicles. This raises costs for British exporters and has caused some dissatisfaction among affected sectors.
While this agreement creates new export opportunities (and provided a new boost to markets) for U.S. producers, estimated at $5 billion annually, the internal political pressure and the economic difficulties of the UK remain a relevant issue. The British government, under Starmer, is attempting to diversify its post-Brexit trade relationships without fully aligning with any particular bloc, a difficult task given the economic context of the country and the tariff tensions with the U.S.
The discussion regarding tariffs on UK pharmaceutical products remains uncertain, which could affect AstraZeneca and GSK. Nevertheless, the agreement also includes assurances of preferential treatment for the UK if additional tariffs are imposed under U.S. national security investigations, currently assessing sectors such as pharmaceuticals and semiconductors.
This agreement, while considered a step forward in trade relations, has limitations in terms of its immediate economic impact, which is estimated to be low. While it is a first step to resolve the chaos of Liberation Day, it has been disappointing that its scope is so limited, especially with a trading partner with which they already had a trade surplus... a stone's throw away from nothing.
Although the markets gave little credence to a surprise rate cut, it was confirmed that the Federal Reserve kept interest rates unchanged on Wednesday but warned that the risks of higher inflation and unemployment have increased, further darkening the U.S. economic outlook as policymakers face the impact of President Donald Trumpâs tariffs. At this point, Fed Chairman Jerome Powell stated that it is unclear whether the economy will continue its steady growth pace or if it will be affected by growing uncertainty and a potential rise in inflation.
With so much to resolve regarding what Trump will ultimately decide and what may survive potential legal and political battles, Powell expressed that the scope, magnitude, and persistence of those effects are highly uncertain. Thus, he emphasized that it is unclear what the appropriate monetary policy response should be at this moment. This statement subtly indicated that the Federal Reserve, a key player in shaping the economy, is effectively on the sidelines until Trumpâs political agenda fully emerges.
Despite the uncertainties, the Fed still appreciates the economy's resilience, highlighting that employment continues to rise and the economy is growing at a solid pace. The recent dip in GDP for the first quarter, according to Powell, was distorted by a record influx of imports as businesses and households tried to anticipate expected import taxes, with domestic demand measures still growing. However, even with this data, the Fed faces uncertainty over whether demand and investment are beginning to weaken, which could manifest in more "hard" data on inflation and employment in the near future.
Trump is clear on this.
Despite all the negativity in CEO and business confidence surveys, reality tells us otherwise: in this Q1 earnings season, share buyback announcements from S&P 500 companies have reached a new record of $192 billion, which does not align well with such a cautious approach or expectations of significant deterioration.
OPEC+ announced on Saturday that there will be another small production increase (~411k b/d) in June, bringing the total voluntary production increase to 959k b/d. Immediately after this announcement, the oil market saw a drop, with WTI briefly touching $55/bbl. Given that the consensus is already concerned about the oil market balance in 2025 (due to demand concerns and now the increase in OPEC+ supply), this production hike provides more ammunition for the market bears.
However, the underlying reality is very different from the negative picture being painted. Take, for example, the latest crude export figures from OPEC+ for April. Although the final numbers have not yet been published, exports have been trending downward month by month, despite April being the first month with a production increase after the pause. Furthermore, since the beginning of the OPEC+ production cut agreement, the Saudis are the only ones who have reduced their production. It is most likely that the base quotas will rise to the point where no one is exceeding them, which would not translate into higher effective supply. The recent decision by Diamondback Energy, one of the leading producers in the Permian Basin, to reduce its 2025 capital budget by $400 million reflects this worrying trend for the shale industry. The company has decided to cut the number of drilling rigs by 3 and also points out that U.S. fracturing crews have already decreased by 15% this year. Unless oil prices experience an immediate rebound, the expectation is that this trend will continue, suggesting a slowdown in activity in one of the main drivers of U.S. oil production.
Diamondback projects that the total number of active rigs in the U.S. will decrease by 10% by June, with more cuts expected for the third quarter. This shift is significant, considering that the shale boom was key in turning the U.S. into the world's largest oil producer.
This situation is not new. For months, various analysts and industry reports have warned about the growing capital discipline and rising costs, factors that are pressuring shale companies. The most profitable points in the most productive shale areas have been exhausted, and drilling efficiency is starting to decline. Diamondback's recent decision could be the first step in a widespread pullback in the industry, which will ultimately have a significant impact on the global oil market.
Model Portfolio
The model portfolio's return is -5.00% YTD compared to -3.3% for the S&P500 (our portfolio mesured in ⏠terms, which is weighting -10% in our portfolio this year vs the S&P in $), and +59.2% versus +39.8% for the S&P500 since inception (September 2022). The model portfolio, as of Friday's close, is as follows:
Keep reading with a 7-day free trial
Subscribe to LWS Financial Research to keep reading this post and get 7 days of free access to the full post archives.