Buffett’s Builder Bet Beats the Curve. Why It Was Such a Bold Play.

To call the move counterintuitive feels like an understatement. People borrow money to buy a house, and higher interest rates make it more expensive to do that. The property market is one area where Fed rates have had a clear impact in slowing things down.

Perhaps because of intelligence gleaned from his real-estate brokerage business—where, by the way, earnings have dropped dramatically—Buffett sensed an opportunity.

When the property market is weakening, homeowners are reluctant to sell, hoping to ride out the dip to fetch a better price in the future. That means new homes became the main source of supply for anyone looking to buy a house over the past two years, which was a boon for developers.

Voilà—there’s the magic. The S&P 500 Homebuilders Select Industry Index is up 39% this year, with most of those gains coming since the start of April.

As always, it makes you wonder what else Buffett might be doing right. For example, more than 80% of his portfolio is now in five big stocks—of which the holding in Apple is the largest by far.

Berkshire Hathaway is also holding near-record levels of cash. That at least suggests he’s human like the rest of us, and isn’t quite sure what’s going to happen next.

—Brian Swint

*** Join Barron’s associate editor for technology Eric Savitz today at noon when he speaks with Dan Ives, technology analyst at Wedbush Securities, on the outlook for technology stocks. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

***

Fund Managers Disclose New Tech Stakes in Second Quarter

Big money managers snapped up technology stocks, specifically artificial intelligence-focused companies, in the second quarter, according to quarterly regulatory filings. David Tepper’s Appaloosa unveiled new holdings in
Advanced Micro Devices
and
Apple,
while exiting a
Tesla
stake it acquired a quarter ago.

• Appaloosa reported a new 2.3 million-share position in AMD and a 480,000-share position in Apple, along with a variety of chip stocks. Tepper increased his stake in
  Nvidia
  by 580% to just over 1 million shares and more than doubled a stake in
  Meta Platforms
  to 1.5 million shares.

• George Soros reported new positions in AMD, Nvidia, and
  Microsoft
  in the second quarter. Microsoft is heavily invested in OpenAI’s ChatGPT generative artificial intelligence.

• Dan Loeb’s Third Point built a 2.78 million-share stake in
  Uber Technologies,
  a 4.1 million share stake in
  Amazon.com,
  and 500,000 shares in Nvidia. All three were new positions for Third Point relative to the first quarter.

• Berkshire Hathaway
  took new equity positions in home building, notably industry leader
  D.R. Horton,
  while reducing its stake in
  General Motors
  and eliminating a holding in
  McKesson
  in the second quarter. It also added to holdings in
  Capital One Financial
  and reduced its position in
  Celanese.

What’s Next: Bill Ackman’s Pershing Square Capital boosted its
Alphabet
class C shares to 9.38 million from 8 million at the end of March, but left its 2.19 million Alphabet class A shares unchanged. The reports are delayed 45 days, so positions could have changed since the end of June.

—Liz Moyer and MarketWatch

***

China Cuts Key Rates as Economy Sours

China’s central bank lowered interest rates on Tuesday after fresh data showed consumer spending and factory output weakening. It’s the latest effort to nudge the world’s second biggest economy toward growth amid a disappointing rebound from Covid-19-era lockdowns.

• China’s central bank cut a key interest rate on one-year loans on Tuesday, and another for one-week borrowing, after a report last week showed the inflation rate turned negative in July. Other data on Tuesday revealed retail sales and industrial production rose less than expected last month.

• In a move that is perhaps more worrying than the poor data, the National Bureau of Statistics also announced it would stop reporting youth unemployment figures after they rose every month this year to exceed 20%. It halted the release of a consumer confidence report some months ago.

• Besides the pandemic lockdowns that lasted until late 2022, China is coping with a property bubble that’s deflating. Real estate developer Country Garden Holdings suspended payments on some of its bonds. Authorities are reluctant to go big on new stimulus measures for fear of reigniting a speculative frenzy.

What’s Next: Officials from the government and the central bank are resorting to increasingly desperate measures to revive confidence as the bad news piles up. The latest measures to get China’s economy back on track are unlikely to be the last. The stakes for the government are high as it looks set to miss its 5% target for economic growth this year, which was already the lowest goal in years.

—Brian Swint

***

Intel Expands Deal Aimed at Speeding Chip Manufacturing

Intel
and
Synopsys
are expanding an agreement under which Intel’s foundry customers can use Synopsys’ products covering communications, display, and memory technologies to speed the process of making chips.

• Synopsys is the biggest maker of electronic design automation software that is used to make semiconductors. The arrangement boosts Intel Foundry Services, a contract manufacturing business that is trying to become an alternative to
  Taiwan Semiconductor
  and
  Samsung.

• Intel is making its Foundry Services a key part of CEO Pat Gelsinger’s efforts to turn around the chip maker. Taiwan Semi has 60% of the third-party chip manufacturing market share, followed by Samsung’s 12%.

• Foundry customers can use the Synopsys technology to jump-start the making of new chips without having to start from scratch. It is designed for Intel 3 and Intel 18A factory process technologies, which will be among its most advanced.

• Terms of the deal weren’t disclosed. Intel said it extends a decadeslong collaboration to develop advanced design flows using Synopsys’ artificial intelligence-driven design technology.

What’s Next:
Morgan Stanley
said rival chip maker Nvidia remained a top pick heading into earnings, with a Buy rating and $500 price target, which is 14% higher than Monday’s closing price. Nvidia reports earnings after the closing bell on Aug. 23.

—Tae Kim and Liz Moyer

***

Hawaii Officials Investigating Wildfires as Pressure Grows

Hawaiian Electric Industries,
the largest power provider in the state, is under pressure after officials announced they would investigate how authorities responded to last week’s wildfires that ravaged Maui and caused the deaths of at least 96 people.

• Shares of Hawaiian Electric fell 33% on Monday. Bloomberg reported that lawyers seeking to represent those affected are focusing on the utility company’s equipment as a possible contributor to the fires and plan to file lawsuits this week.

• The state’s investigation comes as no official cause has been determined yet. Strong winds had downed some of Hawaiian Electric’s power lines, but the company didn’t turn off power despite warnings of fire danger conditions, according to a class-action lawsuit filed over the weekend.

• Hawaiian Electric didn’t respond to Barron’s request to comment, but has told Bloomberg previously that it doesn’t have information on what caused the fires.

• About 3,200 people have signed up for disaster assistance through the Federal Emergency Management Agency, though that number was expected to grow. The Small Business Administration is offering homeowners low-interest-rate loans of up to $500,000 for home repairs.

What’s Next: Officials estimated that rebuilding will cost $5 billion, while AccuWeather on Monday estimated the total damage and economic loss to be between $14 billion and $16 billion. Gov. Josh Green warned that the death toll could rise dramatically as crews work through the debris.

—Emily Dattilo and Liz Moyer

***

Johnson & Johnson Investors Face Kenvue Exchange Offer Deadline

This week,
Johnson & Johnson
investors will have to decide whether they want to participate in the $40 billion exchange offer for shares of healthcare product company
Kenvue,
which debuted as a public company in May.

• The offer expires on Friday, and brokerage firms are asking retail customers to give instructions before then. The pricing period for the exchange offer began Monday and will go through Wednesday with details available online.

• Based on current prices, J&J holders should get about eight shares of Kenvue for each J&J share. The exact ratio will be announced on Thursday. J&J holders can swap all, part, or none of their holdings for Kenvue stock.

• J&J is prepared to exchange 1.5 billion Kenvue shares for J&J stock and potentially as many as 1.7 billion, or roughly 90% of Kenvue, which owns such well-known brands as Band-Aid, Listerine, and Tylenol.

• J&J holders have a financial incentive to make the swap, with the company offering Kenvue stock at an effective 7% discount to the market price. J&J holders stand to get roughly $107.50 in Kenvue shares for $100 of J&J stock.

What’s Next: The offering is expected to be oversubscribed, and the result is that J&J holders should be prorated—meaning they will be able to swap only a part of their J&J shares for Kenvue. The proration is tough to predict but is expected to be in the 20% to 40% range. J&J’s exchange offer is the largest ever.

—Andrew Bary

***

Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

Each month, we’ll start a new challenge and invite newsletter readers—you!—to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.

Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

Are you ready to compete? Join the challenge and pick your stocks here.

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner