# 697 – 👴🏻 Buffett’s hush-hush investment – The Average Joe

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    # 697 – 👴🏻 Buffett’s hush-hush investment

    victorlei

    May 17, 2024

    Good morning. OpenAI’s GPT-4o has many of us wondering… is the movie Her becoming a reality? With ChatGPT now flirting and a robot dishing out generic advice during a commencement speech, it feels like the era of robots is upon us. So, if you ever feel like you’re losing touch with reality, try out Human or Not to see if you’re chatting with a human or artificial intelligence. But don’t blame us when you realize that the line between the real world and the virtual one is getting blurrier by the day.


    BETTING

    Political Betting Platforms In Regulatory Crosshairs: What It Means

    Forget pennies for your thoughts — how about betting pennies on the next President instead? Turns out it’s possible. Started as an academic project in 2014, the political prediction market PredictIt has become a go-to platform for 80K+ users to bet on political outcomes — with over $150M wagered in the lead-up to the 2020 election alone. Its success has inspired new entrants like Polymarket and Kalshi, but it has also drawn scrutiny from regulators concerned about its potential to influence election outcomes.

    Bet the ballot box: Last week, the Commodity Futures Trading Commission (CFTC) voted 3-2 to propose a rule that could ultimately prohibit event contracts related to political elections, sports events, and even award ceremonies. The move would prevent prediction marketplaces like PredictIt from operating legally.

    • CFTC Chair Rostin Benham claims that event contracts “ultimately commoditize and degrade the integrity” of elections — and the ban is designed to avert their dangers (Politico).

    • Such a ban could disrupt markets popular among investors and the affluent, particularly for hedging against geopolitical risks or policy swings.

    Profiting on political betting’s very political future

    The CFTC’s vote is the latest and most dramatic effort to stop event derivatives. In 2022, the agency revoked PredictIt’s operating license — but an emergency injunction allowed it to continue operating. PredictIt anticipates its legal battle with the CFTC to outlast the 2024 election cycle, meaning you could still wager up to $850 on certain markets today.

    • Today, there are markets for the Republican VP nominee, the 2024 presidential winner, and even predictions on which party will win certain states in 2024.

    • As of May 16, Donald Trump and Joe Biden hold 92% and 86% chances of winning their respective party nominations — however, their odds of winning the election are nearly equal.

    Thiel’s political feel: Despite regulatory challenges, investors like Peter Thiel’s Founders Fund and Ethereum creator Vitalik Buterin are increasingly interested in betting platforms like Polymarket. They recently contributed to Polymarket’s $45M Series B investment, with partner Joey Krug saying that “the tangible benefits of using Polymarket as a complement to consuming news … was obvious.” But what isn’t as obvious is the financial impact on consumers, especially with numerous options to part ways with their money, like sports betting apps or meme stocks already available.


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    LARGECAP RECAP

    🤵 Buffett reveals secret stake in insurance firm Chubb

    Earlier this year, Warren Buffett’s Berkshire Hathaway ($BRK.A) asked the SEC to keep one of its new positions a secret — a move that kept Wall Street and his hoards of disciples guessing. Now, we know. Berkshire unveiled a $6.7B stake in insurance titan Chubb ($CB) on Wednesday, representing a 6.1% ownership stake in the company at the close of Q1.

    • Chubb is Buffett’s latest venture into the insurance sector, where Berkshire already holds significant influence through subsidiaries like GEICO, National Indemnity, and General Re.

    • The global insurer, operating in 54 countries, replaced two imperiled insurance firms Buffett sold in Q4 — Markel Group ($MKL) and Globe Life ($GL).

    Pivot towards financials: In recent months, Buffett has been reducing his stakes in consumer giants such as Apple ($AAPL) and HP ($HPQ) while increasing investments in inflation-resistant financial firms. Berkshire has “doubled down” on names like Ally Financial ($ALLY), American Express ($AXP), and Bank of America ($BAC). With the addition of Chubb, Berkshire continues that theme by gaining greater exposure to the increasingly pricey (but necessary) insurance business. Following the news of Berkshire’s stake, Chubb’s stock surged over 6%.

    🛒 Walmart beats estimates in battle for top retailer spot

    If Walmart ($WMT) hopes to maintain its narrow lead over Amazon ($AMZN), it’ll need more quarters like the last one. In Q1, the nation’s largest retailer saw US sales jump 3.8% year-over-year (YoY), thanks to a growing share of customers making $100K+. These numbers surpassed predictions, prompting Walmart to raise its full-year forecast — and sending shares up 7% after a few flat months.

    • Walmart is diversifying its revenue sources, notably with a 24% boost to its advertising business following the acquisition of Vizio — which grants access to consumer data through connected TVs.

    • E-commerce sales rose 22% YoY, driven by the popularity of curbside pickup and delivery services — and interestingly, delivery orders even outpaced pickups for the first time.

    Using the Amazon playbook: Walmart is intensifying efforts to fend off Amazon, which is on pace to surpass Walmart as the top retailer. Last year, Amazon achieved a 12% increase in revenue compared to Walmart’s 6%. To stay competitive, Walmart is embracing Amazon’s successful strategy of focusing on e-commerce, advertising, and memberships — including their new Walmart+ subscription program, which it hopes will be a significant driver of growth in the coming years.


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    Markets & Economy

    Biden and Trump plan two debates — on their terms: Instead of working with the non-partisan debate planning commission, both candidates are arranging their own debates in June and September. They come with new rules — including mics that turn off (mercifully) if a candidate exceeds their time limit. [Read]

    CME ($CME) to launch Bitcoin trading: The world’s largest futures exchange operator is pushing further into the crypto game — though CME declined to comment and details are scarce. The exchange has hosted Bitcoin futures trading since 2017. [Read]

    Copper reaches record high: With its crucial role in EV and AI data center production, it’s no wonder the price is at record highs. Now, mining firm BHP ($BHP) is trying to take over rival Anglo American ($NGLOY) — eyeing its valuable copper assets. [Read]

    Business & Wealth

    Wayfair ($W) ventures into brick-and-mortar: The digital native furniture company will open its first large-format store next week, setting up shop in Wilmette, Illinois. As online advertising gets trickier, e-commerce brands like Warby Parker ($WRBY) have found physical space to be a key revenue driver. [Read]

    Honda ($HMC) to invest $60B in EV strategy: At a time when EVs are a business loser for many car brands, the Japanese company is going full steam electricity ahead, aiming for EVs to make up 40% of their total vehicle sales by 2030. [Read]

    Netflix ($NFLX) nearly doubles subscriptions to its ad-supported tier: Now, 40M users globally are signed up for the ad tier — compared to 23M in January. Netflix also announced the launch of its own ad platform and ended its partnership with Microsoft ($MSFT) on this initiative. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


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    DIGIT OF THE DAY

    Microsoft’s Carbon Reduction Plans Hit a Roadblock As Emissions Surge 29.1% Since 2020

    When Microsoft asked AI for a green energy plan, it gave it a red one instead. Four years ago, Microsoft ($MSFT) pledged to become carbon-negative by 2030. But instead of making progress, the company’s emissions have soared by 29.1% — largely due to extensive expansions in data centers. Nonetheless, Microsoft’s chief sustainability officer defends ramping up AI to meet demand, arguing its potential to make the world “more environmentally friendly.”

    • Between 2020 and 2022, Microsoft and Google ($GOOG) saw their electricity consumption rise by 68% and 44%, respectively, surpassing that of Slovenia.

    • To reconcile the conflict between AI’s power demand and emission reduction targets, companies are increasingly turning to clean energy sources.

    Big Energy deals: Earlier this month, Microsoft sealed the largest clean-energy deal ever with Brookfield Renewable Partners ($BEP), which owns a global portfolio of renewable power generating facilities. BEP will supply 10.5 gigawatts of power, equivalent to 10 nuclear plants, estimating to cost over $11.5B. Last year, a record-breaking 46 gigawatts of corporate clean energy purchases were announced, up 12% from the previous year. With electricity demand showing little signs of slowing, more big deals may be on the horizon.


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