Eric Roseman's Eruptions: Stocks, Global Markets and Commodities BLOG

Non-Treasury Bonds Beat Stocks in 2009 as Spreads Narrow

After suffering their worst year in decades in 2008, the entire gamut of speculative and investment grade bonds have posted big gains since the March 9 intermittent bear market low.

Credit spreads or the yield differential between benchmark U.S. ten-year Treasury bonds and speculative debt has crashed over the last eight weeks as risk returns to the fixed-income market. Spreads for investment grade bonds have also narrowed sharply – led mainly by a huge compression in bank-issued bonds.

In 2009, the S&P 500 Index is basically unchanged while the Barclays Aggregate Bond Index (includes all bond categories) has risen 1.4%.

U.S. investment grade corporate bonds, as measured by the Barclays Capital Corporate Bond Index, have gained 3.5% in 2009. Mortgage-backed bonds (Fannie, Freddie, Ginnie Mae) have climbed 3%. Municipal bonds have also enjoyed big gains with a 5.8% rally. The best-performing fixed-income category, however, belongs to high-yield or junk bonds, up 21.3%.

And as risk returns to the markets this spring investors are dumping Treasury bonds – clobbered since April. Intermediate-term Treasury bonds are down 2.4% this year while long-term bonds – the most sensitive segment of the yield curve to interest rate expectations – have plunged 11.6%. Treasury bonds are suffering their worst year since 1994.

For the first time since the start of the credit crisis my fixed-income indicators have now turned bullish. Though several important hurdles remain for a complete credit healing to occur, critically important short-term credit spreads have dramatically improved since March.

The short-term credit spread segment has rallied sharply since April with the TED Spread heavily compressing and now trading below 1%. The same is true for 90-day LIBOR or overnight dollar rates in Europe, which are responsible for setting more than $300 trillion dollars’ worth of global loans and funding requirements. LIBOR fell below 1% last week and is trading at just 0.85% this morning; LIBOR peaked at 4.82% last October.

To be sure, the riskiest segments of credit are now extremely overbought. Junk bonds, literally a trap for speculative investors as default rates continue to rise this year, have now gained more than 20% since late March. I continue to recommend avoiding the junk or high-yield sector as defaults have more than doubled since Q4 2008.

Risks, however, remain.

Several important credit markets have not shown the ability to trade without the Fed’s assistance. Banks that have raised capital without FDIC guarantees recently are still paying big premiums to raise financing. Also, the important mortgage-backed market is now witnessing a spike in rates – bearish for housing and refinancing activity. The Fed has already committed more than $300 billion dollars to mortgage-backed securities since November and is losing control of the fight to keep mortgage rates low. Though the current spike isn’t large, the trend is running in the opposite direction of the Fed’s target -- critically important since it affects consumer loans.

Another segment of the yield curve in trouble is the intermediate to long-term Treasury bond market. Interest rates have risen sharply since late March on the heels of “green shoots” appearing in the U.S. economy, rising inflation concerns and a recent poor auction of 30-year Treasury bonds last week. U.S. Treasury supply is estimated at $2 trillion dollars in 2009 – more than the combined issuance from 2006 to 2008.



With global capital markets now drunk with gains since March now is not the time to lunge after risk. This also applies to bonds, especially junk bonds. My focus this summer is to keep liquidity high ahead of another correction. Ironically, despite a deluge of issuance ahead of us over the next 12-18 months in the United States and Europe, government debt at the short end of the curve looks attractive. This is especially true if stocks correct this summer; investors are barely compensated in 90-day T-bills but can get about 1% on a two-year note, which trades just below par.

Stocks and speculative grade bonds have come a long way since March. If you subscribe to the view that this is a bear market rally then avoid chasing the short-term trend. The fundamentals for sustainable long-term domestic consumption in the United States remains bearish as the savings rate continues to rise while virtually every industry forfeits raising prices this year amid a deflationary environment. Don’t chase risk at these levels.

Have a good weekend. See you on Monday.

Dow Transports and Copper Fail to Confirm Rally

Stocks are now at the cusp of another reality check this week following dismal economic news in the United States, Europe and China. The primary trend now looks bearish as stocks probably terminate the fifth bear market rally since October 2007.

Risk aversion is returning in mid-May as the dollar, yen, gold and Treasury bonds post gains over the last 48 hours – the same leading players that dominated 2008 profits in an otherwise horrendous year for investors.

It should come as no surprise that U.S. retail sales dropped for the second month in a row in April by 0.4% after falling 1.3% in March. As job losses continue to average more than 550,000 per month since last fall combined with a still declining real estate sector, domestic consumption remains badly crippled. Consumers are saving, not spending.

Also, declining wage inflation – barely in positive territory over the last 12 months – also points to an environment of weakening purchasing power as deflation digs deeper into the real economy.



Markets have also read too much into China’s public spending programs. Exports in China have fallen off a cliff since Q4 and the trend continues to accelerate in April. The Chinese economy won’t boost plummeting global consumption; Chinese demand has already propped industrial metals and oil prices since March and that trend now appears to be slowing as copper and other base metals head sharply lower this week.

Copper, or Dr. Copper, as it is commonly referred to by the investment community because of its sensitivity to the global economic cycle, appears to have already topped-out. The Chinese have already purchased the bulk of their copper needs earlier this year when prices collapsed; historically, the Chinese don’t chase base metals prices.

So are we at the edge of another big bear market decline set to violate the March 9 lows?

At some stage over the next 12 months, stocks could violate the March 9 lows. The only major pillar of support saving the economy now is massive government stimulus spending; this alone should help the economy muddle through over the next six months or so until final demand heads sharply lower again. That’s when another spending package will be required – dictated by a plunging stock market.

Equities, however, are now breaking down again. The Dow Jones Transportation Average has peaked in this bear market rally and is leading the downtrend. Oil prices also seem poised to break below $55 a barrel this week after failing to surpass the $60 level. Other commodities will also follow as fears of deflation reignite, especially if consumer price data for April to be released on Friday shows an acceleration of falling prices. In March, U.S. CPI fell 0.4% year-over-year – the first negative inflation data since 1955.

Here we go again. The summer has historically been a bad time to buy stocks and this year probably won’t be any different. But for now I don’t think stocks will violate the March 9 lows because so much bad news is already “baked into the cake” since equities hit a 12-year low 60 days ago.

The best trade now includes patience. Most assets have already posted big rebounds this spring and investors would be prudent to sit on the sidelines and wait for the dust to settle as markets violate important technical levels this week. Cash is still King.

Modest Dividends Portend to Longer Stock Market Recovery

The lack of dividends today will probably delay a full recovery for the stock market.

Historically, dividends are responsible for about half of the stock markets’ total return equation. But in the go-go days of the 1990s, dividends became insignificant as investors lunged after technology and other growth stocks; CEOs ploughed cash back into buybacks at the expense of dividend hikes for the most part. And as the market skyrocketed that decade the dividend yield as a percentage of the markets’ total return shrank.

By 2000, dividends as a percentage of the markets’ total return plunged to just 10%.

The chart below is probably one of the most telling explanations on why dividends matter.



If an investor bought the Dow Jones Industrial Average (Dow) at the peak in 1929 he would have waited 29.25 years to break-even or until 1958. But with dividends reinvested, the Dow managed to recover its 1929 peak in just 7.25 years. That’s an incredible statistic. Yet back in 1932 the Dow yielded more than 10%; at the low on March 9, 2009, the Dow yielded 4.1%.

Right now the yield on the Dow at 3.63% is about 64% lower than it was in 1932. This suggests that stocks will take longer to recoup their October 2007 all-time highs because the power of reinvested dividends is much less today than back in 1932.

The Dow bottomed in June 1932 at 41.41 and crashed a cumulative 87% from its peak in October 1929. For this cycle – the second worst bear market in history after the Great Depression – the Dow remains 40% below its October 2007 all-time high. From its lowest point on March 9, the Dow was down a cumulative 58% from its high.

The big problem with dividend investing today is that many companies are cutting or eliminating dividends altogether. That’s especially the case with the distressed financial services sector where dividends have been almost entirely cut or substantially reduced since last year.

Just how the market can recover much quicker without bank dividends – a big chunk of the Dow – remains to be seen.

A better way to ride a recovery if you feel bold enough is to buy convertible bonds instead of common stocks. Your upside, of course, won’t be as snazzy as equities but at least you’ll have some income to cushion any draw-down. Convertibles suffered their worst year in history in 2008 – crashing almost 40% -- but have gained more than 10% in 2009.

My favorite convertible bond fund remains Vanguard Convertible Securities Fund (VCVSX). The Fund has employed the same manager since 1996 and has the lowest expense ratio in the business. In 2009, the Fund has gained 15.5% compared to 1.3% for the S&P 500 Index. Not a bad show.

Odds of Sovereign Default Remains High in 2009-2010

The worst of the global financial crisis has passed. But the next leg of this severe recession has yet to cripple the weakest balance sheets among sovereign nations.

Before 2010 is over, possibly sooner, some countries in the Baltics, Balkans, Eastern Europe and Central America will join the list of battered credits that have reneged or defaulted on their foreign debt obligations. It’s hard, if not impossible, to imagine that we won’t witness a major sovereign government debt default in the course of this economic cycle.

As governments worldwide continue to pile on massive amounts of debt to fund an economic expansion amid the worst credit deflation in 75 years, the odds are growing that one or more sovereign nations will default on their foreign debt. Many countries, even mighty Germany have struggled to raise international funds to plug their budget gaps; since last October Germany has scrapped or reduced the size of four bond auctions.

If Germany and other core euro zone nations are struggling to raise funds then imagine what lies ahead for weaker sovereign credits?

Candidates for default include Latvia, Lithuania, Estonia, Romania, Ukraine, Kazakhstan, Hungary and possibly several other emerging market countries. It is also possible, though unlikely, that Italy or Greece might default. Even Ireland, virtually bust, is a potential candidate.



As the next phase of this crisis turns into an acute and deep recession, governments will come under pressure to spend even more money to rescue joblessness and growing economic discontent. As this next round of spending develops later next year or in early 2011, several nations will come close to the brink of default as finances become too stretched.

Already since last year Ecuador has defaulted while pressure on several other nations grows by the day. These countries are struggling to raise international funds to secure budgetary needs and in all likelihood will default. The IMF, or International Monetary Fund, will not be able to avert every funding squeeze; it’s lunacy for the IMF to hand out money to a nation just so that it may avoid a default. This is what happened in Ukraine and Iceland among many other nations over the last six months. How long can this strategy work effectively if economic conditions relapse later in 2010 once this round of fiscal spending draws to a conclusion?

Credit spreads or the difference between benchmark government bonds in the United States and Germany compared to weaker national bond markets in places like Ukraine and Greece continue to show stress. These spreads have not declined significantly over the last 60 days as equities and other capital markets have rallied.

Also, Latin America, which has largely escaped this credit crisis (except Argentina, which remains an economic lost cause) might take a turn for the worst if commodities prices resume their downtrend. One could make a case that a currency and debt “bubble” is now in play in Brazil – the largest economy in the region. The real currency has skyrocketed since 2003 while interest rates have collapsed. Does Brazil really deserve to be investment grade? The BOVESPA stock index trades north of 50,000 – not exactly a bargain, either.

In all likelihood it seems quite plausible that one or more sovereign borrowers will default before this crisis finally concludes. Germany will probably bail-out core Europe. But it’s up to the IMF to tackle peripheral emerging European nations if they default. The IMF can’t rescue everybody if a string of defaults begins to unfold like dominos. The chain reaction will be too violent.

Avoid emerging market debt. Credit spreads have now rallied to just 488 basis points or 4.88% above ten-year U.S. Treasury bonds. That is not reflective of the upcoming challenges affecting emerging market debt and the enormous task faced by an overwhelmed IMF.

Commodity Currencies Overbought Since March

Some of the biggest trend reversals in global markets since March have occurred in foreign exchange markets. As risk reversion has returned with a vengeance over the last several weeks many commodity currencies have lit a fire against the American dollar.

But the biggest movers against the dollar and the euro since March are also the same currencies that should be avoided following huge gains. These include the Brazilian real, Norwegian krone, Swedish krona, Canadian dollar, Australian dollar, New Zealand dollar and the South African rand.

With global capital markets now drunk with big gains since the lows on March 9, investors would be wise to avoid dumping the U.S. dollar at these levels ahead of another sell-off later this spring or summer. Stocks have now entered a period of seasonal weakness starting in May and significant profit-taking will probably drive the dollar and Treasury bond prices higher over the short-term.

One of the worst-performing commodity units since last July belonged to the Australian dollar (shown below).



The Aussie was smashed to bits starting last summer along with other commodity currencies and hit a trough in late 2008. At just shy of par value vis-à-vis the U.S. dollar in mid-2008, the Aussie tanked more than 40% late last year before recovering about half that loss since March.

The Australian dollar is now up 7.4% against the U.S. dollar in 2009. Other currencies like the Norwegian krone have surged 8.8% while the Brazilian real is up 10.8%. The top performer in the commodity league this year remains the South African rand, up 11.6%.

The major premise behind the impressive rally for many foreign currencies since March is the return of risk aversion or leverage. The cost of funds in the United States is almost zero percent; the dollar is rapidly becoming the next Japanese yen carry-trade whipping boy.

Though I can’t quantify exactly how much borrowing has returned to the financial system, it’s obvious to me at this point that investors are embracing too much risk at this stage of the economic cycle. The Dow, S&P 500 Index and other averages violated important support levels on March 8. This is not a new bull market.

Investors are incorrectly assuming that domestic demand, consumption and household balance sheets are now in the process of recovering, which is dangerously not the case. What we have now is massive global monetary stimulus finally feeding its way into the real economy as statistics go from outright disaster to just plain old bad. This justifies the 37% advance by the S&P 500 Index since its March 9 low; but it won’t justify broader gains from these levels because corporate earnings will continue to struggle in the absence of organic consumer-driven demand.

Yet I suspect all of this government spending, now in the process of being discounted by the stock market and Treasury bonds, will eventually exhaust itself because Treasury bonds and mortgage rates are now rising sharply since mid-April coupled with sharply higher oil prices. The market will begin to discount this soon.

The U.S. and European financial systems remain heavily leveraged and many segments of credit still rely on government support. This remains a highly uncertain economic environment and I think investors would be wise to avoid the hype and protect their capital for the most part. It’s just incredibly hard to believe that we’re back to the good old days again when deflation is now officially in town for the first time since 1955 and most companies don’t have pricing power.

If the global unwinding of leverage is indeed unfinished then the American dollar is not through completing the last phase of this bear market rally that began in July 2008.

Treasury Bonds Post Worst Losses Since 1994

Despite the Federal Reserve’s aggressive moves to purchase or monetize billions of dollars in Treasury supply this year, prices continue to roll over. Treasury’s are in the midst of their worst year of performance since 1994 when the Fed began raising interest rates.

This time, the Fed is not hiking rates. Instead, it’s attempting to keep a lid on rising long-term rates by purchasing the mid to long-term yield curve in a bold attempt to influence important mortgage rates and other consumer loans. Thus far this effort is failing.

The yield on the benchmark ten-year T-bond has climbed from barely 2% at the end of December to 3.36% this morning. The 30-year T-bond has been the hardest hit this spring with yields soaring from about 3% in late December to 4.31%. Earlier this year, the Sovereign Society Portfolio initiated a trade betting against long-term Treasury bonds vis-à-vis an ETF; that position is up more than 20% since late March.



The Fed, of course, faces tremendous headwinds, possibly a gale force in its attempt to keep rates stable.

Treasury issuance this year is estimated to surpass $1.2 trillion dollars while possibly reaching $2 trillion in 2010. There’s just too much supply hitting the market and investors are demanding higher interest rates.

Making the Fed’s task even more daunting is the stunning recovery in capital markets since early March as investors dump Treasury bonds en masse to assume more risk in stocks, speculative bonds and foreign currencies. This event has put significant pressure on the entire U.S. yield curve, especially longer term rates, which the Fed cannot control.

As I mentioned yesterday, sharply higher mid to long-term interest rates might take the air out of this short-term economic recovery – largely financed by government spending. The rapid increase of longer term interest rates now poses serious risks to any recovery.

Though I’m certainly bearish on Treasury bonds, especially long-term T-bonds, I’m starting to consider short-term Treasury paper up to five years. This segment of the yield curve offers yields up to 2.16% and selling around $98, or a modest 2% discount to par. Six months ago prices were rich and yields barely 1.5%.

In a world that’s gone hog-crazy for risk following the worst crash since 1937, I find myself hunting for conservative investments that pay regular dividends or income. The big decline in Treasury bonds should be viewed as an opportunity to park some money ahead of the next shock later this summer or fall. In that event, yields will come crashing down again and T-bonds will rally.

A heavily leveraged economy that’s still in the process of unwinding credit and toxic securities now faces a serious threat from rapidly rising longer term interest rates. This is not a normal bear market. Sharply higher rates are now in the process of derailing this fragile bear market bounce.

Have a good weekend. See you on Monday.

Optimism over Stress Tests Results is Delusional

With almost every passing day global markets continue to advance with a seemingly nonstop upward bias. No correction, no backing and filling and certainly barely any days of serious profit-taking since the intermittent lows occurred on March 9.

The S&P 500 Index is now up 36% since March 9. Riskier trades like the MSCI Emerging Markets Index has surged 57% since March 2 and have almost doubled since October. Oil prices have rocketed 26% higher this year and junk bonds soared more than 12% in April alone.

Anyone suspecting that investors are still sitting on the sidelines isn’t looking at global markets or indices covering a gamut of risk-based assets. Suddenly, risk is back en vogue again as investors dump Treasury bonds and dive into riskier investments.

Meanwhile, the government will announce the results of its phony “stress tests” today.

Wow, like we really expect bad news from an unbiased survey of America’s largely insolvent banking system! What a joke.

Until the government finally lets bad banks die, the reality of this crisis won’t end with ridiculous stress tests or other fabricated surveys designed to appease the public. Yet the markets are still climbing with bank shares leading this parade since March.

One of the best mutual fund managers in the United States, John Hussman, has turned net short in his Hussman Strategic Growth Fund.

Hussman is one of the few money-managers to post a profit this decade and is up about 8% in 2009. Hussman, in a recent market commentary, stressed that at every market bottom since 1940 the initial five-week rally tends to be supported by strong trading volume. For example, at the dawn of the 1982 bull market trading volume on the NYSE grew by 40%; but this rally since March has actually witnessed a contraction of volume. That’s not a bullish signal.

I suspect this rally is a fake, driven mostly from a severely oversold state in early March. Investors are celebrating the fact we’re not heading into a depression and have lunged after stocks. Final demand, however, will be disappointing. Governments are acting as the consumer of last resort and once this massive spending is exhausted we’ll need additional stimulus spending.

Since the banks triggered this historical bear market it’ll be the same sector that encourages the next sell-off. Banks are not lending and any economic recovery will not be vigorously supported by credit expansion – the first time credit will not grow ahead of a recovery in the post-WW II period. Just how we’re supposed to ride an expansion without credit growth is beyond me. Time will tell.

Finally, long-term interest rates have surged since April in the United States. This is perhaps the most bearish price action in the marketplace because it threatens to unravel all of the Fed’s hard work since last November. Even more disturbing is the fact long-term rates are climbing rapidly even as the Fed monetizes a portion of its own debt or accumulates Treasury securities.

The Fed is now struggling to contain rising long-term rates, which affects mortgage rates and other important consumer loans. A highly leveraged economy still in the process of unwinding cannot tolerate higher long-term rates. If this trend continues, a recovery that is in the process of being discounted by the market will violently reverse.

Credit Thaw Spreads to Junk Bonds, but Default Rates still Rising Sharply

Credit markets continue to improve since March with every segment of the fixed income curve enjoying an impressive rally or a compression of yields. At first, most credit spreads failed to join the broader rally in stocks off the March 9 lows. But now the entire gang has showed up at the party, including junk bonds, high quality corporate bonds, mortgage-backed securities, emerging market debt and even some leveraged loans. Only Treasury bonds are in the loss column this year following a stellar 2008.

Also bullish is the trend in short-term credit markets where 90-day LIBOR rates have sunk below 1% this week to 0.99% -- the first time they’ve traded below 1% since the advent of the credit crisis in late 2007.

But the biggest gains lie in junk bonds lately. Just two months ago, dealers couldn’t give away a junk bond issue; but since late April several new deals have hit the pipeline as investors assume more risk.



The spread or difference between ten-year Treasury bonds and the Merrill Lynch High Yield 100 Index has shrunk to just 671 basis points, or 6.71%, from a high of almost 14% last fall. Merrill Lynch still publishes several high yield indices but the most widely followed, the High Yield 100 Index, now yields 9.87% compared to 17.03% last October. Over the last four weeks, yields have crashed.

In April, several deals were financed in the junk bonds (high yield) arena that couldn’t get a bid back in February. Combined with significantly lower yields, junk bonds have already gained 12.6% in the second quarter.

Still, despite the hoopla, investors should avoid buying this riskier segment of credit now and focus on safer investment grade bonds and TIPS. Even short-term Treasury bonds look attractive at these levels to supplement puny money-market yields following a ratcheting of short-term rates since late March.

In all probability, this is a bear market rally – similar to the November to January rally.

There is a looming default cycle that has yet to be fully discounted by the market; default rates stand at just under 6% now compared to at least 10% or more in previous recessions. The market has incorrectly discounted the worst at this stage of the economic cycle because this remains a deep-rooted credit deflation. Default rates are likely to top north of 15% before it’s safe to aggressively accumulate junk or high-yield bonds.

Meanwhile, riskier bonds and stocks have come a long way since reaching the edges of the abyss in early March. I reckon we’re severely overbought at these levels and a new round of profit-taking lies ahead this spring or summer. Keep most of your powder dry.

Natural Gas the Cheapest Commodity Speculation

Will natural gas make a comeback? The odds are pretty good that bargain-hunters at this distressed price will probably double their money over the next 6-12 months ahead of rising industrial demand and the possibility of supply outages caused by the looming Hurricane season. Also, demand typically rises during the summer as individuals turn up the air conditioning.

The best risk-adjusted speculation now for commodities investors is natural gas. There’s no other commodity that’s this cheap, this battered and this oversold (see chart below).

From its high last year ahead of the peak in raw materials in July, spot natural gas prices have now collapsed a cumulative 74%; in 2009 prices have declined 37%. Crude oil, on the other hand, driven higher by big supply cuts by OPEC and Russia earlier this year, has seen prices rise 19% to $53 a barrel. Yet even oil is down 64% from its high.



Over the last several months natural gas has been hammered as the global economy suffers its worst recession since 1981-82 coupled with soaring gas inventories. Though an extremely volatile commodity, natural gas at these levels has historically been a strong speculation following big bear market crashes.

Canada is home to some of the best natural gas companies, including Encana (NYSE-ECA). The stock is more than 50% below its all-time high and pays a 3.6% annual dividend at current prices. The Canadian dollar has also rallied sharply since April and provides a far safer refuge for U.S. dollar-based investors because Canada’s financial system is not heavily leveraged nor has a single bank received a government bailout.

It’s time to ride natural gas. At just $3.55 BTUs (British Therman Units) it’s hard to believe prices can head much lower. All the bad news is already baked into gas prices. It’s my favorite energy play right now in Commodity Trend Alert (CTA) -- celebrating its 7th year this summer.

O’Higgins, Buffett Predict Return of Inflation

In interviews last Friday two icons of value investing in the United States predicted inflation will make a comeback as massive government stimulus combined with rapid credit acceleration eventually result in higher consumer prices.

Michael O’Higgins, the father of the Dogs of the Dow strategy in the early 1970s, told PBS in an interview that he believed stocks were in the midst of a secular bear market, not unlike the 1966-1980 period when, adjusted for inflation, equities posted a cumulative loss. In nominal terms, or before adjusting for inflation, the Dow went nowhere over that 15-year stretch.



O’Higgins is worth listening to. He pioneered the Dogs of the Dow strategy in the 1970s at a time when investors were battle-scarred from equities and later in the late 1990s called the bull market in Treasury bonds ahead of the March 2000 stock market peak. Now O’Higgins is buying gold, silver, gold mining stocks and TIPS, or Treasury Inflation Protected Securities, ahead of a major resurgence in inflation. According to O’Higgins, the “Obama administration won’t stop stimulating the economy until we have inflation.”

The Sage of Omaha, Warren Buffett, voiced similar concerns ahead of Berkshire Hathaway’s annual shareholder meeting on Saturday.

Buffett sounded an alarm on the macro economy in an interview with Bloomberg Television; “There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett. Berkshire’s book-value declined 9.6% last year – its worst performance since 1965.

Buffett also warned of higher inflation eventually in the United States because of unprecedented dollar creation or the expansion of the Fed’s balance sheet and credit growth to stimulate the contracting economy.

The world’s wealthiest investor also dismissed the results of impending government stress tests this week but declared his bullishness on Berkshire’s second-largest holding after Coca-Cola – Wells Fargo.

“All banks aren’t alike by a long shot, and in our view Wells Fargo, among the large banks, has some advantages the others do not,” Buffett said at Berkshire’s annual meeting in Omaha, Nebraska. “If I had to put all of my net worth into stock that would be the stock.”