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Inflation Fears Hit Consumer Mood

🎭 Consumer sentiment nosedives as inflation fears rise, but is it just noise, or should the Fed actually care?

February 24, 2025

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In this issue of the peel:

  • 🍔 Warren Buffett, fueled by McDonald's and Coke, dropped his annual letter—Berkshire’s cash pile hit $334B, but he’s waiting for the right “fat pitch” investments.

  • 📈 Celsius jumps on an acquisition, MercadoLibre crushes earnings, while Block and CrowdStrike stumble on misses and investigations.

  • 🎭 Consumer sentiment nosedives as inflation fears rise, but is it just noise, or should the Fed actually care?

Market Snapshot

Banana Bits

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Macro Monkey Says

We Need More Warrens

I don’t know who’s paying these “doctors” and “nutritionists” to talk about the importance of “eating healthy,” but clearly they got it all wrong.

Most 94-year-olds I’ve seen are busy wondering what their name is or fighting with their family to keep their driver’s license. And that’s after a lifetime of forgoing fun in their food.

Meanwhile, running almost exclusively on McDonald’s, Coca-Cola, and candy that I can only assume comes unwrapped straight from his pockets, the 94-year-old Warren Buffett’s still got it.

Let’s get into it.

What Happened?

Most CEOs hide in their C-Suite office underneath a +$1mn salary, saying as few words as possible to the public while waiting for their options to vest and hoping not to become the next Silicon Valley Bank.

Not Buffett—the long-time Chairman of Berkshire Hathaway wants all the smoke. So, every year since Ali KO’d Liston (1965), he’s been writing letters, exposing himself and Berkshire to all shareholders.

2024’s annual letter dropped on Saturday. As usual, much of the update is a love letter to America, but he also takes time to focus especially on his company’s cash balance, Berkshire’s Japanese investments, and how hot his 91-year-old sister is.

We’ll save Bertie (Buffett’s younger sister) for another time. Along with the annual letter, Berkshire also released its 10-K. Because Berkshire is such a sprawling conglomerate, it’s a good microcosm of the overall economy, so let’s find out how we did.

First of all, as we can see above, Berkshire’s rolling in cash right now. Cash & equivalents hit a record level of $334.2bn as of the end of 2024, with $286bn sitting in short-term U.S. Treasuries currently paying anywhere from 4-5% per year.

Further, the company’s cash balance as a percentage of assets hit a record high, too, at 28.96%. 

As Buffett explains in his letter, “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”

That line has pundits and professionals alike wondering what the hell Buffett is thinking. However, right on the page before, the Chairman slyly gave us the answer, saying: “Often, nothing looks compelling…”

Simple as that. 

In his billion other letters and interviews, Buffett and his former partner Charlie Munger, who passed in late 2023 at 99 years old, have emphasized their philosophy of swinging only at “fat pitches.”

Basically, the idea is that it’s unwise to throw money at just decent or mediocre investments, preferring to wait until “compelling” opportunities emerge, then investing as much as they possibly can.

With U.S. Treasuries—considered the “risk-free” asset—earning 4-5%, that’s a much higher hurdle rate for these “fat pitch” opportunities to cross than seen in the prior decade under ZIRP.

And quite honestly, it’s really hard to shrink your cash pile when Q4 operating earnings jump 71% YoY.

Earnings from insurance underwriting rocketed 302% annually to $3.41bn, while investment income earnings ballooned 48%, contributing the most to the jump.

Buffett always tells investors to look at this metric as opposed to GAPP earnings because, under GAAP, companies have to include paper gains/losses in their total earnings.

On a GAAP basis, Q4 earnings actually plunged 48% to $19.7bn. This was entirely attributable to an 82% decline in income from investment gains.

At the segment level, most of Berkshire’s business was flat in terms of operating income. Geico led the way, with operating income up 115%, while the 3.9% jump in manufacturing was a big contributor, too.

The Takeaway?

Bill Ackman’s got a long way to go if he really wants to turn Howard Hughes Holdings and Pershing Square into a modern-day Berkshire.

Business isn’t booming, but it’s not blowing up either. Q4 and 2024 weren’t really “inflection” points for Berkshire but more of a “wait and see” period as the firm reassessed its strategies in a new operating, interest rate, and regulatory environment.

Can’t wait to see what their next investment is.

Career Corner

Question

What do I bring to a Superday? A backpack? A folder with my profile, paper, and pen?

Answer

At a minimum, folio with paper, pen, and extra copies of your resume. The backpack is fine; just leave it in the reception area, and don’t drag it with you to every interview.

Head Mentor, WSO Academy

What's Ripe

Celsius Holdings (CELH) 27.8%

  • Maybe the biggest beneficiary of those Panera lemonades that kept killing everyone was Celsius Holdings, which pumped portfolios as much as it does heart rates.

  • The maker of energy drinks with enough caffeine to start a car soared all week leading up to Thursday’s release of mid-*ss earnings. A surprising acquisition stole the show.

  • Celsius reported EPS of $0.14/sh on $332mn in sales vs estimates for $0.11/sh on $326mn, a 1% YoY decline in Q4 sales. North American sales tanked 6% while International shot up 39%.

  • Net income swung from a $50mn profit in Q4’23 to a $19mn loss last Q4. However, the acquisition of fellow drink maker Alani Nu for less than 3x sales got investors hyped.

MercadoLibre (MELI) 7.1%

  • Meanwhile, MercadoLibre didn’t need to distract from its Q4 numbers for a damn good day. The Amazon and Venmo of Latin America hit an all-time high on a record-breaking quarter.

  • The firm posted EPS of $12.62/sh on revenue of $6.01bn, well above analyst estimates for $7.90/sh on $5.8bn. Revenue spiked 37% while net income flew 286% (mostly because of a one-time tax expense in Q4’23).

  • Gross merchandise volume grew 8% YoY to $14.5bn while total payments facilitated on the fintech side shot up 33%. Users on both platforms set record highs as well. 

What's Rotten

Block (XYZ) 17.7%

  • I don’t know why it gives me so much joy to see Jack Dorsey fail. I don’t even mind the guy—he just really gets me in touch with my Ted Kaczynski side.  

  • But the founder and CEO of Block, who also founded and formerly ran Twitter, is having a bad enough day anyway. The fintech firm missed big in Q4, reporting $0.71/sh on $6.03bn in revenue vs estimates for $0.87sh on $6.29bn.

  • Payment volume of $61.95bn beat estimates for $61.3bn, indicating that the pioneer of point-of-sale systems and CashApp owner is losing pricing power to increased competition from competitors like Toast, Fiserv’s Clover, and Zelle.

CrowdStrike (CRWD) 6.8%

  • Still under investigation for (allegedly) costing Delta $300mn, CrowdStrike is now under a new investigation related to a client. I wish they had actually stolen $300mn from the IRS.

  • This isn’t a DOGE thing, so don’t tweak out on me yet. On Friday, Bloomberg reported that CrowdStike is under DOJ and SEC investigation related to a $32mn deal with the IRS through Carahsoft.

  • Carahsoft, a tech provider to the IRS, made the $32mn deal with CrowdStrike for products that, according to the DOJ, the IRS never ordered. 

  • That deal (allegedly) made the difference between beating and missing on Street estimates last quarter, but CrowdStrike has yet to disclose how it accounted for the deal.

Thought Banana

Inflated Expectations

I’m sure most of you have heard some variation of the saying, “Don’t ask a fish about fishing, ask a fisherman.” 

While it would be challenging to get an answer from a fish, the sentiment remains true. When I have a question about cats, I don’t go running to my cat looking for an answer.

The same goes for dogs, babies, and, most of all, consumers. But, the University of Michigan can’t help themselves, so…

Let’s dive in.

What Happened?

On Friday, the University of Michigan released their latest “data” on consumer sentiment.

While surveys are generally worth about as much as the paper this newsletter is printed on, the only saving grace consumer sentiment surveys have is that consumers can manifest their own economic destinies.

For example, if everyone expects inflation to rise, people will buy goods now to avoid paying higher prices later, thus creating inflation due to the increase in short-term demand.

Although most consumers don’t know GDP from PCP, we’ll place some value on these surveys, but only in their most extreme cases.

And it just so happens that’s what we got in February.

According to the University of Michigan, overall consumer sentiment tanked 10% last month, mostly attributable to rising inflation concerns.

One-year inflation expectations spiked from 3.3% in January to 4.3% in February, the highest level since November 2023. 5-year inflation expectations rose from 3.2% in January to 3.5% now, the largest monthly jump since May 2021.

Durable goods—high-priced items meant to last 5yrs or more, like appliances, vehicles, etc.—were the primary concern for consumers, with the index for this subcomponent down 19% in February.

According to survey director Joanne Hsu, the primary cause for concern was… did you guess it yet? Of course, tariffs.

The Takeaway?

Tariff talk has consumers nervous. But don’t read too much into it.

Like we mentioned above, surveys generally only benefit the people getting paid to run them. Plus, this is just one month’s worth of data—by this time next month and especially in April, we’ll know if it's an actual trend worth worrying about.

The Big Question: Will tariffs carry the price increases consumers fear? Will they actually get put in place? Should the Fed consider raising rates?

Banana Brain Teaser

Previous

Clarissa will create her summer reading list by randomly choosing 4 books from the 10 books approved for summer reading. She will list the books in the order in which they are chosen. How many different lists are possible?

Answer: 5040

Today

If n is a positive integer and the product of all the integers from 1 to n, inclusive, is divisible by 990, what is the least possible value of n?

Send your guesses to [email protected]

❝

Sentiment surveys are a reflection of perception, not reality—but perception moves markets.

Robert Shiller

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Happy Investing,
David, Vyom, Ankit & Patrick