The Federal Reserve kept interest rates unchanged when it met on Wednesday but noted an increase in uncertainty, potentially pushing both unemployment and inflation higher. With other world central banks cutting interest rates, the Federal Reserve maintaining the current target range at 4.25% to 4.5% has led some to argue that monetary policy is too restrictive. Others argue that while there is room to cut interest rates from where they are, the Federal Reserve and monetary policy cannot solve a fiscal policy error. The Federal Reserve acknowledges there are risks, but they have not materialized in the economic data yet. Fed rate decision May 2025: Fed holds rates steady
Berkshire Annual Meeting: Beyond Warren Buffett’s retirement announcement this weekend, Buffett made other statements at the Berkshire Hathaway Annual Meeting:
Quotes from Berkshire's Meeting | Reuters What Did Buffett Say? | Des Moines Register
- On Currencies:
- "Obviously we wouldn't want to be owning anything that we thought was in a currency that was really going to hell."
- "There could be... Things happen in the United States that... make us want to own a lot of other currencies. I suppose if we made some very large investment [in a] European country... there might be a situation where we would do a lot of financing in their currency."
- U.S. Fiscal Policy and U.S. Deficit:
- "Fiscal policy is what scares me in the United States."
- "We're operating at a fiscal deficit now that is unsustainable over a very long period of time. We don't know whether that means two years or 20 years ... because there's never been a country like the United States, but you know, this is something that can't go on forever. We are doing something that is unsustainable and it has the aspect to it that it gets uncontrollable to a certain point.”
- On U.S. Real Estate:
- “In the United States, there's so much more opportunity that presents itself in the security market, than... in real estate”
- Tariffs and Trade:
- Tariffs are “an act of war” and, over time, “they’re a tax on goods.”
- “We should be looking to trade with the rest of the world and we should do what we do best and they should do what they do best."
At first blush, Buffett’s thoughts on tariffs and trade would seemingly come at odds with his self-interest and his reflection on one of his past investments in a Maine company: Dexter Shoe. Buffett bought Dexter Shoe in 1993, but it would come to be, in his own words, his “most gruesome mistake.” While the company was running well when Berkshire Hathaway bought it, international shoe production and competition increased in the coming years and forced the company out of business. Berkshire Hathaway could take the hit on their investment, but Dexter Shoe’s 1,600 employees were out of work. Buffett, ever reflective, acknowledged the pain caused in a 2015 letter:
“Moreover, investors who diversify widely and simply sit tight with their holdings are certain to prosper: In America, gains from winning investments have always far more than offset the losses from clunkers…
A long-employed worker faces a different equation. When innovation and the market system interact to produce efficiencies, many workers may be rendered unnecessary, their talents obsolete. Some can find decent employment elsewhere; for others, that is not an option…
The answer in such disruptions is not the restraining or outlawing of actions that increase productivity. Americans would not be living nearly as well as we do if we had mandated that 11 million people should forever be employed in farming. The solution, rather, is a variety of safety nets aimed at providing a decent life for those who are willing to work but find their specific talents judged of small value because of market forces…
The price of achieving ever-increasing prosperity for the great majority of Americans should not be penury for the unfortunate.”
The beneficiaries of Berkshire Hathaway’s purchase of Dexter Shoe were the owners: Harold Alfond and the Alfond Family Foundation, and by proxy, Maine, where the Foundation has many philanthropic initiatives in the state around education, healthcare, and community.
Oil Prices: Since President Trump’s tariff announcement in April, oil prices have fallen by over 16% and are currently trading below $60 a barrel. With prices down, Saudi Arabia and seven other OPEC+ members announced supply increases, a surprise to the oil market. Saudi Arabia, in particular, has become frustrated with OPEC+ members who have failed to stick to production quotas, specifically Kazakhstan, Iraq, and the United Arab Emirates (UAE). By expanding production and cutting prices, Saudi Arabia is hoping to regain market share by undercutting other members. For U.S. shale, the price that oil producers require for new wells is $65, which could mean scaled-back operations. Saudi Arabia’s budget is balanced when oil is at $91 a barrel, according to the IMF, while the UAE’s budget is balanced at $50. This may make this price war different than 2014, when Saudi Arabia flooded the market to disrupt U.S. shale and pushed oil down to $51 a barrel. Saudi Will Not Waste an Oil Crisis | Reuters
Financial Planning/Investment Strategy Corner:
With market uncertainty around a potential trade war, Norway’s sovereign wealth fund’s manager, Nicolai Tangen, is advocating for investors to keep a long-term and diversified approach, seeing it as a difficult time: What the World’s Biggest Investor, Norway’s Nicolai Tangen, Is Doing About Trump’s Tariffs - WSJ
An asset that some investors have turned to amongst uncertainty is gold. Headlines have been plentiful reporting gold at all-time highs, and while true, just looking at the price rise of gold over time can be misleading. There are times when gold works as an investment, and you’ll see in the chart below, it looks like it just keeps going up:
While gold has risen recently, it’s important to factor in the price in ‘real’ terms (adjusted for inflation), and it looks very different:
Additionally, even with the recent rise in gold, since December 2009, gold has 7.0% annualized returns, compared to the S&P 500’s 13.2%.
Over the same period, gold has exhibited similar volatility to the S&P 500 with a standard deviation of 14.2% vs. 15.4%, respectively.
Tangen is not a fan of gold because it is an unproductive asset, not paying a dividend or income. With the recent rise in gold prices, if uncertainty decreases, gold could become an investment drag if it stays at current levels, or if prices fall.
Quick Hits:
- These images from inside instruments certainly look more like architecture to me: Charles Brooks Photography
- What makes people flourish: A new survey looks for global patterns and local differences
- This was a humorous thread on children and the amount of discipline needed over time: https://bsky.app/profile/paulisci.bsky.social/post/3lojuo52j3c2q
- Summer ice cream trip ideas: Ice cream guide: Here’s where you can get a scoop in central, southern and Midcoast Maine
Quote: “Leave your dens, abandon your cars, and walk out into the great mountains, the deserts, the forests, the seashores. Those treasures still belong to all of us.” – Edward Abbey
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