Warren Buffett has set alarm bells ringing on Wall Street
Citigroup's profits jumped by 25 per cent, beating analysts' expectations. The KBW Nasdaq Bank Index is close to an all-time high.
But not everyone is convinced that the good times are going to last.
Warren Buffett, the so-called Sage of Omaha, has been shedding his US bank holdings. At the start of the year, Buffett's Berkshire Hathaway sold about $US3.2 billion ($4.9 billion) of shares in American banks and financial companies.
Buffett sold about a $US1 billion stake in Citigroup, ditched shares worth more than $US2 billion in Bank of America and dropped some of its holdings in Capital One.
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'Berkshire has clearly been reducing its exposure to US bank stocks,' Larry Cunningham, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, says.
'That activity signals a cautious or even bearish outlook on banking.'
Moves of this size are not unusual for Berkshire Hathaway. But Buffett, arguably the most successful investor of all time, has a reputation for being preternaturally gifted at foreseeing market trends.
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ABC News
2 hours ago
- ABC News
Australia to miss out on tax top-up from multinationals as Trump ends OECD reform
Australia could miss out on significant revenue from US multinational companies operating here, after the G7 "caved" to Donald Trump, says the man who spearheaded negotiations on a global minimum tax rate. The Organisation for Economic Cooperation and Development's (OECD) former director of tax, Pascal Saint Amans, says Australia will no longer be able to apply a top-up tax if a US firm pays less than a 15 per cent tax rate. It comes after the US president undid more than a decade of progress towards multinationals paying their fair share of tax, striking a deal to exempt America from a worldwide corporate tax floor. In 2021, about 140 countries, including Australia, signed up to the Organisation for Economic Cooperation and Development (OECD) "Global Minimum Tax" deal, a plan that's been years in the making. These countries had, in principle, agreed to a set of rules for a 15 per cent global minimum tax. This was aimed at helping countries like Australia collect more tax from digital tech giants like Google, Apple, Microsoft, Facebook, Amazon and others by applying that minimum tax rate. The implementation of the law in Australia was expected to increase receipts by $370 million and increase payments by $111 million over the five years from 2022-23. But neither the US nor China implemented the tax rules. And, to convince US President Donald Trump to drop his threat to impose a "revenge tax" in a major spending bill, G7 countries agreed to exempt US companies from the rules. "What is clear is that [G7] countries have caved," argues Pascal Saint-Amans, who spearheaded the negotiations that culminated in the tax agreement worldwide. Mr Saint-Amans says the deal protects American companies. "The significance of it, the magnitude of it, is still unknown — to be seen. But the new system is unfair, discriminatory against non-US companies and, by itself, it kind of undermines the global minimum tax." Mr Saint-Amans says the rules were supposed to stop a race to the bottom. He says they would have applied to all multinational enterprise groups with an annual global revenue of at least EUR 750 million ($1.34 billion). But now it will be much harder for tax administrators, including the Australian Taxation Office (ATO), to tax US companies that operate in Australia. While Australia has avoided implementing a Digital Services Tax, it has been taxing foreign digital companies in other ways. Australia collects 10 per cent goods and services tax, or GST, on digital services provided to Australian companies, including streaming platforms and app subscriptions. The ATO has also been pursuing several multinationals using its Diverted Profits Tax (DPT) legislation powers. Known unofficially as the "Google tax", the DPT was introduced under former Liberal treasurer Joe Hockey, and allows the ATO to hit companies it deems to be engaging in "contrived arrangements" with a 40 per cent tax on all profits. Mr Saint-Amans said the ATO would now need to make sure that investments by multinationals in Australia "are not sheltered in the intermediary countries where you would have very low taxation". While there are still "tax loopholes", the one silver lining, he says, is that "we're no longer facing what the world was facing prior to the OECD work". "The international tax architecture needs to be revised, to better tax digital companies," he said. "But overall progress has been made. We're no longer in the case where you're a multinational company, [and] you pay taxes nowhere. … the days of zero tax are coming to an end." He says even the Trump administration recognises that there should be some form of minimum tax applied. "The minimum is not the same for the US and for the rest of the world. But there is some principle of a minimum tax," he said. Mr Saint-Amans says because of preferential tax treatment for US companies, the G7 tax backflip could cause Australian companies to move their headquarters to the US — or at least contemplate it. "And this is exactly what we will have to watch and monitor in the coming weeks and coming months." Now Australian startups are questioning the value of staying here. Maria Baker is the founder of Nobody's Princess, a startup that sells women's snow gear to markets globally, including in the United States. She says the situation disadvantages local startups and causes them to rethink whether they should keep their brands local. "Regardless of whether you're a big business owner or even just a consumer, it is frustrating to see essentially the rich getting richer." Ms Baker's business is based in Melbourne, and she is now considering moving offshore. "Do I actually have to go to the US and set up my business and be a US-based business?" she asks. "I'd rather not do that because I think there's this really big beauty about being an Australian business and, you know, putting an Australian brand on the stage." Anish Sinha is the co-founder and chief operating tech of startup, UpCover, which tailors insurance for small businesses. The company was founded in 2019 and has raised almost $20 million in debt and equity. Mr Sinha says insurance is "a highly regulated space, and we play by the rules". "We pay our fair share, and we expect others to do that as well, and so hearing about something like [the tax backflip] makes us feel like the big end of the town is not willing to pay their fair share." He says many Australian founders look to sell into the US market because it's the largest market in the world. He says there's still a lot of "regulatory uncertainty and flux" in the US, so he's not made the decision to move headquarters just yet. But the tax situation "does impact how we look at being headquartered in one country or another". "It impacts how we ultimately look at competitiveness long-term," Mr Sinha said. "It determines how our customers think about us being based in one geography or another. And we would want our business to be favoured by the tax jurisdiction we're based in." Tax experts are concerned that Australia could lose more revenue now that US multinationals are exempt from the global tax deal. Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research, says the OECD global minimum tax was meant to set a floor to eliminate a race to the bottom and to set in place a system where every company everywhere was paying at least some tax. "It was set at a very low rate, which is 15 per cent, but that was the rate that was needed to bring the world on board. And really it was the Biden administration that really broke the loggerheads on this," Mr Ward said. "It's a terrible caving into Trump's demands here, and really unnecessary, and a major step backward for international tax reform. "Trump is essentially running a protection racket for larger US multinationals that most people already know are the most aggressive in dodging their tax obligations on the profits, the vast profits they make in Australia and around the world." He noted Australia had already passed legislation to implement Pillar 2 — or the global minimum tax — and there was an expectation that this would bring in some revenue. "This basically sends a clear signal to the likes of US big pharma companies, US big tech that 'It's okay. Trump's got their back'. And so this is not collecting extra tax for people in the United States. This is basically giving US multinationals a free pass to dodge taxes in the United States and in Australia and around the world." Mr Ward says with the G7 tax backflip allowing the US to pull out of global negotiations, "we're going to see a trend towards these global discussions happening at the United Nations level". "We're well advanced in terms of the development of the UN tax convention," he said. "And I think we're going to start seeing a lot more regional action to shore up the global tax systems to make sure that multinationals don't continue to steal the funding that we need to fund our healthcare, our hospitals, our public schools, education, and the infrastructure that we all need. "I think countries need to stand up and protect their own sovereignty and their own rights and collect the tax revenues that are due from multinational profits in their own jurisdiction." The Tax Justice Network's Mark Zirnsak also fears "Australia is likely to miss out on revenue that it otherwise would have counted on". "It also just creates an unequal playing field again further where these companies who are not paying taxes get an unfair advantage over companies who are doing the right thing and paying the taxes as they should be paying them," Mr Zirnsak said. He says Australia should now join the move to set up a UN tax convention. "This is where the action now needs to move to," he said. "It will work on a two-thirds majority for substantive matters, so it won't be possible for certain individual countries to derail or block it. "The other thing we probably need to keep in mind is that the Trump administration only has one more term and if there were to be a change in US administration, we might find a far more cooperative administration that thinks it is actually in the interest of everybody to have a more reasonable and fair tax global system."
ABC News
3 hours ago
- ABC News
What's behind Donald Trump's latest crypto adventure?
Amid all the noise about Epstein and ankles late last week, Donald Trump quietly started a revolution within the global monetary and payments system. The announcement didn't go entirely unnoticed, but with the anger and fury bubbling through American society right now, it didn't quite get the exposure it deserved. It's called the "Guiding and Establishing National Innovation for US Stablecoins Act", an innocuous-sounding bill that condenses down into a neat little acronym. "The GENIUS Act, they named it after me," Trump announced in a rare moment of levity and without the faintest hint of irony. Widely touted as a means to provide credibility for the crypto industry, and the US president's family business exposures, the move will have far-reaching impacts on the global financial system and the US economy. Most of the attention in the lead up to the bill's passing has focused on the president's personal exposure to cryptocurrencies. And for good reason. Five years ago, towards the end of his first term in office, Trump denounced Bitcoin and cryptocurrencies as "a scam". But in the lead up to last year's election, he announced a lighter touch to crypto regulation. New regulators with a more benign attitude to the industry would replace those who brought the likes of Sam Bankman-Fried — the FTX tycoon now serving a 25-year jail sentence — to justice after one of the biggest financial collapses in history. That pledge saw huge amounts of donations flow in from crypto industry devotees. And, in the aftermath of the election, the president and his wife launched their own meme coins — raising an estimated $US2.7 billion — along with the launch of World Liberty Financial, a cryptocurrency firm run by his sons and other business associates. While the potential conflicts of interest are disturbing, the bill could reshape the way global finance and trade flows operate. Stablecoins haven't always lived up to their name. Occasionally, they've been anything but. When the cryptocurrency industry was collapsing in on itself three years ago, a stablecoin called UST — which had little real asset backing — suddenly was de-pegged from the US dollar, resulting in the collapse of two big cryptocurrencies, Terra and Luna. Investors lost tens of billions of US dollars. But the concept has survived and stablecoins, unlike many other crypto applications, have a useful purpose. They can transfer money in an instant and at minimal cost with none of those annoying transfer fees. Stablecoins are named as such because they are pegged to a fiat currency, usually the US dollar. Unlike other cryptocurrencies like Bitcoin, the price doesn't change or, at least, shouldn't. To be truly stable, however, they must be backed by assets that can be readily exchanged into US dollars, assets like US Treasury bills and US government bonds, essentially US government debt. For years, they were mostly used in countries with unstable currencies like Turkey. But that's now changing. During the past year, stablecoin transactions have exceeded $US33 trillion, far exceeding that of PayPal and even Visa, a trend that is in its infancy. That sudden lift in transactions and the rise of stablecoins has begun to shift the market for US government debt. Tether, the biggest stablecoin, last year emerged as the seventh biggest buyer of US Treasuries and between them, stablecoins now collectively hold $US128 billion in US Treasuries, which is more than sovereign holders like Germany, Saudi Arabia, and South Korea. This shift is occurring at the same time as the US dollar is losing its lustre and questions are being raised about America's role as the global reserve currency. While there is no obvious interloper, another currency to take its place as the global reserve, confidence in America is faltering, as this graph shows, hit by rising levels of US debt and increasingly erratic politics. China, once the world's biggest owner of US Treasuries and bonds, has been selling down US government debt, and instead building its store of gold. That has kept US Treasury officials awake at night. Less demand for US government debt flows directly through to higher interest rates. That's because investors would demand higher yields, or interest rates, to purchase the bonds for the greater risk they hold. With the interest bill on its $US37 trillion debt already topping $US1 trillion a year, that's something the US can ill-afford. US Treasury Secretary Scott Bessent is praying that he's found the answer. Just as foreign governments and their central banks have been backing out of US dollars and US government debt, stablecoins may just fill the breach. Continued demand for US government debt is vital for America's future, something Bessent's boss, Donald Trump, has failed to grasp. The US president believes the rest of the world is "ripping us off" because the US runs a trade deficit. The real problem is that Americans spend more than they save. And the only way to finance that, is to ensure there is strong demand for US government debt. Bessent is hoping stablecoin demand for American government debt will pull borrowing costs lower. He has some serious heft backing him on that. Investment banks Citigroup and Standard Chartered both believe that stablecoin use will grow exponentially within the next few years. Even major US retail chains and banks have begun exploring stablecoins to drive down the excessive fees charged by credit card companies. That sounds like an easy fix for the Treasury Secretary. But as The Economist newspaper points out, if the money is merely being switched from one set of domestic buyers to another, the pain relief will be short-lived. It also points out that, should the world become hooked on stablecoin use, foreign demand to back US dollar stablecoins will also lift demand for US dollars. That, in turn, will push the US dollar higher, thereby giving Americans more buying power for their imported goods. That would undermine any efforts from Trump to tariff his way to a trade surplus. For all the optimism that blockchain technology finally may deliver some useful applications, questions remain. While Circle — another stablecoin and smaller rival to Tether — is independently audited, its bigger competitor is not. It doesn't disclose where its reserves are held or exactly what they comprise and particularly whether it holds volatile assets such as Bitcoin that may undermine its ability to balance its liabilities. To date, it has weathered some almighty crypto storms. But should it falter, it would seriously damage the credibility of the emerging industry and derail any solution, however short-term, that Scott Bessent may hold in store for US government debt demand. The shift in sentiment towards cryptocurrencies, particularly since Donald Trump surged to power earlier this year, has been nothing short of spectacular. Bitcoin is trading at records and most keen watchers expect it to keep rising. It is estimated the president reaped $US320 million from sales of one of his meme coins, while a foreign government wealth fund invested $US2 billion in another. A third has sold at least $550 million in tokens. But not everyone is a winner in the crypto sphere. Those who invested in $Trump, the president's meme coin, and his wife's coin $Melania, have suffered massive losses ever since the Inauguration Day spike.
Sydney Morning Herald
3 hours ago
- Sydney Morning Herald
ASX set to rise as Wall Street advances
US stocks are rising toward more records on Monday ahead of a week full of profit updates from big US companies, which Wall Street expects to keep growing despite pressure from President Donald Trump's tariffs. The S&P 500 was 0.6 per cent higher in afternoon trading and above its all-time high set on Thursday. The Dow Jones was up 217 points, or 0.5 per cent, in mid-afternoon trade, and the Nasdaq composite was adding 0.7 per cent to its own record. The Australian sharemarket is set to rise, with futures at 4.51am AEST pointing to a gain of 24 points, or 0.3 per cent, at the open. The ASX lost 1 per cent on Monday. The Australian dollar is stronger. It was 0.3 per cent higher at 65.27 US cents at 5.07am. On Wall Street, Verizon Communications helped lead the way and rose 4.8 per cent. The telecom reported a stronger profit for the latest quarter than analysts expected, along with higher revenue than forecast. Following the strong performance, Verizon raised its forecasts for profit and other financial measures for the full year. That helped offset a 4.2 per cent drop for Sarepta Therapeutics, which continued to fall after the Food and Drug Administration said Friday it asked the company to voluntarily stop all shipments of its gene therapy for Duchenne muscular dystrophy due to safety concerns. Block, Jack Dorsey's company behind Square, Cash App and other tech brands, jumped 8 per cent in its first trading after learning it will join the widely followed and imitated S&P 500 index. It will take the place of Hess, which Chevron bought, before trading begins on Wednesday. Loading Cleveland-Cliffs rallied 13.6 per cent after the steel producer reported a smaller loss for the spring than analysts expected. It shipped a record 4.3 million net tonnes of steel during the quarter, and CEO Lourenco Goncalves said the company has begun to see 'the positive impact that tariffs have on domestic manufacturing' and other things. It's a major supplier to the auto industry, and Trump's tariffs steer companies hoping to sell cars in the United States toward steel made in the country.
