One of the smartest investors in the world is buying about $28 billion worth of ketchup.
That’s the value of the bid that Warren Buffett’s Berkshire Hathaway and private-equity firm 3G Capital announced last week to buy H.J. Heinz.
The bid was 20% higher than where Heinz stock was trading before the deal was announced. The iconic food company used to advertise, “Anything that’s Heinz is safe to buy.” And its consumer staples have long proven recession-proof.
Mr. Buffett has apparently figured out that no matter how bad things turn out in the world, they will always be easier to chew down with ketchup. Too much pink slime in your burger? Put some ketchup on it. Eggs a little runny this morning? Pass the ketchup, please.
Nothing coats that bad taste in your mouth like vine-ripened tomatoes and the manufactured sweetness of high-fructose corn syrup. You can pour ketchup on entire economies.
Last week, we learned Germany’s economy contracted, deepening the recession in the 17-nation euro zone. “No reason to start singing the blues on the German economy,” declared ING economist Carsten Brzeski. “The contraction should be a temporary gaffe rather than a new worrying reality.”
Last month, we learned the U.S. economy contracted in the fourth quarter, mostly due to a decline in military spending. “This is the best-looking contraction in U.S. GDP you’ll ever see,” wrote Paul Ashworth, an economist at Capital Economics. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”
How about Japan? Its economy has been shrinking for the past three quarters. Not to worry. “We will see a fairly big pickup this year, led by exports recovering on the weaker yen,” Takuji Okubo, chief economist at Japan Macro Advisors told Bloomberg.
China isn’t contracting, but its growth keeps stalling. It boasted 7.8% growth in 2012, down from 9.3% in 2011 and 10.4% in 2010. Many observers complain that the astonishingly high economic-growth numbers from China are cooked. They still pour on the ketchup, though. “Now that the new government has been seated, you’re more likely to see the preconditions for more growth in China,” Eaton Corp. CEO Sandy Cutler told Bloomberg.
OK, so let’s parse the term, “preconditions for more growth.” We don’t quite have the conditions for more growth, but we are likely to see the preconditions, which are still not quite conditions, but this is an improvement, right? Sounds like a batch of Heinz 57 to me.
As the world’s largest economies slow, so eventually will sales and profits at companies. Last week, for example, General Motors said its 2012 profits shrank because of losses in recession-rattled Europe.
McDonald’s, Coca-Cola, Nestlé and a host of other giant companies also are struggling with Europe. But their stocks remain strong because central banks keep saucing the economy with free money.
It’s a wonder any economy can contract with all that money flowing around, and yet it is happening.
We’ve been reading sugarcoated news ever since the Great Recession officially ended in 2009. The economy is improving, it’s just improving slowly. Whoops, now it’s shrinking again, but don’t worry, it won’t shrink this quarter. No, no. We’ll be right back to our normal, anemic, slow-job-creating economy any day now.
As usual, Mr. Buffett has cut through all the noise and purchased ketchup. It’s a safe bet the world will need it.