Consciously decoupling the US economy

America needs a coherent strategy to compete in a world with ascendant state capitalism

Rana Foroohar

Anyone who still doubts that the US is economically decoupling from the rest of the world should take a look at a proposal the commerce department put forward last week. This would allow its secretary Wilbur Ross to prevent imports of any new technology deemed a “national security threat”. The broad language could apply not only to Huawei chips or Chinese dot-coms, but to European hardware, software and data services, too, if they are deemed to be linked to a “foreign adversary”.

Such a link is very possible now Europe is being pulled into China’s technology orbit via the 5G standards and technologies that make up part of the Belt and Road Initiative. I spoke recently to a senior executive at a strategically important US technology company who told me it is becoming legally tricky for him even to speak to his counterparts in Europe, because of the various restrictions that the Trump administration has put in place.

That’s scary, because one of the most important things the US could do right now to ensure both national security and its own position in the 21st-century digital economy would be to work with allies on transatlantic standards for emerging technologies like 5G, artificial intelligence and so on. In fact, that was a key recommendation in a recent Council on Foreign Relations task force report entitled “Innovation and National Security: Keeping Our Edge.”

The title indicates that decoupling is no longer a fringe idea. The CFR has traditionally been the seat of neoliberal economic thinking; most of its members are older, wealthy, business and policy types who have shaped and benefited from globalisation — in particular the free movement of capital across borders — over the past four decades. The fact that the CFR is now admitting that we are in a more fragmented world — one that won’t reset to the 1990s — and advocating what amounts to a US industrial policy, is a major shift in thinking.

They aren’t alone. When I first wrote that elites were missing the prospect of deglobalisation, the idea of the US and China decoupling economically was talked about mainly in eccentric company. Now, it’s become mainstream, advocated by politicians as seemingly ideologically opposed as Democratic presidential hopeful Elizabeth Warren and Republican Senator Marco Rubio.

A bipartisan congressional committee is investigating the relationship between national security and technology, with an eye to helping the defence department maintain its technical edge against China and Russia. The Coalition for a Prosperous America, a group that wants to rebuild the US industrial base and secure supply chains, recently won a prestigious award from the National Association of Business Economics, for a paper showing that a permanent tariff on China would benefit the US economy.

One can argue about the efficacy of tariffs. But it is becoming a given that the US needs a more coherent national economic strategy in a world in which state capitalism is in the ascendant. The question is how to get there. And that’s where the internal contradictions in America’s laissez-faire, free-market system start to become a problem.

The CFR committee that drafted the report on a national innovation strategy is made up mostly of private-sector folks from the finance, technology and consulting sectors (including top brass at Alphabet, Apple, Facebook as well as Breyer Capital, Greylock and McKinsey). There are academic participants, like Berkeley’s Laura Tyson, head of Bill Clinton’s Council of Economic Advisers, who has long argued for an industrial policy, and retired general William McRaven, now at University of Texas. But there are no public-sector members.

Yet the report is mostly about what government should do — recommendations include more federal support for research and development, shifts in immigration policy to attract skilled migrants, and a greater percentage of federal agency and military spending allocated to technology integration.

This reflects more than the ineptitude of our current administration. It reflects the divide between what the private sector wants from government, and what it is willing to give to support the public sector. Will Apple, Alphabet and Facebook stop offshoring profits or put whatever they bring back to the US into something aside from share buybacks? Will Silicon Valley and Wall Street volunteer to retrain the millions of underemployed millennials? How can we move from 40 years of supply-side thinking that has benefited multinational companies, towards something that better supports local economies and workers? These are the big, unanswered questions.

To be fair, some businesses and trade groups have given resources to joining the dots between the public and private sector, and in particular educators and job creators (IBM’s P-tech schools and the Business Roundtable’s efforts on vocational training stand out).

But if America is going to compete with a state-run economy like China in the digital era — one that seems to support a winner-takes-all dynamic — we are going to need bigger, public-sector directed shifts. To achieve those, we will also need changes in tax policy that allow the government to capture and deploy more of the wealth created by the private sector.

That’s a message that business doesn’t like to hear. But like decoupling itself, it is coming.

Migrant Workers

The Chinese Builders Behind Africa's Construction Boom

By Heike Klovert in Addis Ababa

Xu Dingqiang, the head of electrical and sanitation installations at the future Addis Ababa National Stadium.

Specialists from China are erecting massive buildings across Africa, including Ethiopia's new national soccer stadium. The workers must leave behind their families and move to faraway countries. But the money is hard to beat.

Xu Dingqiang's position at the top of the construction site hierarchy is apparent in the way he dresses. Work pants, steel-toed boots, hard hat, reflective vest. Not all the workers here have access to such equipment. But the 47-year-old has an important task.

Xu is in charge of installing electrical and sanitary equipment in the future stadium of Ethiopia's national soccer team. The building stands out from the maze of streets that surround it in Addis Ababa, as if a spaceship had landed in the center of the Ethopian capital.

Xu hurries up through the stands where up to 60,000 spectators will soon sit and cheer. At the uppermost level, he enters a dimly lit restroom where 10 of the stadium's 1,000 toilets have been installed. The lights don't yet work and the floor tiles are covered by a layer of construction dust. A colleague speaks to him in their native dialect from Jiangsu province in eastern China. Xu stands with his legs apart and his arms crossed in front of his chest.

Xu Dingqiang talks to a colleague about ongoing work at the construction site.

The two specialists work for the China State Construction Engineering Company, or CSCEC, one of the largest construction companies in the world. The Adey Abeba Stadium, the roof of which will ultimately look like the shell of some primeval lizard, is one of the Chinese state-owned company's showcase projects. It is also busy erecting glamorous new headquarters for the Commercial Bank of Ethiopia in Addis Ababa and Africa's tallest skyscraper in Egypt.

The CSCEC is just one of many Chinese companies, whether state-owned or private, that have been feverishly building new skyscrapers, roads, railways, stadiums and dams in Africa. The China Africa Research Initiative at Johns Hopkins University in the U.S. estimates that African countries borrowed in the neighborhood of $143 billion (130 billion euros) from China's government, banks and entrepreneurs between 2000 and 2017.

But who are the people behind this construction boom? And what is it like for them living in Africa?

'If This Were China'

Xu has finished inspecting the toilets and leans against one of the stadium's concrete balustrades, gazing out on a panorama of grass and bushes that will soon give way to sports fields and parking lots. Behind them are houses and buildings of various sizes and, in the distance, hazy hills. "If this were China," Xu says, "it would look much tidier here."

Xu has little opportunity to explore what the Ethiopian capital has to offer. He only leaves the fenced-in construction site two or three times a week to fetch snacks for his employees or items he needs for his job. Addis Ababa is considered extremely safe compared to other African cities, but Xu doesn't navigate the city on foot, and he doesn't go alone. He's heard of other Chinese people who were mugged. "I'm a little scared," he says.

Xu Dingqiang, the head of electrical and sanitation at the construction site, says he enjoys the mostly rainless Ethiopian weather.
Xu Dingqiang, the head of electrical and sanitation at the construction site, says he enjoys the mostly rainless Ethiopian weather.

It is estimated that more than 200,000 Chinese are currently working for Chinese and foreign companies in Africa. Many, like Xu, move from country to country. Before coming to Addis Ababa, he helped build the new port in nearby Djibouti. Before that, he says, he was in Germany, Spain and Greenland.

These global Chinese migrant workers mostly keep to themselves. They live in temporary barracks or apartment blocks, communicate with native workers in an amalgam of Mandarin, English and the local language and generally have little contact with the general population of their host country.

Some Chinese, of course, have settled in Ethiopia, having found a wife and started a family or perhaps opened a shop or restaurant. Most, however, return home to their families in China sooner or later. They are primarily drawn to far-flung construction sites like the one in Addis Ababa by the money.

A Win-Win Situation

Xu took the job in Ethiopia two years ago because he was eager for something new -- and because he earns twice as much as back home. Plus, he gets free room and board. He left his wife and children in Jiangsu and moved into barracks next to the stadium in Addis Ababa. In the evenings, he surfs the web and watches Chinese movies before falling asleep in his metal bunk bed.

Xu's life consists of little more than work and he's hardly seen anything of his host country in the past two years. He does like the Ethiopian climate, though, because it hardly rains. Rain is impractical for construction workers.

His position as head of electrical and sanitation has at least earned Xu the right to live alone. Lower-ranking workers have to share, with eight of them packed into a single room. In Xu's space, there is enough room for a somewhat homespun-looking desk and for cable reels stacked on the bare concrete floor next to his bed. Xu has placed three pairs of shoes on the welded reels, next to a cardboard box of dried seaweed. There is no wardrobe.

     Dormitories for Chinese workers

For Xu and many of his colleagues, their work on the African continent is a clear win-win situation. "We are helping African countries to develop," he says. China brings skills, specialized workers and surplus material to Africa to expand its infrastructure and build new trade relations. All sides benefit. When Xu talks about it, he uses words like growth and business. Terms like colonization or debt trap are not part of his narrative.

Clear Hierarchies

One may find this way of thinking to be lacking in nuance, but its not entirely false. For three years, as many as 200 workers from CSCEC and other Chinese subcontractors have been working alongside at least three times as many Ethiopian workers. The men form teams, with one Chinese handing out assignments to several Ethiopians.

The roles are clearly distributed -- and the social divide is obvious: CSCEC employees wear hard hats, work boots and reflective vests with the company's logo. The Ethiopian workers and the employees of Chinese subcontractors, meanwhile, often wear only jeans, sweatshirts, light shoes and no head protection. Can such an unequal cooperation really work?

In one of the stadium's basements, 18-year-old Abdullah Abdulrahman is grouting tiles in a washroom. He's from the countryside, but a few months ago, he approached the stadium's steel gate and asked for work, as did most of the locals who work here. He's happy to be earning money and learning something new in the process. "I like working for the Chinese," he says.

The young Ethiopian women who prepare Chinese food in the kitchen for the foreign workers are similarly grateful. So too are the Ethiopians leveling the sand in the arena where the turf will ultimately be installed. They, too, have only positive things to say, even when no Chinese person is listening.

Only one of them complains, saying he'd like to earn more. But he's not about to go out and look for a new job. The job security is better here than at other construction sites in Ethiopia, he says. One of his Chinese superiors sometimes yells at him, he says, but that could just as well happen with a local boss.

Cultural Differences

Chen Yu manages the construction site and speaks openly about the difficulties that his job entails. "The biggest problem," the 37-year-old says, "is the Ethiopians' work ethic. Most of them don't like working overtime." While the Chinese work nine to 10 hours a day, the Ethiopians usually work only eight, he says. Plus, if they show up late to work and have their pay docked as a result, Chen says they'll show up in his office to complain.

Any Ethiopian who is ambitious in his job can earn a raise, the manager says. But very few do. Most of them have practically no technical qualifications and it's a laborious and costly process to train them for the job, he says. It's absolutely possible, Chen adds, that his Chinese colleagues might sometimes lose their temper.

The civil engineer has a rather critical opinion of the African country and its people. On one hand. On the other, Chen says he respects and admires the Ethiopian culture. "Ethiopians are much more spiritual and not as materialistic as the Chinese. They seem happy, even if they don't own much," he says.

       Chinese workers attend a regular security briefing inside the stadium.

Five translators work on the construction site to clear up misunderstandings that can arise due to different ways of thinking or doing things. Chen and his employees also do their best to stay out of the cultural and political wranglings of their host country.

It's around 6:30 a.m. on a recent morning and all of the Chinese specialists have gathered for one of the regular safety briefings at the stadium. They are lined up beneath the stands, hard hats on and hands in their pockets, as they listen to a superior.

He tells them that a few days ago, the head of the Ethiopian army and a provincial governor were shot dead. He goes on to say that ethnic groups in the country are at odds with one another, and that it is therefore important to act neutrally to all sides. The superior adds that it would be best to avoid giving tips altogether, lest one arouse envy or resentment among others.

A Stadium-Sized Life

This state-imposed neutrality is another reason why African heads of government are so fond of doing business with the Chinese. It's the stuff of dreams: A big-scale investor who helps poor countries without asking critical questions or making demands, like the Europeans are wont to do before releasing funds.

Xu, the installation manager, and Chen, the head of the construction site, would therefore rather not comment on the fact that the Ethiopian national soccer team is currently ranked 146th of 210 teams by FIFA, which makes the gigantic stadium they are building in the middle of the city seem like wasteful political symbolism.

And what might happen if Ethiopia and other developing countries can't pay back their loans to the Chinese? To what extent do countries' economic dependence spill over into a political dependence? Here, Chen's and Xu's answers are in lockstep with those of the Chinese government. Unlike the West, Chen says, China has never colonized another country. "We all want to grow together," he says.

     Dormitories like this one can accomodate four to eight Chinese workers.

It's time for lunch. Chen takes a seat in the wide leather armchair in his office and Xu retires to his room. He wants to take a nap in his bunk bed before returning to the unfinished toilets. Soon, Xu will return home for a few days -- to his children, his wife and the Chinese snacks that he misses. Afterward, he intends to return to Addis Ababa. The stadium isn't finished yet.

When he does return to Ethiopia, Xu's world will shrink back to the size of a little bit larger than a soccer field. But this doesn't bother him, he says. "We don't think much about our lifestyle here. We're just here to work."

Brexit After the Election: For the UK, the Political Risk Is Only Beginning

By: Ryan Bridges

The United Kingdom went to the polls Thursday and voted again for Brexit. The Conservative Party won 364 of 650 seats in parliament, giving it a strong majority to advance the EU withdrawal agreement negotiated by its leader and Prime Minister Boris Johnson and leave the European bloc at the end of January 2020. Passage of the agreement in theory resolves one of the most critical issues, the status of the Irish border, which significantly reduces the political risk for the EU side of Britain’s departure.

But for the United Kingdom, the political risk is only beginning.

The start of formal trade negotiations will draw farming and business lobby groups deeper into the negotiation and force both sides into difficult compromises. Moreover, any trade deal will require the approval of the European Parliament as well as the parliaments of constituent member states, subjecting to it political scrutiny that it has generally yet to experience.

Hopelessly optimistic pledges aside, the chances of resolution on the future relationship by the end of 2020 are slim. A deal would require significant concessions by one or both sides in a very short time frame, while no deal would greatly increase the risk of the breakup of the United Kingdom.

Much more important than what is happening between London and Brussels will be how London manages its relationship with the governments of Scotland, Northern Ireland and, to a far lesser extent, Wales. The pro-Scottish independence Scottish National Party (SNP) secured 45 percent of the vote in Scotland, a gain of more than 8 percentage points over the 2017 election and good enough for 48 of 59 seats in the regional parliament.

The SNP campaigned on holding another independence referendum – which would be the second since 2014 – and party leader Nicola Sturgeon was quick to declare that the results gave her a mandate to follow through on that pledge. Meanwhile, Johnson – whose party lost more than half its seats in Scotland, falling to six seats from 13 – vowed during the campaign not to permit another Scottish independence referendum. Technically, the SNP needs the consent of the government via a Section 30 order to hold another referendum, though some constitutional experts believe there may be leeway.

Regardless, were Downing Street to refuse, it would likely strengthen the Scottish independence movement and create even more problems down the line. Opinion polls still show a roughly even split on Scottish independence. The three most recent surveys – conducted by YouGov, Panelbase and Survation, all in December – find the anti-independence side ahead by 10, 6 or 1 percentage points, respectively.

The “No” side won the 2014 referendum by 10 percentage points, so these margins suggest a closer vote this time. A hard line by London could boost the Scottish nationalist cause, especially if combined with a hard Brexit; 62 percent of Scots voted to remain in the EU, and polls suggest that a harder Brexit increases support for independence.

At the same time, London might be facing unrest by unionists in Northern Ireland in the coming year. To secure the EU withdrawal agreement, Johnson agreed to apply customs checks on goods moving across the Irish Sea from Britain to Northern Ireland. This outraged unionists, for whom the agreement is tantamount to the forced economic reunification of Ireland, or at least the partitioning of Northern Ireland from Britain.

Unionist groups are already warning that they will blockade ports and take other unspecified measures to disrupt trade with the Irish Republic in the event that checks are instituted. Such checks would occur only if no trade deal were worked out at the end of the U.K.-EU transition period, which will terminate at the end of 2020 but as it stands can be extended until the end of 2022. At the same time, nationalist parties in Northern Ireland won more seats in Thursday’s election than did unionists, a first since Ireland’s partition in 1921. This prompted nationalist calls for a border poll on a united Ireland, though such an event is likely years away.

The Conservative Party’s election manifesto ruled out any extension, but given that the party has opposed every Brexit extension to date only to acquiesce at the last minute, there are doubts about its sincerity. And importantly, delay in this case would work to London’s advantage – not necessarily in the negotiations with Brussels, but in its dealings with Edinburgh and Belfast.

The SNP wants to hold a referendum quickly – Sturgeon has said she will seek approval for a vote before Christmas – but the case for independence may be weakened if the vote is held while negotiations are ongoing, an extension has been secured (a request for extension must be made by the end of June) and a softer Brexit looks possible.

The SNP’s best chance for independence may be to wage a protracted battle over the legality of another referendum or otherwise drag its feet while hoping that the Johnson government agrees to either the hardest possible Brexit deal or no deal at all – though in that case it runs the risk of a soft Brexit that deprives it of its momentum. Similarly, delay means no customs checks in the Irish Sea, which for England puts off the problem of unionist unrest in Northern Ireland.

All signs suggest that the U.K. and EU will need all the time they can get for the next phase of the negotiation. Both sides obviously want a trade agreement, but after the way the withdrawal agreement talks went, Brussels believes Johnson is a pragmatist who can get away with making concessions that other politicians can’t. Brussels will also need to proceed cautiously to better account for the wishes of individual member states in the next phase, since any deal will require national approval. And the EU is fully aware of the Scottish situation, which it can use to its advantage so long as Scotland’s status is unresolved.

The British government needs a favorable trade agreement with its largest trade partner, but more than that it needs to keep its own union together – especially when it comes to Scotland, which is larger, wealthier and more populous than Northern Ireland and, importantly, shares an island with England. For at least the next year, the phase of Brexit that ostensibly covers the trade relationship between the U.K. and EU will hardly be about trade.

A Common Theme of Global Unrest

By: George Friedman

From Hong Kong to Tehran to Buenos Aires, the world appears to be destabilizing. The question that has been raised is whether there is an underlying cause triggering this global unrest. On the surface, the answer to that ought to be no. There is so much unrest throughout the world at any point that it would appear to be merely the normal chaos. Unrest, moreover, is unique to every country and usually has multiple causes. Hong Kong, Tehran and Buenos Aires are very different places, each with its own geopolitical circumstances.

Still, there is in this instance one element that is common to them all: 2008. In 2008, the international economic system shifted dramatically, and the changes it wrought have not been fully metabolized.

The weakness in the global economy is magnified by the unsolved problems left over from 2008. As a result, there are economic problems that have transformed into political ones. Add to this the shift in U.S. strategy away from military interventions and toward economic confrontations, and the problems are magnified further still. The U.S. is the world’s largest economy and importer and a shift in strategy to economics necessarily affects the economic system.

Consider the riots in Hong Kong. In 2008, China was a powerful exporter, dependent as it was on exports for social stability. The financial collapse created a profound crisis. An economy built on efficient exporting staggers when its customers are unable to buy its goods. The export crisis compounded an incipient financial crisis as cash flow from exports contracted. What followed was a series of purges designed officially to weed out corruption and unofficially to find scapegoats for
China’s problems and to intimidate potential opposition. After all, the government had promised prosperity and was now facing the need for austerity. The purges were the beginning of a systematic repression in China that sought to retain Chinese economic dynamism without an equivalent political dynamism.

Things got worse when the U.S., China’s biggest customer, imposed punishing tariffs on Chinese goods and demanded access to China’s markets. (Political concessions were implied.) The pressure from the United States increased the pressure still present from 2008. It in turn intensified suppression. Chinese insecurity compelled the Communist Party to seek increased control over Hong Kong, with an extradition law that would permit China to extract Hong Kong citizens. And that in turn triggered the instability in Hong Kong.

Iran is obviously very different from China. But its experience has a core similarity. The 2008 crisis triggered a slowdown in consumption and therefore in production. In the long run, this inevitably caused major declines in commodities such as oil. Iran was an oil producer and continued to export despite political pressure. But the world price of oil weighed on Iran, causing pressure on the economy, and, eventually, restlessness in the society. As with China, the U.S. imposed economic penalties on Iran for reasons that have little to do with the economy. Regardless, the effect of the global shift in oil pricing, coupled with intense economic pressure from the United States, over time generated intense unrest and government repression.

There has been unrest in countries in which the U.S. played no role. Lebanon, Argentina, Chile and others all went into crisis for idiosyncratic reasons – including an emerging global economic slowdown – that, on top of structural issues, have not been addressed since 2008. In all these countries, there are political problems that do not derive from 2008 or U.S. pressure. In some, such as Lebanon, there are economic problems but they are mostly generated by internal forces.

No general theory of unrest is impossible. But a special theory is possible. Those countries most dependent on either industrial exports or the sale of industrial commodities were harmed and few recovered after 2008. The addition of U.S. economic pressure as a tool of foreign policy has compounded this problem, generating unrest. U.S. pressure would not have been nearly as effective without 2008, which reshaped the global system and has been reverberating through it ever since. It is now triggering internal political consequences that are threatening the ability of regimes to cope.

What’s Wrong With Warren Buffett’s Berkshire Hathaway? A Failed Buyout Tells the Story.

By Andrew Bary

Warren Buffett, CEO of Berkshire Hathaway Photograph by Johannes Eisele/AFP via Getty Images

Why is Berkshire Hathawaystock nearly 20 percentage points behind the S&P 500 index this year?

The company’s recent unsuccessful attempt to buy Tech Data(TECD), a distributor of technology products, offers a partial explanation, as it illustrates Berkshire’s current challenges and CEO Warren Buffett’s stubborn approach to capital allocation.

Buffett, who turned 89 in August, continues to search in vain for what he has called “an elephant-sized acquisition” that could total $50 billion or more. Berkshire recently lost a bidding war for a much smaller target, Tech Data, which agreed to be purchased for $145 a share, or $5.1 billion, by Apollo Global Management(APO), the private-equity firm. That followed a Berkshire bid of $140 a share.

Berkshire is sitting on too much cash, has bought back only a modest amount of stock this year despite an attractive valuation on its own shares, has been subdued buyer of equities and can’t find suitable acquisition targets because of Buffett’s price sensitivity and unwillingness to participate in corporate auctions.

The latter appears to have come into play in the Tech Data situation, as the company accepted a Berkshire offer only to turn it down when Apollo raised its bid.
On MarketBrief, Marc Levine, former chairman of the Illinois State Board of Investment, says that the federal government may need to step in to help save U.S. pension systems.

Berkshire’s class A shares (BRKA), which are up $505, to $331,000 Monday, have gained 8% this year, against a total return of 27% for the S&P 500. This is one of the worst years of relative performance for Berkshire since Buffett took the reins in 1965. Berkshire’s class B shares are up 65 cents at $220.95 Monday.

There is some frustration among Berkshire holders that Buffett has allowed so much cash — $128 billion at the end of the third quarter—to build on Berkshire’s balance sheet. Despite an expanded authority to buy back stock since the summer of 2018, Berkshire has repurchased relatively little. In the first three quarters of 2019, Berkshire bought $2.8 billion of stock. At that rate, Berkshire will buy back less than 1% of its stock this year—its market value is about $540 billion.

Buffett loves to invest in companies like Apple(AAPL), Bank of America(BAC), and Wells Fargo(WFC) that repurchase lots of stock, but he has long been cool to buybacks at Berkshire. Some big banks are buying back 5% to 10% of their stock, while Apple has retired about 6% of its stock in the past year through the largest buyback program in the world.

Berkshire also has scaled back its equity purchases this year, buying $15 billion in the first three quarters, against $38.6 billion in the same period of 2018.

As one longtime Berkshire watcher tells Barron’s, Buffett and Vice Chairman Charlie Munger are disadvantaged in the acquisition game. Buffett refuses to participate in corporate auctions, which makes it tough for boards of public companies like Tech Data, which have a fiduciary obligation to get the best price.

And it is debatable whether Tech Data, which operates in the slow-growth, low-margin distribution business, would be a better use of Berkshire’s cash than its own stock. Apollo is paying 11.5 times projected earnings in Tech Data’s current fiscal year for the company.

Berkshire trades for 21 times estimated 2019 profits, but the company’s effective price/earnings ratio is lower because Berkshire can reflect only the dividends of the companies in its $220 billion equity portfolio in its earnings. Berkshire is also sitting on an enormous amount of cash -- it is earning just 2% on that cash. And Berkshire owns a higher quality group of businesses than Tech Data.

Berkshire now trades for 1.35 times its Sept. 30 book value of about $244,000 per class A share—near the low end of its range in recent years. And book will likely be up smartly in the current quarter thanks to the company’s $25 billion of annual earnings power and gains in the stock market.

Berkshire’s largest equity holding, Apple, has appreciated by about $10 billion since Sept. 30. Bank stocks, where Berkshire has broad holdings, are up about 10% on average since the third quarter ended. Berkshire’s book could hit $254,000 per class A share at year-end, according to a client note from Barclays analyst Jay Gelb. That means the stock may be trading for just 1.3 times year-end book value, just above the old cap on Berkshire buybacks at 1.2 times book.

One longtime Berkshire holder says that Buffett should look for bigger acquisition targets, where the company has more of an edge because of the difficulty of private equity to do deals that are more than $50 billion. Potential targets include Walgreens Boots Alliance(WBA), which already has had an approach from private equity, or a major airline like Delta Air Lines(DAL) or Southwest Airlines(LUV). Berkshire likes the airline sector and already owns about 10% of both Delta and Southwest.

A lagging Berkshire looks appealing with Gelb carrying an Overweight rating and a price target of $375,000 on the class A shares, about 14% above the current price.

Investors, however, may want to see a greater commitment from Buffett on stock buybacks or an attractive big acquisition before getting more excited about the shares.