Oracle of Omaha will sit on lots of dry powder when the S hits the fan and there will finally be some stocks worth buying.
By Wolf Richter for WOLF STREET.
Cash is king for Warren Buffett. His investment vehicle, Berkshire Hathaway, continued to dump its two biggest stock holdings in Q3, Apple and Bank of America. It was a net-seller of stocks for the eighth quarter in a row, selling $36.1 billion of stocks, and buying only $1.5 billion, for net sales of $34.5 billion. It didn’t buy back any of its own shares. And it further increased its already huge pile of cash, particularly its Treasury bills, according to Berkshire’s Q3 earnings report released on Saturday.
In the quarter through September 30, Berkshire Hathaway piled on an additional $48 billion in cash, cash equivalents, and Treasury bills, bringing the total cash pile to $325 billion, nearly double where it had been a year ago.
The increase was all in T-bills (+$53 billion); its cash and cash equivalents declined (-$5 billion).
Total cash holdings, including T-bills, jumped by $48 billion in Q3:
- Q3 2024: $325 billion
- Q2 2024: $277 billion
- Q1 2024: $189 billion
- Q4 2023: $167 billion
- Q3 2023: $157 billion
- Q1 2022: $106 billion, when interest rates on cash began to rise.
The pile of T-bills jumped by $53 billion, to $288 billion in Q3.
- Q3 2024: $288 billion
- Q2 2024: $235 billion
- Q1 2024: $153 billion
- Q4 2023: $130 billion
- Q3 2023: $126 billion
- Q1 2022: $67 billion.
Buffett piled on T-bills even as T-bill yields declined throughout the quarter. The 6-month T-bill yield fell by 90 basis points during Q3, from 5.3% to 4.4%. The 1-year yield fell by 110 basis points, from 5.1% to 4.0%. And yet, T-bill and chill.
If Berkshire earned an average of 4.8% on its T-bills in Q3, interest income from those T-bills would amount to $3 billion in the quarter, with zero credit risk and very high liquidity.
To put this $3 billion of interest income into perspective: That’s 50% more than Berkshire’s underwriting income from GEICO in Q3 ($2.0 billion) and 67% more than its operating income from its railroad BNSF ($1.8 billion).
This T-bill interest would amount to about 30% of Berkshire’s total operating profit (excluding capital gains) of $10.1 billion generated by the conglomerate’s insurance, freight rail, utilities & energy, manufacturing, service, and retailing businesses.
T-bill and chill has worked for Buffett.
More strategically, he now sits on this huge pile of dry powder to be deployed if and when the big S hits the fan, after which point there would be finally some stocks out there worth buying.
Ditching Stocks.
Berkshire dumped on net $34.6 billion of stocks in Q3, after dumping $75 billion of stocks in Q2.
Its Apple holdings were whittled down by another 25%; it dumped about 100 million shares in Q3, after having dumped 390 million shares in Q2. So far in 2024, Berkshire has dumped over 600 million of its Apple shares. Its holdings are down to about 300 million shares, from 908 million shares two years ago. That remaining stake was worth $69.9 billion at the end of Q3.
Apple has been hugely profitable for Berkshire. It first disclosed purchasing Apple in 2016 when the stock was in the $26-range. At the end of Q3, the stock was at $233 a share. On Friday, it closed at $222.91.
The media hype-and-hoopla that ensued when Buffett started buying Apple, and that re-ensued each time he disclosed more Apple purchases, was in part responsible for driving up the shares. Well done!
Its Bank of America holdings were also whittled down further in Q3, to about 794 million shares, from 1.03 billion shares at the peak, shaving his stake down from 13.2% to 10.2%, according to separate SEC filings. That remaining stake was worth $31.7 billion, according to the Q3 earnings report.
The remaining top five stock holdings at the end of Q3 were:
- Apple: $69.9 billion
- American Express: $41.1 billion
- Bank of America: $31.7 billion
- Coca-Cola: $28.7 billion
- Chevron: $17.5 billion.
Ditching bonds.
So far in 2024, Berkshire reduced by about 33%, or $8.5 billion, its holdings of notes and bonds, bringing the pile down to $15.7 billion at amortized cost (or $16.0 billion at fair value, including unrealized gains and losses). In Q3 alone, Berkshire shed $445 million in notes and bonds.
It is likely that a substantial part of these bonds came off the balance sheet by maturing – rather than by selling – where Berkshire got paid face value, and then reinvested the proceeds in T-bills. We can surmise this from the maturity details provided in the financials.
U.S. Treasury and U.S. government corporation and agency notes and bonds fell by 56%, or by $5.8 billion. At the end of Q3, Berkshire held $4.48 billion at amortized cost (or $4.52 billion at fair value), down from $10.3 billion at the beginning of the year.
The largest bonds holdings category is now foreign government bonds, at $9.86 billion, down from $11.79 billion at the beginning of the year.
Corporate bonds declined by $58 million to $1.15 billion so far this year. “Other” bonds dipped by $8 million so far this year, to $209 million.
Well over half ($9.7 billion) of the remaining $15.7 billion in notes and bonds will mature in one year or less. Another $5.13 billion will mature in one through five years. Only about 5%, or $837 million, mature after five years, exposing Berkshire to fairly minimal duration risk.
Ditching share buybacks.
Berkshire bought back none of its own shares in Q3. This indicates that Buffett thinks the shares are not a good deal relative to the rest of the market, and that the rest of the market is not a good deal either because Buffett has slashed his stock holdings for the eight quarter in a row. Just hanging on to the dry powder to be deployed after the S hits the fan, when good deals abound.
Share buybacks already had slowed to a crawl in Q2, just $345 million, down from $2.57 billion in Q1.
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Another rate cut or two or three as predicted by middle of next year, T bill and chill will definitely be less sweet with less than 4% return..if the market still holds up or continue to defy gravity..it will be tougher pill to shallow playing it safe…
Funny how Buffet still stock piling and waiting for the S to hit the fan…Wonder how many see him as the relic of the past as they are all convinced this is the new normal and recession or major downturn went the way of Dodo birds. Guess we will see if he gets the last laugh assuming he lives long enough to see the result even if his thesis turns out to be right..
Stock jockeys are doing a brain-twister to interpret Buffett:
1. When he’s buying stocks, he is the Oracle of Omaha.
2. When he’s selling stocks, he’s either a relic of the past, or doing it for tax reasons or similar BS.
He has been a net-seller of stocks for two years in anticipation of tax law changes 🤣
I always found him pretty transparent.
His investment options are limited to a small universe because of size
Size limits his ability to liquidate his substantial holdings
His main rule is don’t lose money on an investment
Stock valuations are historically high
his investments have become very concentrated
the government has an unsustainable fiscal policy.
Therefore, His strategy is to become less concentrated, wait for the valuation or fiscal imbalance to revert to the mean and get paid to do so. He keeps it in tbills because they offer maximum flexibilty if a correction comes, and it’s likely with that correction will be a lowering of interest rates which then makes his tbills less attractive anyway.
He’s not overly smart, he is rational and patient. Which is all you need
While the Oracle MAY be anticipating tax law delta(s), IMO he is mostly anticipating what you say in this report: SM decline to the point where it makes some sense as in P/E ratios that have been between absurd and laughable for too many years to ignore.
So far, WE, in this case the family WE are with him almost 100%,,, the less than is in CDs rather than T-Bills, but we are having an adult conversation Re that now.
Many thanks again for your reporting!!!
If one wanted to dig in more, one could say:
For Apple: Just standard portfolio management. Huge posistion and concentration and high valuation given it’s slowing growth unless you believe in the AI story. Bought at a solid price.
For BOA: solid price purchase striking a deal with the company allowing him to buy a huge position using warrants; not exactly the deal a retail investor could get. Could see some valuation concerns now considering the growing unrealized losses on its held to maturity securities.
Curious to see how much Ally they own now after they file the 13f and rising deliquencies on their books.
“His investment options are limited to a small universe because of size”
This is an important point that doesn’t get talked about a lot.
There are great investments out there that Buffett is literally too big to invest in – he’d be buying out the entire company just to take a meaningful position in the stock.
There’s no way he could ever invest in my favorite microcap ($300M) oil producer that trades OTC, for example.
He still is the smart money in an older straight forward Benjamin Fischer stocks and bonds. He knows those holdings have a much higher probability for downside and the upcoming reckoning will be huge opportunities.
Thesis? Are you out of your mind? It’s all pure, 100% calculated business decisions. He’s gotten the last laughs for over 40 years. Look at Berkshire stock. His Bank of America deal is still studied till this day in business classes (Columbia University).
It’s as if he and Jamie Dimon BOTH knew a shitload of QE (and National Debt) were coming,
and STILL both got a steal of a deal during the initial hard uncertain (to most) times because of their size (capital) and timing.
AND THEN were considered heroes by the financial media for DOING it !!!!!!!!
Two hat tricks if I ever saw them.
📣 SOFT LANDING!!!!!!!!!!
✈️ 🪶
these people man!
After you get to a certain age it’s just the same stories, over and over again. It’s what actually happens that’s different.
P/E (Price/Earnings) valuations of around 100 clearly show that the present valuation of stocks is beyond absurd and headed for a huge downturn which is inevitable.
This time is different until it isn’t…how many cycles do we have to go through before the collective messes take this to heart for good? My guess is, never…
Nothing changes, except the faces.
Same church
Different pew
I believe the current P/E of the S&P500 is around 29. A tad high, but not out of the normal range for the last 3 decades or so excluding a couple of market crashes. Where’s the “100” coming from?
Market cap to GDP is at levels only seen in 2022 and never before in history.
Certain stocks are beyond overvalued. Others are merely overvalued.
Some might be reasonably priced but all will suffer in the inevitable mean-reversion
The p/e of the snp is no where near 100. P/e isn’t the end all be all to valuation anyway depending on the growth stage of the company. Relax, there will ways be a downturn.
We shall see.
Certinaly I can’t fault the Oracle of Omaha. His history at working the crystal ball is better than everyone I’ve ever even heard of.
Yet, nothing truly looks like a recession in the economy, as Wolf Street Publishing Empire documents so well.
We had a bear market without a recession in 2022. Could we have the same but worse? Stock multiples appear to be elevated. Long-term bond yields are not low and appear to be going upward. Could just those two alone cause a 2022 repeat? All it takes is something to trigger a change in sentiment on the part of the people who invest with leverage?
I know I don’t know. It’s going to be fun to find out! If that does happen, that’s arguably one of the best-case scenarios for the nation. Wage earners keep on earning those wages, while assets go on sale for buying!
“Stock multiples appear to be elevated”…
Understatement of the century. I remember many smart people saying this in 2000 when I was still working in Palo Alto.
Cory:
Buffett’s selling has nothing to do with a recession prediction or “crystal ball.” He’s selling because it makes business common sense.
Let’s Make a Deal. Numbers are inflation-adjusted.
Behind Door #1, you have a stake in the fabulous S&P 500! (crowd cheers) An American Original, it’s earned $27,000 a year—on average—over the past decade and pays $13,000 a year in dividends. Over the past 40 years, this juggernaut’s earnings have increased 400%—twice the pace of GDP growth! (crowd ooohs) And you can buy this stake for the low, low, low price of just $1,000,000! (crowd goes wild) (disclaimer quickly flashes at the bottom of screen—“Your principal will be at risk. Historically, this stake would have cost $400,000.”)
Behind Door #2, you have…. A NEW T-BILL! (crickets from the crowd) This T-Bill will pay you $48,000. And you can have this T-Bill for that same price of $1,000,000. (crowd boos) (disclaimer at the bottom: “Your principal and interest will be guaranteed by the 14th Amendment.”)
But wait… there’s more! Before you choose, know that HALF of the S&P 500’s earnings growth over the past 40 years has been caused by: (a) falling interest rates, from 15% to 2%; and (b) a steep decline in the effective corporate income tax rate. The other half of earnings growth was almost entirely caused by revenue growth—during a 40-year stretch where the US (and world) adult population was booming. (crowd mumbles, a mic picks up an “I never heard that on CNBC.”)
So step right up, Cory. What’ll it be? Will you pick Door #1 or Door #2? (crowd screams Door #1)
Nice analog, thanks!
The government spends you into oblivion! Who wants t-bonds, notes. Bills ok a while. But hard assets, now that is the question! Is Bitcoin a hard asset, or just part of a Tulip like Mainia? I like gold, silver, ets – but fear the government will do again what it did before, and demand you turn your gold in. If you got answers, let”s hear them.
“If you got answers, let”s hear them.”
Short long bonds
Long m’funds that invest in specialty credit
Some T-bills for cash management
Most people will pick Door #3, the one with the goat.
I just re-read your name is Cody–not Cory. Sorry about that!
The only reason we didn’t have a recession is the massive government spending.
Also recessions typically happen when the yield curve un-inverts.
Weird times though, I agree nothing looks recessionary. But a lot of things look soft to me.
The big check I typically do on the economy is I always ask my hairstylist and aesthetician how business is for them. Hairstylist said people are pushing back coloring a few weeks. Instead of coming every 2 months they’re pushing it to every 3 months of what not so she’s not as busy. The aesthetician is less busy also, with way more open appts.
I see a lot of potential downside risks but they also might never happen. One interesting thing to me is the new-ish Revenue Accounting standards. This added a significant amount of estimation and subjectivity to revenue recognition. It also allowed a lot of future revenue to be pulled forward (imo). Anytime there’s a major change like this something tends to blow up. Will it take the who market down lie Lehman or will it be more Enron type of thing who knows.
“recessions typically happen when the yield curve un-inverts.”
But the curve is un-inverting from long rates rising.
This guy is a legend.
When a legend goes to T-Bill-and-Chill, I pay extra attention. And Buffett is not the only legend doing this.
The only reason to T-Bill and Chill is if you think long rates are not high enough AND stock prices are too high.
These guys are positioning for a repeat of 2022, when rates rose and bonds got slaughtered, and stocks fell too.
If they thought a normal recession was ahead, they’d own bonds. If they thought growth would continue, they’d own stocks.
He loves dividends but hates to pay them. If you’re lucky enough to own BRK shares you have to sell the shares, spend the capital, AKA sell the silverware, just like granny told you not to do.
Good thing the Fed repealed the business cycle so we never get another recession ever again. I’m sure we’re all looking forward to when they repeal poverty, hurricanes and global warming as well.
Ha! Good one Ben. I’d like for them to repeal tornadoes as well. That would be helpful for those of us in the flyover midwest. Even more so for those living in “tornado alley.”
Buffett is placing a huge bet on decreasing prices of certain financial assets. He’ll most likely be right in the long run. But WHEN is anybody’s guess – as Wolf has repeatedly documented, this counterintuitive economy just keeps chugging along.
I like Buffett’s quote that “it is only when the tide goes out that you find out who has been swimming naked.” Looks like he thinks the tide will be heading out.
This is silly. T bill and chill when there’s no recession and things are going great? Buffet has said if he had a small sliver of money he wouldn’t do things the way he does. His large war cheat makes it difficult for him to find opportunities where the rest of us can in the small cap space. Despite this article, there are plenty of opportunities in the stock market if you turn over enough rocks.
Buffet basically mimics the S&P for the last 30 years.
He’s just ahead of it. It’s hard to move when you are that large.
Lots of stocks worth buying! :)
He’s ahead of the Sand P, Meaning he has inside info?? ….unavailable to the average gambler/investor. A lot easier moving things out of your way (manipulating), when you’ve got the golden beak.
Old Warren McDuck had a farm… on his farm he had a cash pile of 325 billion…EIEIO.
I like the billionaires who build rocket ships to Mars, Warren McDuck just ratholes his money….Warren McDuck the ratholer of omaha.
And he hasn’t purchased any Occidental Petroleum since June 6th. last at $59.75 per.
good observation! It seems he was the one keeping the price close to $60, now it’s under the MA200 weekly, where it hasn’t been since Jan ’23. If it gets rejected there, things will turn ugly.
Occidental – I read a biography of Armand Hammer some time ago – the guy was amazing. From making/selling pencils in the Soviet Union to making deals with Lenin to building pipelines in Libya to developing Angus beef to running a successful art gallery while building Occidental along the way … the definition of entrepreneur.
Except the baking soda – he just bought that because it sounded like his name.
Stock market holding up and even moving higher could indicate upcoming weakness in the currency. Warren’s miniscule holdings of long term bonds may indicate low trust in FED. He just plays safe for now.
But what about taxes on his profits?
He’s not registered in California so that saves him about 14% so I’m guessing that he’s in about the 30% Federal tax bracket.
That’s a lot of taxes, so I’m guessing that he’s predicting that the stocks that he sold will fall further than 30% from where he sold them, otherwise it would not have been worth it to sell them.
that’s a bit of a risk, but he has shown that he knows what he’s doing.
on the other hand, I have always failed at that whereby I will sell a stock at a profit, then pay the taxes, and then it will slowly go back up to where it would not have been worth it to sell because of all the taxes.
Good for him!
You only pay taxes on your gains. Thus if he bought stocks at 40, sold at 100, he pays 30% on the 60 gain or 18 in this example. Profit 42.
Saying he sold because he expects it to drop further than that doesn’t work because that means in this example it drops to 82, he sells there, and has a gain of 42 and pays taxes on that of ~13. Profit 39.
You always pay taxes when you sell. If you’re not, then you’re selling at a loss. Which means you have no profit. Which is the opposite of the purpose of investing
Wolf..excuse me if you fin’t like my comment & please feel free to delete…but even though you reference from time to time about the “S hitting the fan” it seems like no one except me is Really concerned abiut the very real blowback because this election is going to rexult in a “hotly” disputed
trama intil Jan 20th?
Me, I’m hedged with a conservative SH below $11.00.
If Mr T gets in and Elon starts slashing gov’t budgets while Project 2025 starts privatizing all the public assets, Buffet will have plenty to buy there, not to mention the big recession that’ll kick in.
If the Boomer sailors keep sailing for a while (typical of recent retirees) and the top 10% who own 90%+ of the market don’t have to sell to cover mortgages (40% owners free and clear already) that may support the market for a while too.
Markets also correct by going sideways for long periods ala the 90s. Lots of volatility is likely I’d guess. Will see how it goes.
So I guess it’s Hurry Up & Wait? I’m with McDuck…
Over his many years it is hard to find ( impossible?) a better manager of money than Warren Buffet.
Doesn’t make sense to me to ignore his actions in one’s own portfolio
Ah, but what has he actually been doing? Not what the media claims he has been doing but what actually has he been doing. He still has about 70 Billion of APPLE as an example. He has hundreds of billions of stock still in the portfolio.
He has stated publicly that he is “loading his elephant gun” so it is likely all he’s doing is preparing for a very large purchase for Berkshire’s portfolio.
The ordinary investor has no chance of emulating what he does but can grow wealthy just by joining him in the ownership of BRK..
Sounds like Buffet reads Wolf Street
A theory of Berkshire Hathaway selling stocks and keeping cash is simply because Buffet is preparing himself to die. His successor will use cash then to do his own investment, instead of inheriting Buffet’s decisions.
One support of this theory is that although he sells, he does not short, so he is not really negative.
I posted this above, but I’ll repost it and add your excuse to the list:
Stock jockeys are doing a brain-twister to interpret Buffett:
1. When he’s buying stocks, he is the Oracle of Omaha.
2. When he’s selling stocks, he’s:
– a relic of the past
– doing it for tax reasons
– doing it “because Buffet is preparing himself to die” and let the successor use the cash
– or similar BS.
The excuses you stock jockeys come up with to rationalize his selling are just stunning.
When you see what WB does do the same. I did it even before he did. Ha Ha.
When you see what Jim (Bear Sterns) Cramer) does, do the opposite. You are guaranteed to make money.
I give Wolf full credit for the T-bill and chill approach. With the only exception being buying a stock that I know is about to release good earnings and buying calls on that stock as well…
I have two children in college, so I still need cash flow…
WB call could be right considering the muddy (geo)politics.
I just don’t buy the arguments that he is right because he is an oracle.
Everyone/everything has its limits. Past performance is not an indicator of future performance etc.
He’s preserved by Coke!
Ben Graham’s Jedi Knight will not fade so soon.
So did I, with the exception of companies that I knew were doing well and were releasing their earnings report. Case in point, Altria Group. When the working classes are stressed, they smoke and drink. Loaded up on MO with calls and enjoyed the pop and sold. No one ever went broke from taking a profit. I think Warren said that once.
If Trump slaps a 100 or 200% tariff on Apple products it might hurt the stock pretty bad.
What is more likely? A contrarian argument here.
A. WB is 94yo, a good man. He recently lost his “twin”. He is just a normal human being. At this stage of his life he has the right to be pessimistic in general, it is normal. He has more and more trouble understanding the world around him.
Even when he was younger he was investing in companies that he could understand, the old economy. Is he able to understand the technological changes around him? That was never his strong area.
His investment strategies, even if working for him, I don’t think are applicable to the retail investors in general. For him, and his huge stache, there are less opportunities in the market. He is at heart a value investor. This has not been working well for a long time.
B. He is an oracle, a wise man that is always right. He can foresee how humans will live in the next 20, 50 years. He is a super human, his advanced age limitations are not applicable to him. He is the only person that always can time the market.
B sounds illogical to me.
Biker:
The answer is C. Buffett buys businesses. He’s a shrewd, conservative investor. He buys when he can pay $0.50 to get $1 of business value. And he sells when he can get $1.50 for selling $1 in business value.
He’s selling overvalued businesses. And he’s then getting 4.8% of interest (risk free) on what he’s selling.
Would you pay $1,000,000 to buy a business that’s generated $27,000 in profits on average the past several years? That’s what you’re doing when you buy the S&P 500 index. The terrific growth in the S&P 500’s profits over the past several decades has been overwhelming driven by: (a) an historic drop in interest rates to 2%–to a point where rates essentially can’t go lower; (b) a halving of effective corporate income tax rates–at a time when US federal debt has never been higher and the federal government is borrowing $39 for every $100 of revenue; and (c) the US adult population has boomed–and the adult population growth rate will soon decline rapidly?
CNBC and the public say “Yes–sign me up! I’ll pay $1,000,000 for $27,000 in profits!” Buffett is saying “Wonderful! I’ll sell you that business for $1,000,000.”
As long as the idea of a Fed put persists, many people will buy anything at any price, and they set the bid.
The problem is that any SUBSTANTIAL drop in asset prices creates a threat to employment, which spurs the Fed into action. We’ve seen many times the past 25 years.
For valuations to decline, I believe the Fed must relax its conservative stance and allow odds of a recession to increase, back to what could be considered a normal level. Avoiding recessions is not part of the mandate, as it damages long-term growth potential.
The ”General Case” Biker IS CLEARLY, ”How soon we grow OLD and how Late we grow WISE.”
Since I can understand how that may not be enough for you and many others,,, just TRY, to understand and do good, or at least do well,,
As in,,, ” The only REAL failure is the failure to TRY.”
AND then, ”Just get up in the morning and do the best you can.”
(Sorry for getting off topic of article Wolf.)
Considering WB age, his mind is sharp. I wish mine will be like that. Mentioning it since it was puzzling me for years how he is doing it. He seems not to follow the current scientific advise that one needs to exercise a lot, and eat well (not a burger + a coke + ice cream).
If you think every decision is solely made by him, you don’t understand how businesses are run. He is a genius yes, but I guarantee he has a team of analysts who are not 90+ yrs old that also contribute to investment decisions and an understanding of the world around him.
In a market where valuations are ridiculous and the underlying economy has been propped up by free money and excessive government spending. Who do you think is right, you the retail investor or him the expert even if he were not at the top of his game. I’d choose him over over any retail investors advice any day. I mean even my always stoned roommate who worked for door dash thought he was a stock picking genius during covid.
The only other person I trust is an uncle I have who started out with nothing, invested well (before it was cool) and retired at 40 with millions. He’s now in his late 70s. He managed to maintain that wealth for 30+ years trading. He’s still trading options for fun making more a week than I do at my salaried job. His opinion is the “market has lost its damn mind”. He thinks we should be in a recession. He thinks we already should have had a large pull back. He’s trading very short term options positions only at this point. Would I trust him who has the technical skills to have that sort of track record over 30+ years or my stoner roommate who got lucky during COVID because he bought meme stocks and didn’t have the financial background to understand they were worthless companies or what a short squeeze was. That year he beat my uncles market return. There’s a difference between luck and skill.
It’s hard to get old without a cause.
Hmmm. I like this.
As the bikers say “There are no old fast bikers.”
There are however some “old slow bikers.”
Nobody ever gets investment decisions correct 100% of the time and course time only will reveal whether this was a good play or not but in the end it is whether he could have made aot more or just a steady risk free return, with the potential for larger opportunities.
It’s investment decisions that significantly wipe out value that gets noticed and he doesn’t make those plays.
I essentially did the same thing as he did put obviously on a ridiculously small scale. I am basically in what one would call a conservative position but given my age and novice reading of conditions it makes sense. Could I have dumped everything into the market at the beginning of 2024, sure, but most would have considered that a risky play.
Is crypto going to die? WB called it a rat poison. And my take on it has been the same. Staying away from crypto from day 0. But somehow I’m starting to think that the rat poison is not going to die.
Crypto isn’t going to get anyone wealthy who is buying in at today’s prices either.
Crypto has to much use scamming people and moving large amounts of money over borders.
Though I would buy if I’d be payed in ruble, lira or pesos, lol.
I mean FTX tried hard (to kill crypto).
What was perplexing is the executor (or whatever) recovered all their money!
lol, isn’t that crazy?
Just for fun, google “how many crypto currencies are there in existence today”, then post the answer…
How many regular currencies are there in the world today?
1) 1M SPY : Oct 2024 closed below Sept high. It can be warning sign or a break to fill the tank and rest for a while. We don’t know what will happen next.
2) Since Oct 2011 SPY was rising like a rocket. The first stopping action was in Oct 2014. A lot of selling, but Oct 2014 ended as a green bar.
3) Two months later Dec 2014 was a long legged Doji on high vol. It closed below Nov 2014 high. Something was going on. SPY peaked half a year later in May 2015, but it closed below the Doji high.
4) In Aug 2015 Spy suddenly plunged. It closed below the Doji low (Dec 2014 low). Jan 2016 dropped below Aug 2015 low, but snapped back and closed above. That was bullish. Feb 2016 low, a higher low, tested Jan 2016 low. SPY took off until Jan 2018.
5) During that period QQQ was in re-accumulation under 2000 high, before the breakout.
Heads or Tails is the safest approach. Put half in each for the spread trade.
The US GDP in the third quarter of 2024 is $29.35 trillion
YTD, equity market cap stood at $57.7T (+4.4% to where it finished last year) and the number of listed companies was 5,499 (-1.4% to end last year).Oct 14, 2024 (SIFMA)
29.35/57.7 is approx around, about 234.4%
As we all kindly recall, Uncle Warren said that his Indicator was in absurd stupid levels a few years back, before the omnipresent all encompassing narrative of AI bullshit was spun out, after a slight mkt correction November 2022.
Looking back, wiki says: “The indicator set an all-time high during the so-called “everything bubble”, crossing the 200% level in February 2021;[6][4] a level that Buffett warned if crossed, was “playing with fire”
So, here we are with virtually every octogenarian playing with jet fuel and hopes that the election- Santa clause rallies will spark bigger explosions upward, as we all dance around the flames, with our awesome walkers and depends.
Obviously, my calculation is probably way off, by using the total mkt cap and Uncle WB preferred gross national product, and I’m just stupid — but, nonetheless, one can assume that we’re currently at a valuation level that has more risk than Feb 2021 — in terms of that metric. Uncle Warren is obviously putting his money into a tactical defense state … because he’s old and having cognitive decline and doesn’t care about all the money he can make on AI bullshit…
A case can be made, that this time is very different and valuation doesn’t matter in this exciting new world of chaos — just yesterday I was looking at a new AI software that allows morons like me to be assisted by an AI helping hand, to piece together software programming by explaining to it the functionality I’m looking for. Devin, researches the best solutions as I refine my parameters — then it debugs and tests everything and suggests improvements. Probably easier said than done, but imagine a million monkeys at keyboards playing with crazy new software — it could be wild.
In a macro sense, crashing the cost of programming to zero levels and watching productivity explode may be an evolutionary mutation that eventually derails traditional capitalism and whip and buggy valuation metrics — but, in terms of demographics and future growth reality, it’s unlikely that the current AI market is going to produce income or yield for anyone.
I think that’s the current reality test Warren is betting on — and the reason he’s hoarding cash. There’s absolutely no cash flow with AI today — and Warren has always made money on industries that generate cash, versus bullshit. He’s wealthy because of cash flow versus investing in cash burn.
Directly from Uncle Warren:
“The chart shows the market value of all publicly traded securities as a percentage of the country’s business–that is, as a percentage of GNP. The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment. And as you can see, nearly two years ago the ratio rose to an unprecedented level. That should have been a very strong warning signal.
For investors to gain wealth at a rate that exceeds the growth of U.S. business, the percentage relationship line on the chart must keep going up and up. If GNP is going to grow 5% a year and you want market values to go up 10%, then you need to have the line go straight off the top of the chart. That won’t happen.“
After recently visiting wiki and using that as an embarrassing resource, I’ve seen the light— these valuations are all over the map
Mkt value of all stocks according to SIFMA = $58 trillion
Current GNP according to Fred = $29 trillion
Mkt cap to gnp = 200%
He says, hamburgers are currently very friggn expensive
Bond bubble popped in 2022.
Housing Bubble is now starting to deflate.
Stocks are next.
The political turbulence reflects an unspoken, (possibly subconscious), but widespread understanding that an inevitable, major, once-in-several generations sort of economic & social realignment is steadily unfolding. The outcome is not baked in; in fact many outcomes are possible.
But on the plus side, as winter comes, at least there’s a surplus of hot air blowing around!
When what you see & hear just doesn’t make sense, look deeper.
Your column is exacerbating my multiple personality disorder. The very first sentence of today’s column says “ Oracle of Omaha will sit on lots of dry powder when the S hits the fan…” In previous articles we read “ Landing Cancelled? Retail Sales Jump, Prior Months Revised Up,” and “Our Drunken Sailors Splurge in Q3, Phenomenally so on Durable Goods.”
My bottle of Kentucky Bourbon helps me to cope with the contradicting realities and easy the pain. Buffet’s betting one way, but will he be around to enjoy the party?
In regard to using something like the S&P as an index for The Buffet Indicator, the amount of concentration in Mag Five stocks, adds another layer of risk to overvaluation.
Nividia has massively outperformed the S&P and its stocks like those that are pushing the Buffet Indicator to peak disconnect levels.
That layer connects to lagging GDP which has recently been supercharged as well, so that inflationary boost to equity valuation at the top of a cycle is clearly why Uncle Warren is hoarding cash — and being patient in waiting for this time bomb to explode.
5% risk-free, liquid, is a good return on $325 billion. Although it is now 4.6% and drifting down to 4.5%. On the other hand, 20 years have skyrocketed to 4.7%. I wonder if Buffett is going to shift to purchasing bonds.
Uncle Warren Footnote
Assuming that Warren is selling off overvalued stocks, to hoard more cash for future bargains seems like a logical way to buy time — and the timing of his phase out to cash, is intersecting with election week and Fed emergency rate cut 2.
Those two events on the time horizon, are amplified by geopolitics — and the Fed event may actually result in lighting the fuse for inflation — propelling yields higher.
Warren is keenly aware of the inflection point here and the likelihood of a fragile way forward — and the critical requirement of protecting his portfolio — he’s extremely well versed in understanding risk modeling:
“ Jim Shanahan, an analyst at Edward Jones in St. Louis, said the swelling cash hoard “begs questions about whether Buffett thinks stocks are overvalued or an economic downturn is coming, or is trying to build cash for a big acquisition.”
“He’ll be there ready and loaded when other investors are despairing or capital-constrained,” Russo added.“
I seriously doubt Uncle W is hoarding cash for the purpose of burning it up in an overvalued acquisition at the very peak of stupidity!!!
one of the best wb quotes from an article over 20 years ago paraphrased == in the short term the stock market is a voting machine. in the long term the stock market is a weighing machine.
I believe that’s a Graham & Dodd quote from the 1930s, adopted by WB.
P.S. People don’t quote me often enough, but I’m glad a bunch still remember Bastiat…
In my ongoing effort to find valuation clarity, I’ve been playing with ratios at stockcharts.
The Buffett Indicator can be fairly well represented by: $spx:$$gdp
That’s a decent way to see a historical representation over a few decades, in addition to RSI and moving averages.
Furthermore, as a fun idea, I overlayed another ratio:
$spx:$gold
This was a great way to put into perspective how insanely stupid this entire market is today — with Buffett Index at peak critical meltdown levels, the gold ratio seems to be going sideways and imho, unlikely to go much higher.
The excess exuberance during this election Santa clause melt up will exhaust itself very soon — and it’s as clear as day, as to why Uncle Warren is happy to wait for a crash — or at least be patient for this stupidity to recede.
If we don’t get a recession early next year, earnings growth will still slow down — whoever is president will have a massive mess with the deficit — and I fail to see how stocks or gold continue up on a parabolic explosion — I think Warren sees that too.
Any info on the maturity structure of BRK’s T-bill holdings?
Wondering if WB has started to “move out on the curve” e.g. buying the 9-month bill instead of 3-month.
Still not the same as buying actual duration of course.
So he is sitting on cash mainly in US dollars? What happens when BRICS dethrones US hegemony? Please excuse my naivete.
🤣 the BRICS again…