Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Sell American, Buffett Is

Stock-Markets / Financial Markets 2011 Feb 16, 2011 - 09:02 AM GMT

By: Brady_Willett

Stock-Markets

Best Financial Markets Analysis ArticleIn an October 16, 2008 op-ed entitled ‘Buy American. I Am’, Warren Buffett revealed that he was moving his own wealth into equities, adding that “If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.” Coming from someone that regularly contends he never tries to time the markets, this was easily Buffett’s most bullish call since October 1974.  And while it would take and additional 5-months before stocks would reach a ‘bottom’, it is now safe to conclude that Buffett, once again, was right.


To recap: Back when many believed all was lost Buffett had the courage to invest in America based largely upon one elegantly simple premise: “…the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts…Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.”

28-months after Buffett penned the above: America is still here, stock prices have bolted significantly higher, and it is now accepted wisdom that policy makers have successfully ‘forced’ investors into riskier assets by reducing the returns on safe assets. Accordingly, the legend of Buffett continues to grow…

Needless to say, the conditions that made Buffett bullish back in late 2008 are no longer prevalent today. Rather, ‘fear’ in the marketplace has vanished, stock prices have outpaced any fundamental improvement in the economy, and the story of cash being a dead asset has been beaten to death.  Ever the contrarian, Buffett’s historic romp into equities is, at least for the moment, over.

Buffett Begins Hibernation Process

In the fourth quarter of 2010 Buffett continued to reduce his (Berkshire’s) equity positions, cashing out approximately $1.2 billion (Berkshire 13F filings). Buffett also failed to produce any new buys and only added to a single long-term holding (Wells Fargo).  When contrasted against yesterday’s penchant for deal making these activities, or lack thereof, strongly suggest that Buffett is becoming bearish on equities.

It has been argued that many of Berkshire’s recent stock sales are related to the retirement of GEICO CEO Louis Simpson (the same story used to explain Berkshire’s stock sales in the third quarter of 2010). However, GIECO-related portfolio reshuffling does not fully explain why Berkshire’s cash hoard continues to skyrocket.  To be sure, Berkshire’s upcoming 10K will likely reveal that Buffett has added more than $10 billion in cash since the second quarter of 2009 (up approximately +50%) - a figure well above the increase in tangible equity created by Berkshire during the same time.  Furthermore, given recent trends Berkshire will likely soon eclipse the record $67 billion in cash and ‘fixed maturity securities’ Berkshire hit in 2005.

Assuming stock prices do not capitulate lower, this 5-quarter theme of cash accumulation could remain in play for some time. After all, remember that the last time reckless monetary and fiscal stimulus efforts united to produce a recovery Buffett spent nearly 5-years amassing cash.

In short, the problem of having more cash than ideas is not one that Mr. Buffett has had to deal with since he went on a buying binge in 2008.  And while it is not known to what degree Buffett has reduced his personal exposure to equities, that Berkshire cannot find any equity bargains and is starting to hoard cash in a relatively big way is self explanatory: sell.

BWillett@fallstreet.com

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in