Warren Buffett versus U.S. Households… In Charts

Executive Summary: Warren Buffett is holding records amount of cash. Meanwhile, households are holding near record LOW levels of cash and near record high levels of stocks.

Last week we learned Warren Buffett’s Berkshire Hathaway set another new record for the amount of cash and short-term investments (e.g. U.S. Treasurys) its holding. Specifically, Berkshire is holding over $128 BILLION of cash and short-term instruments. That’s a lot of dry powder!

The reason he’s holding so much cash is because he hasn’t been able to find attractively-valued investment opportunities. So, like any disciplined investor, he’s not chasing obscene valuations. Successful investors don’t get caught up in the emotions of manias and bubbles. Successful investors also don’t let fear prevent them from buying good assets when they’re priced right much like Mr. Buffett was doing in early-2009 when everyone else thought the world was ending.

Last week, I also happened to come across some charts from @SentimentTrader (Twitter) showing how households are currently invested. There is some really interesting data here that presents a stark contrast to Mr. Buffett’s approach right now. Before we continue, remember Mr. Buffett’s wise words, “Be fearful when others are greedy and greedy only when others are fearful.”
Continue reading “Warren Buffett versus U.S. Households… In Charts”

The Fed Cuts Rates for a Third Time…And Zombies

Yesterday, the Federal Reserve confirmed the market’s expectations and announced they would be cutting rates for a third time this year. The rate cut is an addition to the recently-announced program of supplying $120 BILLION in liquidity each night AND announcing the resumption of QE whereby they’ll be buying $60 BILLION of short-term Treasurys each month.

In other words, the Fed is pursuing policy that, until the recent Great Financial Crisis, was unprecedented. Why? Why are they pursuing emergency policy actions when the economy is supposedly strong, stock market is near all-time highs, unemployment near all-time lows and inflation supposedly around 2%? Continue reading “The Fed Cuts Rates for a Third Time…And Zombies”

Final Shoe Drops

Back in February, I summarized a few potential recession signals. In that commentary I also stated;

“However, I’ll start to get really concerned when this ISM Purchasing Manager’s Index drops below 50, which would round out a trifecta of recessionary signals.”

Today, it was announced that the ISM Manufacturing PMI has contracted with a reading at 49.1 (below 50 indicates contraction). Continue reading “Final Shoe Drops”

Painkillers Are Not Cures

Last week the Federal Reserve announced it would cut interest rates by 0.25%. This is major news because it signals the end of the “tightening” cycle and is the first rate cut since the Great Recession fallout. I wrote about the stock market’s action during rate cutting cycles a few weeks back here.

Here’s another great chart showing market performance during the last two rate cutting cycles.

Continue reading “Painkillers Are Not Cures”

Fed Rate Cuts and the Market’s Response. A Historical Perspective…

I was asked a great question by a client this morning. “With all this news of rate cuts from the Fed, how does this impact my portfolio?”

The market has broadly rallied on expectations that the Federal Reserve would begin lowering interest rates again…likely even at its next meeting (July 30-31). This is an action the Fed hasn’t taken since the Great Financial Crisis of 2007 – 2009.

But how has the market actually performed, historically, once the Fed has begun easing after a period of tightening? It’s not necessarily bullish at all: Continue reading “Fed Rate Cuts and the Market’s Response. A Historical Perspective…”