In Case You Missed It: Key Charts for the Week:

By Mark Masterson on February 28, 2025

It has been said “a picture is worth a thousand words.”

Berkshire Hathaway held its quarterly meeting once again this weekend.  Buffett has once again increased his cash position.

Berkshire Hathaway’s cash pile now sits at OVER $334 BILLION.

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Here is another look, but in percentage terms…..

It’s now the largest percentage, not just dollar amount.

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It’s not that Buffett loves cash.  He does not.  He loves stocks and companies……

• Buffett: “Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.a”

So why is Buffett’s dry powder up 300% since 2022?

Berkshire’s Record Cash Build   

2025: $334B

2024: $277B

2023: $157B 

2022: $109B* 

2021: $149B 

2020: $140B 

2019: $136B 

2018: $120B 

2017: $92B 

2016: $85B 

2015: $63B 

Perhaps its just his process of identifying moments when the market is overvalued.

He tends to prefer the Market Cap to GDP metric.  It’s been called the “Buffett Indicator.”

• In 2001–he’s nothing if not the master of the time-tested long haul–Warren Buffett developed what he called “probably the best single measure of where (stock) valuations stand at any given moment.”
• Now known as the Buffett Indicator, the metric takes the total value of all publicly traded U.S. companies (measured using the Wilshire 5000 index) and divides them by the previous quarter’s gross domestic product estimate. The result is a simple gauge of whether the market appears to be over- or undervalued relative to economic output.
• If the ratio stands at 100 percent, stocks are fairly priced. At 80 percent, stocks are undervalued. At 120 percent, stocks are overvalued, since the market is growing at a faster rate than the economy on which those stock prices are based.
• The Buffett Indicator (Total US Market Value/GDP) is a ballpark measure of how expensive stocks are at any one point in history…It’s now sitting at ~210%.
• “If the ratio approaches 200%, as it did in 1999, you are playing with fire.” – W. Buffett

If the indicator today is at 209% – it’s clearly overvalued.

It’s two standard deviations above the normal level – which probably makes Warren Buffett very uncomfortable.

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Sentiment is also pretty extreme according to Goldman Sachs…..

“As you can see, investors are every bit as bullish today as they were in 2000, 2007, and 2018… And they’re even more bullish than they were at the top in late 2021 and early 2022. The

@GoldmanSachs

.

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It’s interesting that – despite the anxious investor mood at the moment, we are only down 2.0% from the all-time high reached last week in stocks.

Yes, the average stock is down 16% from its 52-week high.

But – remember that the median reading on this barometer, going back to 1980, is -13%.

So – if we are starting a broader correction, there’s still quite a way to go.

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Interesting stat…..The top 10% of American earners — households making about $250,000 a year or more — account for 49.7% of all spending, according to Moody’s Analytics.

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Another interesting fact……

The economy may get another boost – and perhaps stocks as well – as the Treasury is about to pump money in directly to pay bills, without adding treasury debt.  (they can’t borrow since they hit the debt ceiling and have not raised it yet)

• “The Treasury’s about to drain its TGA stash over the next few weeks, pumping roughly $800 billion into private markets by the start of April, while net bond issuance stays flat. That’s a fat tailwind for crypto and high-beta names, at least in the short term.”

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Valuations matter in the longer term, but not in the short term.

Keep this in mind…..

Market Is Still The Second Most Expensive In History

• Overall, price to earnings ratios for the market still remain elevated when compared to history.
• However, the top 5 weights have fallen by 1.5x multiple points with the median multiple for the market actually increasing by 0.7x YTD.
• Although the froth is coming out of the market, particularly in the top of the market and high multiple momentum names, valuations are still rich.

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Yesterday we saw consumer confidence down sharply….

• US consumer confidence falls by most since August 2021 amid tariff worries, inflation expectations surge (FT, link, Reuters)

Surveys are showing that expectations are for Business Conditions to Worsen in 6 Months

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With that, expectations of a Fed rate cut are rising sharply over the past few weeks…..

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We can see it in the recent sharp decline of the 2 year Treasury yield.  I’ve noted that the Fed funds rate often follows the 2 Year Yield.

Chart below shows the 2 year yield with the Fed funds rate in blue. 

Notice how the blue line follows the black line – just in a delayed manner…..

Despite the MAGA focus, investor have plowed money into Europe and global funds.…..

Its hard to see this kind of enthusiasm lasting too long.  In the past, it has faded.  Will it this time as well?

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Looks like the DOGE impact is being felt in Washington….

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