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

By Mark Masterson on August 9, 2024

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

Warren Buffett has been selling aggressively over the past quarter. 

Last quarter, Berkshire Hathaway sold more $75.5 BILLION worth of stock, according to Zerohedge.

This means that Berkshire Hathaway sold more stock last quarter than any other quarter in its entire history.

Now, Buffett is sitting on a record $277 BILLION of cash.

Take a look at Buffett’s cash pile right now.

Financial Times 8 4 24

I will say that large spikes in the VIX/volatility index often mark lows – at least temporarily.

Now – we are seeing a large spike in volatility and the VIX.

The volatility index, $VIX, is now up 122% today and the market hasn’t even opened yet.

Since July 1st, the $VIX is now up 328% to its highest level since 2020.

We are seeing pandemic levels of volatility.

Charlie Bilello 8 5 24

With so much going on – just one chart.

We’ve commented that the US has outperformed the rest of the world for so long that eventually there must be a rotation.

Elliott Management asks a very important questions today’s long investors should ponder:

“U.S. equities represent 70% of the value of all equities globally, while the U.S. only represents 18% of global GDP and 4% of global population.

Adam Taggart 8 5 24

Moving on…..

I had a few comments about Buffett’s cash raise.  Some suggest it does not mean much and he is just “taking profits.”

No doubt he is taking profits, and perhaps it means nothing.

However, as I stated yesterday – there are two messages about Buffett’s cash raise.

1. He is raising it now – and has far more cash than he has ever held before.  That is not meaningless.
2. He is not investing it – but rather – holding it waiting for better opportunities.  I suspect that is the more important message here.

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Here is the chart posted below showing how last quarter, Berkshire Hathaway sold more $75.5 BILLION worth of stock, according to Zerohedge.

This means that Berkshire Hathaway sold more stock last quarter than any other quarter in its entire history.

Now, Buffett is sitting on a record $277 BILLION of cash.

Take a look at Buffett’s cash pile right now.

Financial Times 8 4 24

We all know that Buffett is an investor in companies and is bottom up.

I do know he keeps track of valuation via the Market Cap/GDP metric.  It’s often called the Buffett Indicator.  When it is too high, he wants more cash.  When it falls – he puts the cash to work.

Here is a look at the Buffett Indicator

First with the S&P  500 index/GDP….

You can see it just hit the highest level in 70 years at 200 – surpassing the top of 2022.

Longtermtrends.net 8 6 24

Another point that will potentially impact who wins the next election is the yield curve.

It just completed the longest inversion of all time, and after 25 months of inversion, the 2s10s spread turns positive for the first time.

That can be a problem historically.

Historically, since the 90s, a recession has followed within 3 to 9 months after disinversion.

Bloomberg 8 6 24

We’ll see how the situation unfolds from here in Japan.

Keep in mind the market volatility is not just due to the carry trade and Japan.  The economy appears to be slowing, and investors are taking notice.  I believe that is why Warren Buffett raised more cash than any time in his history by a large margin.

We see signs in a few areas……

• The yield curve is dis-inverting as pointed out yesterday.
• Leading economic indicators continue to cool
• The labor market is cracking and unemployment is up to 4.3%.  Where would this be without massive government hiring?
• US manufacturing data continues to cool

We are also seeing signs in some commodities like copper.  It has been said copper has a PhD in economics.  Well – if so – copper may be sending a message on growth…..

Copper has now fallen to its lowest price since early March

Barcchart.com 8 7 24

Perhaps the Fed is behind the curve.

The 2 year treasury yield tends to lead Fed funds.

Take a look below as the 2 year has moved lower while the Fed has stood pat…..

The 2-Year Treasury rate suggests the Fed may be a bit behind the curve in cutting rates.

h/t

@ISABELNET_SA/ Morgan Stanley 8 7 24

How about this for a crazy stat:

Apple has bought back $646 billion in stock over the past 10 years

That is greater than the market cap of 491 companies in the S&P 500. $AAPL

Where would Apple be without its buybacks?

Charlie Bilello 8 7 24

There have been many comparisons between Nvidia and Cisco from the dot.com bubble.

Nvidia stock has been following a similar path as Cisco during the 2000 Dot-Com Bubble.

Time will tell…..

Bloomberg 8 7 24

I noted yesterday that the 2 year Treasury yield is telling the Fed to cut rates soon.

This was in yesterday’s Roundup……

Perhaps the Fed is behind the curve.

The 2 year treasury yield tends to lead Fed funds.

Take a look below as the 2 year has moved lower while the Fed has stood pat…..

The 2-Year Treasury rate suggests the Fed may be a bit behind the curve in cutting rates.

On the same front, I saw the chart below from Morgan Stanley last night.

It shows that the  2Y Yield is now 1.56% below the Fed Funds Rate.   Historically, this supports the beginning of a Fed cutting cycle.

Keep in mind that that past three cutting cycles were during quite volatilte market environments.

The first was post tech bubble bursting.

The second in the 2007 Global Financial Crisis

The third on the chart was in 2018 after the market fell 20% in the 4^th quarter of that year

The final is where we stand today…..

h/t

@ISABELNET_SA/ Morgan Stanley 8 7 24

I saw the below chart and had to laugh.

It looks like the best indicator anyone can follow is the CNBC “Markets in Turmoil” indicator.

When the financial media is running those specials – its been a great time to buy.

Charlie Bilello 8 8 24

Speaking of markets – it looks like the Fed and Yellen will need to get to work to calm the markets ahead of the election.

According to Strategas, the VIX has predicted all eight presidential election winners for which we have VIX data.

When the VIX peaks in July or August (around the conventions), the incumbent party has gone on to win when measuring from July 1st through Election Day.

Conversely, when VIX continues to increase into the election, the opposition party has won.

Strategas 8 8 24

The inverse of the VIX is the stock market.

Again, according to Strategas, the market will predict the winner.

• The S&P 500 has predicted 20 of the past 24 presidential election winners.
• If stocks are higher in the 90-day period into the election, the incumbent party has won and vice versa.
• This is not a perfect indicator, but has been correct 83 percent of the time over the past 100 years and was right in every presidential cycle from 1984-2016.
• As the chart below shows, stocks have a nearly identical pattern as the VIX, with stocks rallying out of the convention and into the election when the incumbent party wins.
• Conversely, when the opposition wins, stocks have generally sold off into the election. The sell-off is temporary but reflects investors trying to get a handle on the new agenda that is coming.

Strategas 8 8 24

JP Morgan warning that recession risk may be higher than people think…..

• JPMORGAN RAISES PROBABILITY OF U.S. RECESSION TO 35% BY END OF 2024, UP FROM 25% PREVIOUSLY

Legendary asset manager Jeremy Grantham agrees – and sees a high risk to a recession……

In a recent interview, Grantham also stood by his long-standing recession call, noting that economic slumps often take longer to materialize than experts predict. He underlined that US unemployment climbed in July “above the level that historically has always predicted a ecession.” The chart below seems to suggest he may be correct in time.

Notice the gray bars that materialize after each curling higher of the unemployment rate?

BCA Research 8 9 24

Are we done yet?

Probably not according to Goldman.

We are still near the highs of their bull/bear market indicator.  The last few days have barely even registered.

Goldman Sachs 8 9 24

Another chart showing Buffett’s cash….

The dollar amount of cash is massive – that we know.

But what about cash as a percentage of his portfolio?

That is interesting.

You can see that Berkshire Hathaway is now holding 25% of their Assets in Cash, the highest % since 2004. Historical average cash position: 14%

The only other times he has held more case was in 2000 (Tech bubble) and 2007 (Global Financial Crisis)

Gives credence to my theory that its not the cash raise that is the signal, it’s the fact that he has not put any cash raised to work….yet.

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