Morning Roundup

By Mark Masterson on February 24, 2025

Good morning,

Below are the news items moving markets today:

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Executive Summary

Happy Monday!

Never a dull moment these days – and this weekend was no different.

Heading into the week, here are the US economic data points to watch:

• HOUSE PRICE INDEX (TUES.)

• CONSUMER CONFIDENCE (TUES.)

• NEW HOME SALES (WED.)

• Q4 GDP (THURS.)

• JOBLESS CLAIMS (THURS.)

• DURABLE GOODS ORDERS (THURS.)

• PENDING HOME SALES (THURS.)

• CORE PCE INFLATION (FRI.)

• CHICAGO PMI (FRI.)

Over the weekend, here are several of the notable themes….

• Trump 2.0 policy uncertainty continued to receive outsized attention with the debate over the extent of Medicaid cuts complicating House GOP efforts to move forward with a single reconciliation bill.
• Government shutdown risks continue to ramp higher as Democrats want assurances that Trump and Musk will abide by spending bill outlines amid all the DOGE layoffs and cuts (Washington Post).
• Buy the dip still seemingly intact amid optimism surrounding strong Q4 earnings growth, hopes for Trump 2.0 policy (tax cuts, deregulation) and notion of tariffs as a negotiating tactic (Bloomberg).

Update from Washington:

The battle for a budget continues:

• A lot of skepticism as House GOP leadership this week works to pass its “one big, beautiful bill,” a budget resolution incorporating ~$4.8T in tax cuts over 10 years offset by ~$2T in lower spending as well as raising the debt ceiling; a resolution needs to pass both chambers to unlock reconciliation process to sidestep a Senate filibuster.
• Efforts come after Senate passed its own $340B “skinny” budget resolution on Friday, focused tightly on border security and military funding (NBC, Washington Post).
• Trump favors larger approach but House Speaker Johnson seeing pushback from more moderate Republicans concerned about sharp cuts to Medicaid and other programs; however, he can only afford one defection (Politico, The Hill).
• Vote scheduled for Tuesday evening but could easily get pushed out. Lack of consensus on enacting Trump agenda highlighting broad legislative uncertainties, with nearer-term worries centering around possible government shutdown after 14-Mar if lawmakers cannot agree on a topline spending approach (Politico).

US officials see prospect of Ukraine minerals deal this week, but sticking points remain:

• Efforts to progress Ukraine peace deal continue, though key sticking point remains Trump administration demands for a minerals deal with Kiev.
• Trump’s special envoy Steve Witkoff told CNN he expects agreement to be reached this week allowing US development of Ukraine’s rare earths deposits (Reuters).
• Treasury Secretary Bessent similarly voiced hopes for an agreement this week.
• Press sources had also noted White House and Ukraine had made significant progress towards an agreement.
• However, Ukraine President Zelensky on Sunday indicated he is no closer to signing a deal that allows US rights to 50% of its minerals revenue but doesn’t include security guarantees, leaving him at odds with White House officials characterizing a rare earths deal as an economic security guarantee (Bloomberg, NY Times, CNN).
• NY Times noted revised US agreement also still contained onerous terms previously rejected by Kiev, including demand for Ukraine to pay US $500B in revenue generated from its mineral resources, which Zelensky argued significantly exceeds value of actual aid provided so far.

Other headlines…..

• Tariffs/trade:
  • Trump administration took aim at China with a series of moves involving investment, trade and other issues (Bloomberg)
  • Trump administration urges Mexico to levy tariffs on Chinese goods (Bloomberg)
  • Treasury Secretary Bessent and China Vice Premier He exchange policy complaints in their first call (Reuters)
• Washington:
  • Some US agencies tell workers not to reply to Musk’s email asking to explain their roles (Axios , Reuters)
  • Democrats demand Trump nominee to head Council of Economic Advisers commit to Fed’s independence (FT)
  • Trump picks rightwing podcaster Dan Bongino as FBI’s second-in-command (FT)

Much more below in the charts…..

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Articles of Interest:

• Geopolitics:
  • German election set stage for prolonged coalition talks, economic uncertainty (Bloomberg, NY Times, Bloomberg, Politico, Reuters)
  • Zelensky offers Ukrainian presidency for peace or NATO membership (Axios, FT); EU leaders to hold emergency summit (Politico)
  • Kremlin sees advantage in drawn-out Ukraine talks and using the battlefield to shape negotiations (link)
  • US officials see prospect of Ukraine minerals deal but sticking points remain; Zelensky wants better terms (link, Bloomberg)
• Markets:
  • S&P 500 selloff poses fresh test for the dip-buying habit among investors (Bloomberg)
  • Top Street strategists say US equities won’t remain unpopular for long due to robust growth and earnings outlook (Bloomberg)
  • Animal spirits that sent the US stock market flying over the past two years are going global (Bloomberg)
  • Covid-linked stocks surge in Asia on new bat virus discovery (Bloomberg, Bloomberg)
• Economy:
  • US economy depends on rich Americans more than ever (link)
  • German Ifo business climate index holds steady in February (Bloomberg)

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Charts of the day:

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.

FT 2 24 25

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

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

Dow Jones 2 24 25

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.

Current Market Valuation 2 24 25

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

.

Bloomberg/Goldman Sachs 2 24 25

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Quote of the day:

“Socialism only works in two places: Heaven where they don’t need it and hell where they already have it.”

— Ronald Reagan