Cash Is Never Trash

When a crisis hits, investors will start to sell off their most leveraged positions first.

When that isn’t enough, they sell off the core holdings they thought they’d have forever.

And when that isn’t enough, anything that isn’t nailed down goes too.

The final stage of a market selloff is when assets that have been holding up relatively well such as gold also start to tank.

The key to coming out ahead? Lean against the markets. When stocks are soaring, raise cash. You’ll feel a lot better when the fear hits – since you’ll have less to lose.

That’s the approach that’s worked well for Berkshire Hathaway, which now holds over 30% of its investment portoflio in cash:

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Berkshire Hathaway now sits on its highest cash levels ever.

Markets haven’t liked the stock since Warren Buffett announced his retirement at the annual meeting. In the past 90 days, shares have dropped nearly 15% from all-time highs.

With a 30% cash position, however, Buffett and his successor Greg Abel, are in a position to buy up entire companies without having to issue debt.

Until they do, that cash, mostly invested in short-term Treasury bills, will earn over 4% per year, still higher than inflation.

And with market valuations well over the “Buffett indicator” for greed, measuring a stock market valued at 207.4% of GDP, a record high, the market is ripe for a strong pullback.

~ Addison

P.S. We see continued market volatility as part of President Trump’s Great Reset plan. And Trump may be willing to rattle markets again, following the rise of the TACO – Trump Always Chickens Out – mentality prevailing on Wall Street.

Stay tuned for more volatility – and make sure you have enough cash so you can sleep soundly through a big pullback – and have cash to put to work later on.

That doesn’t mean sell everything – a 30% cash position means Buffett is still 70% invested. But now’s now the time to be all-in. And you can even use put options to profit from a quick swing lower, as we’ll be doing in a trade for members of the Grey Swan Trading Fraternity later today.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

When a crisis hits, investors will start to sell off their most leveraged positions first.

When that isn’t enough, they sell off the core holdings they thought they’d have forever.

And when that isn’t enough, anything that isn’t nailed down goes too.

The final stage of a market selloff is when assets that have been holding up relatively well such as gold also start to tank.

The key to coming out ahead? Lean against the markets. When stocks are soaring, raise cash. You’ll feel a lot better when the fear hits – since you’ll have less to lose.

That’s the approach that’s worked well for Berkshire Hathaway, which now holds over 30% of its investment portoflio in cash:

Turn Your Images On

Berkshire Hathaway now sits on its highest cash levels ever.

Markets haven’t liked the stock since Warren Buffett announced his retirement at the annual meeting. In the past 90 days, shares have dropped nearly 15% from all-time highs.

With a 30% cash position, however, Buffett and his successor Greg Abel, are in a position to buy up entire companies without having to issue debt.

Until they do, that cash, mostly invested in short-term Treasury bills, will earn over 4% per year, still higher than inflation.

And with market valuations well over the “Buffett indicator” for greed, measuring a stock market valued at 207.4% of GDP, a record high, the market is ripe for a strong pullback.

~ Addison

Stay tuned for more volatility – and make sure you have enough cash so you can sleep soundly through a big pullback – and have cash to put to work later on.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

Copper and resources are sending us a cleaner market signal than AI stocks.

Channeling Ludwig von Mises, we observe this morning that price is not just a number; it’s information. Price reflects what buyers and sellers collectively believe: demand, scarcity, fear, speculation, disappointment, future expectations and available supply.

When prices rise, and inventories fall at the same time, the message is usually straightforward: buyers need the stuff, and there is not enough of it.

A low VIX does not predict disaster. It measures complacency. A serial skeptic will read it as the calm before a storm. We shook off that feeling this morning and opted to pursue an opportunity instead.

Here goes:

A VIX reading below 15 means the market is not pricing in much near-term trouble, even though there are obvious risks still sitting in the room: Iran, oil prices, memory chip speculation, circular financing, high valuations, epic high concentrations, spiking long-term interest rates, a regime change at the Fed, a meltdown in Japan and a historic deficit and rising national debt.

Money is not flowing in a clean, straight line from outside investors to productive businesses. The firms at the top are investing in and buying from each other.

Microsoft and OpenAI are the easiest examples to follow.

Microsoft says OpenAI has contracted to purchase an additional $250 billion in Azure services, while Microsoft continues to account for $13 billion in funding commitments to OpenAI as an investment.

At this stage, it’s a stock picker’s market.