Finally! A stock market I like! I almost salivate when the stock market crashes as hard as it is right now, because it means good companies are suddenly selling for 10 percent off.
It’s almost always the case that an inverted yield curve eventually leads to a recession, and with our Fed-induced yield curve inverted for more than 500 days now we shouldn’t be surprised to see the economy slowing. There have been signs of slowing in the data in recent weeks in manufacturing and consumer demand, and keep in mind that the job market is always a lagging indicator, so last week’s weaker-than-expected jobs number may be the signal that we’re going into recession for real.
Over the weekend I noticed one particular story that suggested the party might be over: Warren Buffett has been selling some large amounts of his leading holdings (especially Apple and Bank of America), building up a huge cash hoard ($277 billion) and, most significant of all, bringing Berkshire-Hathaway stock buybacks to a screeching halt in the last quarter.
Warren Buffett appears concerned. The Berkshire Hathaway CEO is hunkering down by selling stocks and raising cash for the conglomerate, raising questions about whether he is souring on the outlook for the stock market and economy.
The big news this morning in Berkshire’s financial report for the second quarter was a nearly 50% reduction in the size of Berkshire’s Apple stake to about 400 million shares–as well as the sharp rise in total cash levels to a record $277 billion on June 30, up $88 billion from the total on March 31. The Apple stake is now worth about $88 billion.
Most of the rise in cash reflected the Apple stock sales. Cash now represents about 30% of Berkshire’s market value of more than $900 billion. Berkshire also bought back very little stock–just $345 million in the second quarter. That’s down from $2.6 billion in the first quarter and $2.2 billion in the fourth quarter.
Buffett isn’t infallible, but following his lead has usually worked out for investors. I like the fact that at age 93, Buffett still invests for the long term. And as I suggested in the lede above, Buffett always says the time to buy is when everyone is scared out of their mind and blood is running in the streets of lower Manhattan.
Now let’s hope the Federal Reserve doesn’t panic.
