bigrus

Warren Buffett’s $166 Billion Warning to Wall Street Hits Hot Point, and the Financial World Can’t Ignore It

Harry November 12, 2024

In the last two years, Warren Buffet He sends a loud and clear message to Wall Street without saying a word. His approach is more cautious than ever, and Berkshire Hathaway’s eye-popping $325 billion cash hoard is the result of his latest strategy.

While investors have long imitated Buffett’s moves, his recent decisions have raised doubts. That warning means a lot for a man known for his optimism about the U.S. economy.

Don’t miss:

Over the past eight quarters, Berkshire Hathaway has been a net seller of stock, raising $166 billion by dumping large amounts of stocks, including long-time favorites like Apple and Bank of America.

The scale of these sales was unprecedented, as Buffett did not buy back any shares of Berkshire for the first time since 2018; This is a move that has not gone unnoticed by the financial community. This stance indicates one thing: Buffett thinks the market is overvalued.

Most of this money is not reinvested in the stock market, but instead is parked in short-term U.S. Treasury bonds. Thanks to high returns, these low-risk investments earned Berkshire close to $10 billion.

Trend: In just three years, this Adobe-backed AI marketing startup has grown its valuation from $5 million to $85 million, working with brands like L’Oréal, Hasbro, and Sweetgreen. This is how you have a limited time opportunity to invest at $1,000 for just $0.50 per share before the closing date.

CFRA analyst Cathy Seifert recently noted that Buffett reducing his Apple holdings was a prudent move, especially since Apple has a large stake in Berkshire’s portfolio. But his move into Treasuries instead of stocks signals that Buffett sees limited bargains on Wall Street; It’s a stance that reflects his famous “buy low” philosophy.

Still, some analysts think Buffett’s warning may have been a missed opportunity. If the Federal Reserve starts lowering interest rates, cash returns could fall, making stocks more attractive. In this case, Berkshire’s heavy cash position could mean missing out on earnings if the market rebounds.

But Buffett has historically relied on his patience, taking advantage of crises to rally undervalued assets. He believes a significant cash reserve gives Berkshire the ability to capture bargains in the event of a market crash.

The cyclically adjusted price-to-earnings (CAPE) ratio, also known as the Shiller P/E ratio, paints a clearer picture of the current state of the market. This ratio above 36, more than double the long-term average, indicates a market well above traditional valuations.

Trend: The global gaming market is expected to generate $272 billion in revenue by the end of the year. This VC-backed startup with a user base of over 7 million gives investors easy access to this asset market for $0.55 per share.

Historically, CAPE ratios above 30 have typically preceded significant market declines, losing 20% to nearly 90% of their value. To experienced investors, these numbers may seem like a harbinger of turbulent times.

Beyond valuations, other economic indicators also support Buffett’s cautious stance. The US Treasury yield curve has been inverted for a historic period, signaling potential distress. Combined with the significant decline in the M2 money supply (the first of its kind since the Great Depression), the data points to a possible downturn.

But if there’s one thing Buffett has proven throughout his career, it’s that patience pays off. He attacked Bank of America in 2011, buying $5 billion in preferred stock at a time when the bank was struggling and recently selling $896 million in stock.

Buffett’s moves may be disturbing to those accustomed to his optimism, but they are not without precedent. With a significant pile of cash, Berkshire Hathaway He is ready to act when the market offers better opportunities.

Buffett’s track record shows that he is no stranger to intervening in what he calls “price fluctuations.” Expecting high valuations for the Oracle of Omaha is part of the plan.

Read Next:

Next up: Transform your trading with unique market trading ideas and tools from Benzinga Edge. Click now to access unique insights This can put you ahead in today’s competitive market.

Want to get the latest stock analysis from Benzinga?

This article Warren Buffett’s $166 Billion Warning to Wall Street Hits Hot Point, and the Financial World Can’t Ignore It originally appeared Benzinga.com