BUFFETT SITTING ON RECORD CASH BUT CANNOT FIND DEALS, DATA HEAVY WEAK AHEAD

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Record Cash

Please click here for a chart of Berkshire Hathaway stock (BRK.B).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of BRK.B is being used to illustrate the point.
  • The chart shows that BRK.B is jumping up this morning after slightly beating earnings estimates.
  • The chart shows that after the breakout, BRK.B has continued to power up.
  • The chart shows the move up in BRK.B stock is accelerating.
  • RSI on the chart shows that the Berkshire rally may not go much farther.
  • In The Arora Report analysis, the following are the key points from Berkshire earnings that all investors should pay attention to:
    • Berkshire is sitting on record cash, $167.7B.
    • Warren Buffett sees more deals than anyone else, but he still cannot find a large company to buy. This indicates that this market is expensive.
    • Buffett has said that he is price conscious when buying back BRK.B stock.  Buffett seems to be slowing down the pace of BRK.B buybacks.  This indicates that Buffett views BRK.B as expensive.  As of February 12, BRK.B has only bought $600M of its stock vs. $2.2B buybacks in the prior quarter.
    • BRK.B stock is now priced at 1.6 times book value vs. an average of 1.4 times book value over the last five years.  This indicates that BRK.B stock is expensive.
    • BRK.B stock now trades at a forward PE of 24.  This again indicates that BRK.B stock is expensive.
  • The chart shows that the market sentiment is so positive that investors are buying BRK.B stock and paying no attention to valuation.  In The Arora Report analysis, this pattern is being repeated in many popular stocks.   
  • This is an economic data heavy week.  Most important is PCE data.  PCE is the Fed’s favorite inflation gauge.  PCE will be reported on February 29 at 8:30am ET.  The consensus 0.4% for both core and the headline.
  • In The Arora Report analysis, there is a high probability that inflation, as measured by PCE, increased by the highest amount in a year.  
  • There is also a heavy supply of Treasury auctions this week.
  • Here is the key question for investors: “Will the extremely positive sentiment and AI frenzy overcome the economic data, high valuations, and heavy Treasury borrowing?”
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), and Tesla (TSLA).

In the early trade, money flows are neutral in Apple (AAPL), Meta (META), and Microsoft (MSFT).

In the early trade, money flows are negative in Alphabet (GOOG).

In the early trade, money flows are mixed in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is *** in the early trade.

Gold

The momo crowd is *** gold in the early trade.  Smart money is *** in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound.

Markets

Our very, very short-term early stock market indicator is ***.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $2042, silver futures are at $22.60, and oil futures are at $76.33.

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S&P 500 futures are trading at 5104 as of this writing.  S&P 500 futures resistance levels are 5210, 5400, and 5500 : support levels are 5020, 4918, and 4852.

DJIA futures are up 13 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

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Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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