|Dow||+75.91 to 16,569.28|
|S&P 500||+13.84 to 1,938.99|
|Nasdaq||+31.25 to 4,383.89|
|10-YR Yield||-0.014 to 2.491%
|Gold||-$5.20 to $1,289.60|
|Crude Oil||+$0.61 to $98.49|
Good ole’ “Uncle Warren.” The Cherry Coke-swilling, cheeseburger-eating founder of Berkshire Hathaway is a legend in the investing world.
Indeed, Warren Buffett’s down-home, folksy wisdom and long-term record of investment success have earned him legions of followers. The mere mention or rumor of an investment from Buffett is enough to send stock prices soaring, even if his “buy and hold” approach periodically goes out of favor.
So what is Buffett investing in now? Cash!
“It’s not just Buffett who’s husbanding cash rather than aggressively deploying it, either.”
It’s true! Bloomberg News reported this morning that Berkshire’s cash hoard just topped the $55 billion mark in June.
How surprising is that?
First, Buffett has never had that much cash sitting idle at the end of a quarter in his more than four decades at the firm’s helm.
Second, cash on hand has surged more than 55 percent in the past year.
Third, the overall level is more than double the cushion Buffett says he likes to keep lying around in case of unexpected losses tied to Berkshire’s large insurance businesses.
|Warren Buffett’s Berkshire Hathaway has a cash holding of $55 billion.|
So what should we make of this trend? Well, if you’re an optimist, you could say Buffett is probably getting ready to launch another big round of mega-buyouts. He shelled out several billion dollars to buy up the Burlington Northern Santa Fe railroad in 2010 … several billion dollars more to buy a large stake in IBM back in 2011 … and several billion dollars more to help privatize HJ Heinz in 2013.
But if you’re more of a pessimist, you could raise an obvious question: “If Warren Buffett isn’t out there aggressively buying stocks, why the heck should I do so?” It’s not just Buffett who’s husbanding cash rather than aggressively deploying it, either. Private equity firms are sitting on their own $1.16 trillion cash hoard — the most ever, per Bloomberg.
I’m curious where you come down on this whole debate. Is this a sign that Uncle Warren is nervous, and therefore you should be too? Or is he just getting ready for his next batch of mega-deals, something that should have you licking your chops and scouting out potential Buffett targets?
What about you and your own personal portfolio? Are you finding a lot of solid investments? Or are you sitting on large amounts of cash because everything is too darn expensive or unattractive? Let me know at the Money and Markets comments section here.
|OUR READERS SPEAK|
After an ugly end to the week, many of you weighed in on the data that helped spark the selloff. Suffice it to say, you aren’t exactly “buying” the data the government is selling!
Reader Mitch said: “The economy figures are a sham. At the same time, U.S.A. is on life support, receiving 1/2 the tax revenue it is accustomed, too. Most employment is temporary hire, with no benefits and less pay and hours. No overtime.”
Reader Richard offered a similar view, saying: “The method of calculating unemployment statistics has been altered so much over the years that they are always questionable at best … Anyone paying attention knows that the economy is still weak and that the inflation rate is much higher than reported.”
Finally, Reader Hank commented on the quandary of how to run monetary policy in the current economic environment. He said: “The Fed cannot raise interest rates as the interest on the national debt would EXPLODE. As the economy sinks further into stagnation, tax revenues will fall. Those pushing austerity will ONLY push us closer to the EU and Japan. I believe we need a wage led revival of the economy.”
Me? I’m a skeptic by nature, and I don’t think any one report on inflation or unemployment is entirely accurate. But so many reports on so many facets of the economy are all pointing in the same direction — namely, that we’re in recovery, even if it’s not as vigorous as it could be.
So if you want to make money as an investor, you don’t want to be stuck in a bunch of recession plays. Instead, I believe you should stay focused on those select winning stocks in strong sectors experiencing their own “private” bull markets. But I’m always open to other opinions, which I encourage you to continue sharing here.
|OTHER DEVELOPMENTS OF THE DAY|
Another day, another attempt at a cease fire in the Israel-Hamas conflict. We’ll have to see if this one actually sticks, but there’s little room for optimism. In a bizarre turn of events, an Israeli civilian was run over and killed by a backhoe. The operator also rammed a bus, and was subsequently killed by police.
In other troubling Middle East news, ISIS rebels took over three more Iraqi towns in that country’s northern region. They may also be in control of the largest dam in Iraq, just another step in their stated goal of setting up an Islamic state across a stretch of territory in Iraq and Syria.
Portugal’s Banco Espirito Santo has collapsed, and just like we saw in the U.S. credit crisis, the bank’s sovereign government is coming to its rescue. The Bank of Portugal is bailing the firm out to the tune of $6.6 billion. It will split the firm into “good bank/bad bank” entities, which at least will result in shareholders and junior bondholders taking a bath. Depositors and senior creditors will be largely protected.
Is last week’s stock market stumble a flash in a pan? Or the sign of worse things to come? I’ve been sharing my insights here in Money and Markets, and this article from MarketWatch helps round out the debate.
Reminder: You can let me know what you think by putting your comments here.
Until next time,