Buffett Sitting On Record Cash But Cannot Find Deals, Data Heavy Weak Ahead

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

Record Cash

Please click here for an enlarged version of the chart of Berkshire Hathaway Inc Class B (NYSE: BRK-B).

Note the following:

• This article 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Apple Inc AAPL, Meta Platforms Inc META, and Microsoft Corp MSFT.

In the early trade, money flows are negative in Alphabet Inc Class C GOOG.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

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

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

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

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

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.

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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.