Book More Profits, Buffett's Company Reports Worst Earnings Drop Since 2020, OPEC+ Surprise

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

Take More Partial Profits

Consider taking more partial profits on tactical positions that were started near the April lows. 

Market Environment

Please click here for an enlarged chart of Warren Buffett’s company Berkshire Hathaway Inc Class B BRK

Note the following:

• This article is about the big picture, not an individual stock.  The chart of BRK.B stock is being used to illustrate the point.
• The chart shows BRK.B spiked into zone 1 on enthusiastic buying leading up to the event this weekend.
• The chart shows BRK.B stock has pulled back after losses reported this weekend.  BRK.B stock is now back below zone 1.
• RSI on the chart shows BRK.B stock is no longer overbought in the short term.
• The chart shows that over a period of time Berkshire has had a strong run.
• BRK.B reported the worst earnings drop since 2020.   In Q1 2025, operating earnings came at $9.64B vs. $11.22B in Q1 2024.  This is a drop of 14.1%. These earnings equate to $4.47 per Class B share vs. $4.72 – $4.81 consensus and whisper numbers of $4.90 – $5.
  • The earnings decline was driven by a 48.6% drop in insurance profits.
  • Berkshire also reported a $713M foreign exchange loss.
• Warren Buffett is the most successful investor of our time.  Buffett provided his insights at the so-called Woodstock of Capitalism in Omaha, Nebraska over the weekend.  Here are the key points:
  • Berkshire's cash stake increased from $334B at the end of 2024 to $348B.
  • Berkshire has not repurchased BRK.B stock for three consecutive quarters.
  • Berkshire has been a net seller of stocks for ten consecutive quarters.
• In our analysis, Berkshire stock may be 15% overvalued based on the sum of the parts.  Conglomerates tend to trade at a 15% – 20% discount compared to the sum of the parts.  As such, in totality, Berkshire stock may be as much as 30% – 35% overvalued.  It is no wonder Buffett has not been buying any of his own stock. 
• Prudent investors should pay attention to the significant overvaluation in Berkshire stock.  This tells us that the environment is not ripe for starting large strategic positions with the exception of special situations.  At this time, it is best to focus on strategic positions until the overvaluation in the entire market corrects.  
• S&P 500 just finished a nine day continuous run.  This is a three-sigma event or about 1 in 370.  This bull run has excited stock market bulls.  However, prudent investors need to know that about 80% of the time, such a run has happened in near recessionary environments.  Most important is that such a run happened before the 1987 stock market crash in which the stock market fell about 20% in one day.  
• History tells us that the uber bullishness of the last nine days does not always work out well.  For this reason, our call is to take more partial profits on tactical positions started near the April lows.
• There is a report that the framework of multiple trade deals will be announced in the coming weeks and as early as this week.  The details are expected to be related to deals with India, Japan, and South Korea.
• ISM Services data was released at 10am ET.
• The FOMC meeting starts tomorrow.  The Fed will announce its rate decision on Wednesday at 2pm ET, followed by a press conference from Powell.

Australia

Australia's Labor Party is projected to win the election, returning Prime Minister Anthony Albanese to office.  Australia appears to be following Canada in a shift to the left in response to President Trump.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

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

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Oil

Over the weekend in a surprise, OPEC+ announced an output increase that was larger than expected for June.  Output from Saudi Arabia and Russia will be nearly tripling the originally planned volume.   

Bitcoin

Bitcoin is seeing selling on disappointment that bitcoin whales did not take advantage of low liquidity over the weekend to run bitcoin to $100K.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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 five 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 big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.