Warren Buffett is stockpiling cash to the tune of $128 billion, and that is leaving some market watchers mystified as to why the great value investor is not all in.
The world’s central banks have got investor’s backs covered, it is quantitative easing to infinity in the era of global bubblenomics. Stocks keep making all-time highs and nobody cares. “The world has gone mad” with so much free money, said Ray Dalio a brilliant financial mind who needs no introduction.
“Warren Buffett is stockpiling cash to the tune of $128 billion”
Warren Buffett, the world’s most successful and famous value-focused investor isn’t an enthusiastic buyer in this brave new world of endless central bank liquidity.
Perhaps QE to infinity has reached the laws of diminishing returns, as warned by the BIS, the central bankers’ bank.
Warren Buffett is stockpiling cash despite September’s great rotation from momentum to value stocks and it probably has a lot to do with the Buffett Indicator
What is the Buffett Indicator?
It is the stock market capitalization to GDP ratio which is used to determine whether an overall market is undervalued or overvalued compared to a historical average.
The ratio can be used by an investor to focus on national markets or it can be applied to the global market, depending on what values are used in the calculation.
“Warren Buffett, the world’s most successful and famous value-focused investor isn’t an enthusiastic buyer in this brave new world of endless central bank liquidity”
It is calculated simply as a stock market cap divided by gross domestic product.
Warren Buffett once commented that the stock market capitalization to GDP ratio was “probably the best single measure of where valuations stand at any given moment”.
Ever since his comment, it has been referred to as the Buffett indicator.
The Buffett Indicator suggests that the Oracle is predicting a stock market crash, which also explains why Warren Buffett is stockpiling cash
Just before the dot-com bubble burst the so-called “Buffett indicator” came in at 146% and in 2007 before the financial crisis hit the figure was 135%. Right now that ratio sits just above 140%.
“VIX, Wall Street fear Greed index is at a 52 week low at 12.07, investors are greedy, there is no fear in these markets”
Buffett’s famed patience and an eye for a bargain are likely at play here; he often measures the health of the market by looking at its capitalization compared to GDP. Just before the dot-com bubble burst the so-called “Buffett indicator” came in at 146% and in 2007 before the financial crisis hit the figure was 135%. The US total market capitalization ratio sits just above 146%, as of November 07, 2019.
So the Buffett Indicator suggests irrational exuberance courtesy of the central bank’s QE to infinity policy. Moreover, the VIX, Wall Street fear Greed index is at a 52 week low at 12.07, investors are greedy, there is no fear in these markets. But that is when the great contrarian value investor gets scared when other people are greedy.
The great mystery isn’t why Warren Buffett is stockpiling cash but rather why so-called analysts are surprised that Warren Buffett is hoarding cash
The Oracle is waiting for the VIX to rocket, the market to crash and then he’ll put his stockpile of cash to use.
