What a week it will be!  

Berkshire Hathaway had their earnings report on Saturday and tomorrow we vote for President, Wednesday we have QCOM earnings and Thursday the Fed decides what to do with Interest Rates AFTER the Q3 Productivity Report – SO EXCITING!!! 

Also exciting, Berkshire’s Q3 Report came out on Saturday and I always consider it a very good proxy for the S&P 500 – with hand selected, curated cross-sections that meet up to Warren Buffett’s standards – it’s a great way to take the temperature of the broader market: 

Buffett’s moves over the past quarter: trimming stakes in Apple and Bank of America, halting share buybacks, and growing Berkshire’s cash reserves to over $325 billion signal , let’s say – caution. The reduced positions in Tech and Finance, paired with the HEFTY cash pile, suggest Buffett sees limited value in today’s market. This isn’t just about timing or small corrections; it’s a calculated CASH!!! hedge against what he perceives as a potentially overvalued “higher-for-longer” market environment.

In a market priced at roughly 30x earnings, both Buffett and I find slim pickings. While Berkshire is now flush with cash, we’ve both positioned our portfolios in a highly diversified, well-hedged stance, reflecting a similar wariness against these high market valuations. Berkshire’s caution echoes our PSW strategy: when good deals are scarce, hoard cash and wait.

Buffett’s cash stockpile isn’t idle; it’s both a defensive buffer and an offensive tool for seizing FUTURE opportunities. Berkshire has been enjoying solid returns on its cash and Treasuries in the current high-rate environment, generating $3.5 billion in income over the past quarter alone. With ample liquidity, Buffett is able to make swift moves in a market downturn or snag undervalued assets when others are scrambling – as our own Member Portfolios are also positioned to do (see our Oct 15th Reviews). 

We see this cash buildup as a hedge against market froth and, perhaps more provocatively, a hedge against potential fiscal instability. Buffett has long warned of rising taxes amid ballooning deficits, and his recent remarks underscore his concern about U.S. fiscal policies. We’re similarly hedging in areas like gold and commodities, preserving liquidity to pounce on true value plays if the market finally surrenders to gravity.

Buffett’s shift from active stock buybacks to cash accumulation marks a transition from his historically growth-focused stance to a “stay rich” mode. Additionally, Berkshire now fully owns Berkshire Hathaway Energy (BHE), a capital-intensive asset with steady cash flows that fits a more conservative, income-focused portfolio.

Like Buffett, we are not seeking aggressive growth for our Member Portfolios in this overpriced market. However, rather than simply “staying rich,” we’re strategically positioned to make the most of volatility and macro shifts. This includes defensive plays, where we derive income from short-term option sales (something Buffett rarely does) and even targets to accumulate stocks – if they ever do go back on sale.  

We look for companies with durable competitive advantages (moats) and strong management teams but also PATIENTLY wait for the right price before investing. When valuations are high build our cash reserves – providing liquidity so that we may capitalize on future opportunities when the markets do, inevitably correct. It’s a long-term outlook, focusing on the intrinsic value of businesses rather than short-term market fluctuations.

With Buffett’s succession on the horizon, there’s a speculative layer to Berkshire’s future. Investors are scrutinizing whether future leaders can sustain Buffett’s battle-tested balance of caution and opportunity. The focus on long-term stability over risky growth raises the question: Is Berkshire, with its cash-heavy strategy, a long-term fortress or simply a safe bet for today?

As we approach Election Day and await the Fed’s decision, Berkshire’s recent bearish maneuvers serve as a signal. Buffett’s caution hints at broader uncertainty, from the resilience of Consumer Demand to the durability of Corporate Profits in what is still a high-rate, Inflation-prone environment, right on the very eve of deciding who we choose to represent the American people in these critical times.

The election could shape fiscal policies affecting Taxation, Spending, and Business Regulation. High-Income and Capital Gains Tax Policies are being revisited, which could influence Corporate Earnings and Stock Valuations across all sectors and determine what kind of debt burden we will place on our children and future generations.

As to Fiscal Policy – should the Fed acknowledge softening Jobs Data or rising Global Risks or are they afraid to further panic investors? Buffett’s moves suggest he doesn’t seem to trust that rates will go down in the short term, possibly reading into the Fed’s “data dependency” as a signal that rates could remain elevated longer than the market anticipates.

In this environment, maintaining a diversified, hedged portfolio, grounded in both caution and opportunity-seeking seems like the sensible thing to do. With Buffett largely on the sidelines and our Members generally unconvinced to buy overpriced equities, we’re waiting for the value to re-emerge. As ever, the key isn’t just surviving in turbulent markets but positioning to thrive when prices finally make sense again!

There has only been one other time in market history when the CAPE Ratio has been higher than it is now and that was right before the Dot Com crash of 2000:

Both Buffett and PSW are positioning with long-term resilience in mind, hoarding cash, hedging risks, and waiting for genuine value to appear. With volatile waters ahead, our best moves may be the ones we don’t make – until the market’s exuberance finally gives way to a bit more value.

Now, let’s talk about facts like 70% of the S&P 500 have already reported and 75% of them have beat EPS estimates, which is actually normal as EPS estimates tend to be low-balled. Those earnings have come in 4.6% above estimates which is miles below the 8.4% expected but they make up for it by expecting 12.7% earnings growth next quarter so that, when those earnings are actually 6% (Christmas) – it will be OK as we’ll have forgotten the 12.7% promised in Q3 – same as it ever was…

Of course we could pick nits and take 3.3% inflation away from that 4.6% earnings growth and that would leave us with 1.3% actual growth but not, of course, if we were to consider that the Dollar – which Corporate Earnings and Stocks themselves are priced in – has fallen from 106.5 last November (113 the November before!) to 103.67 as of Friday’s close and that’s 2.6% so, in Constant Dollar Terms – Earnings are actually DOWN 1.3% from last year – propped up by Inflation and the Weak Dollar Policy that supports it!

We’ll see what the Fed has to say about that on Thursday but, meanwhile, let’s ignore the facts and look forward to voting for the companies that tell us the best lies – ‘Merica!!!

Fortunately, it’s a quiet week in the Data Department because enough is enough, right? Today we get Motor Vehicle Sales and Factory Orders but also the 3-Year Note Auction and 10-Year tomorrow – those are potentially dangerous if they don’t go well.  Tomorrow is ISM Services, Wednesday is PMI and the 30-year action and Thursday we get Productivity, small auctions and the FOMC Statement at 2pm and Powell’s comments at 2:30 AND we get Consumer Credit at 3 and Consumer Sentiment on Friday morning – certainly not nothing…

And now this: