Warren Buffett's cash on hand is at an all-time high! Now is not the time to buy stocks.
Mr. Tetsu Emori's 2019/11/13 08:12 release of [Trading Strategy for November 13] states that at this stage, in preparation for the next move, now is not the time to buy stocks, particularly U.S. stocks, and also Japanese stocks.
The following are remarks from Mr. Tetsu Emori.
You should understand that Berkshire Hathaway, led by Warren Buffett, now has cash at a record high. He has judged that now is not the time to buy stocks. During the past tech bubble, investors passed on high-tech stocks, and when tech stocks surged later, critics said “Buffett's eyes had grown dull.” However, looking at the subsequent historic crash, it proved that Buffett's view at the time was correct. This time will likely be the same. If so, there is no reason to forcefully buy at today's high prices. Ultimately, stock prices are linked to corporate earnings. Is there a reason to buy overvalued stocks based on corporate earnings? For now, calmness is required.
Additionally, interest rates are rising. Investors who rushed to buy government bonds with negative yields in Germany and other countries did not intend to hold these bonds to maturity; they aimed to profit from price increases as yields fell further. They were investing to seek capital gains on bonds. But now these bond yields have begun to rise, and prices have started to fall. This leads to forced selling. That drives rates higher, causing further forced selling and pushing yields even higher.
In such spiral-like rate rises, many investors around the world will feel the pain. In the current bond market, bond investments of unprecedented scale are taking place. Many investors' portfolios will suffer. Judging that 'rising rates mean higher stocks' is likely to be a dangerous view in the medium to long term. From these developments, the bond bubble will burst, and investments in high-yield bonds will completely collapse. Many investors will be strained, and eventually they will also sell stocks. As these moves align, the collapse of risk asset investing will begin. I expect such moves within a year. However, until then, there is a good possibility of bubble-like movements.
That said, in the short term it is still overheated. Therefore, I will maintain the view that November will bring the year’s largest correction. This is something I have been saying since the start of the year. If the S&P 500 turns lower, there are supports at 3000, 2970, and 2940, so we will see whether these break. Then the 200-day moving average around 2900 will come into focus. If that breaks as well, a correction toward around 2750 in connection with the ISM Manufacturing PMI will come into view. If it falls this far, I would consider long positions for next year. This thinking remains unchanged.
Manufacturing PMI has started to turn upward. Also, China's OECD leading indicator for business cycle is already bottoming and in a recovery phase. These suggest the possibility of a rise in next year's stock prices. Therefore, this decline could become an excellent buying opportunity for next year. For now, we are waiting for that buying opportunity. We want to buy when prices are cheaper. From the movement of the S&P 500, next year it will rise. If possible, we should target 2,800 points or lower in the S&P 500. In past cases where rates were cut preemptively three times, stock prices have reliably risen. However, the average rise in the president's fourth year is about 5%. Next year, stock prices are likely to rise, but the rise is likely to stay below 10%, so it would be wise not to have high expectations.
Written by Hayakawa
