There’s rarely much reason to get worried about cold, hard cash – that is, unless the hands holding it belong to legendary investor Warren Buffett. This is investment reporter David Berman filling in for Scott Barlow, and today we’re focusing on Mr. Buffett’s cash hoard, which has risen to a record US$334-billion. On Saturday, the investor addressed concerns that this is something to worry about. Also, we look at the prospects for gold as it nudges toward a record US$3,000 an ounce. And can all that national anthem booing at recent hockey games backfire on Canada?
Berkshire Hathaway Chairman Warren Buffett attends the Berkshire Hathaway Inc annual shareholders' meeting in Omaha, Nebraska, U.S., May 3, 2024.Scott Morgan/Reuters
Market positioning
What’s behind Warren Buffett’s mysterious appreciation for cash?
You can list all sorts of reasons to be wary of the stock market right now, from heady valuations to persistent inflation to uncertainty over trade. But one of the most persuasive reasons is Warren Buffett’s penchant for cash.
Sure, the legendary investor and chief executive officer of Berkshire Hathaway Inc. has embraced stocks as long-term investments, and he still has large stakes in Apple Inc., American Express Co. and Coca-Cola, to name just three key holdings.
But Mr. Buffett has also been hoarding an unusually large amount of cash, generated by share sales and earnings from Berkshire Hathaway’s 189 operating companies. If you include Treasury bills, the total exceeded a record US$334-billion in the fourth quarter of 2024.
This large amount of essentially idle money raises a couple of key questions. Is he planning a massive takeover? Or does he believe that cash is a better alternative to stocks right now?
Mr. Buffett’s much-anticipated annual letter to Berkshire Hathaway shareholders, released on Saturday, hinted at the answers.
For one, he still likes stocks.
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change,” Mr. Buffett wrote.
He added: “Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance.”
Nonetheless, Mr. Buffett also noted his attraction to short-term bonds, which bolstered Berkshire Hathaway’s investment income in 2024: “We were aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly liquid short-term securities,” he said in his letter.
But Mr. Buffett remained quiet about equity valuations, tariffs and political leadership – and his silence on these potentially pivotal issues is encouraging some observers to make conclusions of their own.
From Ed Yardeni, chief investment strategist at Yardeni Research: “Walmart’s selloff last week suggests that heady valuation multiples are vulnerable to fall if investors have second thoughts about their heady assumptions for corporate earnings. The Buffett Ratio, a measure of valuation, is in record-high territory. That’s probably all we need to explain why Buffett has been raising cash!”
In some ways, Mr. Buffett is on his own here because most investment managers aren’t following his cautious approach. According to Bank of America’s global fund manager survey for February, cash levels at mutual funds are sitting at just 3.5 per cent, on average. That is the lowest level since 2010 and implies terrific bullishness.
Small investors, though, may be paying more heed. According to the latest weekly sentiment survey from the American Association of Individual Investors, released on Feb. 19, just 29.2 per cent of respondents felt bullish about the S&P 500, down from 41 per cent at the end of January.
For now, Mr. Buffett’s cash – and questions over what he intends to do with it – endures.
Precious metals
Gold sure glitters. But will it hit $3,000 an ounce?
Gold has been approaching US$3,000 an ounce through much of February, which would mark a significant threshold for a commodity that has already soared nearly 40 per cent over the past year. Will gold get there?
It certainly wouldn’t take much, given that gold futures traded as high as US$2,974 an ounce during the day on Monday. A little more geopolitical tension, a stronger desire for safety in this crazy world or, better yet, maybe a rush on commemorative 4-Nations Face-Off hockey tournament gold coins – c’mon, Royal Canadian Mint – might be enough to push bullion over the goal line.
Some observers, though, are counting on inflation to drive the next stage of the rally.
“The prospect of tariffs on top of persistent inflation presents a legitimate short-term inflation risk. We recommend investors consider buying gold versus Treasury Inflation-Protected Securities (TIPS) to hedge their short-term purchasing power,” Jack Ablin, chief investment officer at Chicago-based Cresset Asset Management, said in a note last week.
He pointed out that U.S. inflation of 0.5 per cent in January exceeded economists’ estimates and marked the biggest one-month increase since August 2023. Now, officials with the Federal Reserve are rethinking their outlook on inflation, with potentially big implications for interest rates.
Gold offers investors a valuable hedge, according to Mr. Ablin. He looked at data going back to 1998 and found that gold – more than equities or TIPS – responds best to short-term inflation surprises.
Another approach is to focus on the shares of gold producers, which is a strategy favoured by Bhawana Chhabra, senior markets strategist at Rosenberg Research.
She argued earlier this month that the sector trades at just 12-times expected earnings, yet profits are expected to rise by an average of 38 per cent each year over the next three years.
“This makes gold miners one of the most underappreciated opportunities for equity investors. To little fanfare, these stocks rank in the top five of all sub-industries in the S&P 500 and the TSX Composite Index when it comes to expected earnings growth,” Ms. Chhabra said.
Singer Chantal Kreviazuk performs O Canada prior to the 4 Nations Face-Off championship hockey game, Thursday, Feb. 20, 2025, in Boston.Charles Krupa/The Associated Press
Diversions
The art of the boo
Many Canadians have been drawn to reports of home-crowd spectators booing the U.S. national anthem during the recent 4 Nations Face-Off hockey tournament. But how Canadians would respond if U.S. fans retaliated?
According to The Associated Press, American fans “lightly” booed O Canada during Thursday’s final in Boston between Team USA and Team Canada: “The Star-Spangled Banner followed, with the sellout TD Garden crowd at full volume in an anthem battle that became the undercard for one of the most anticipated hockey games in decades.”
This anthem booing thing began as a Canadian protest against U.S. President Donald Trump’s tariff threats and his numerous references to Canada becoming the 51st U.S. state. Booing let Americans know that Canadians were not pleased.
U.S. fan retaliation and their thunderous response to their own anthem suggests that Canadian booing might be counterproductive, though. You want Americans to push back against their President’s notion of absorbing Canada? Booing their national anthem might just push our friends away.
The essentials
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What’s up next
The Canadian bank earnings season begins this week, when Bank of Nova Scotia and Bank of Montreal kick things off on Tuesday morning. Expect insights into credit health and loan growth, with perhaps a few thoughts on tariffs.
Bank earnings will have to compete for attention with earnings from Nvidia Corp., due Wednesday after markets close.
A raft of U.S. economic data will arrive on Thursday, with fourth quarter gross domestic product and January durable goods orders and pending home sales offering insights into the strength of the economy.
Given the economic uncertainty facing Canada, economic activity in December might be a bit old to trigger any alarms. Still, the report on Canadian gross domestic product, out on Friday, is a must-watch indicator.
See our full economic and earnings calendar here (You can bookmark the page - it gets updated weekly)