Has Warren Buffett Lost His Mojo?

1) BUFFETT – Some are thinking Warren Buffett has lost it. His Berkshire Hathaway is down -6.07% so far this year, against a market where the S&P 500 is up +8.2%. Yesterday I spoke of the “relative weakness” of the financials sector (XLF) versus the S&P 500. Berkshire is actually the biggest stock in the entire S&P Financials Index, so no wonder that sector is "relatively" weak. In fact, Berkshire carries a larger weighting in the Financials Index than Morgan Stanley, Goldman Sachs, and Bank of America combined. So when financials have been getting smoked relative to the S&P 500, Berkshire has been right there taking punches with them. Buffett raised record amounts of cash in the middle of this bull market while stocks kept ripping higher without him. But this is usually the part where things start getting interesting. Why am I pointing out one company? Because Berkshire is a large component of the Financials and when everybody suddenly agrees that Berkshire is washed up, it often means the damage is already done. But Berkshire isn’t just about financials…that just happens to be the sector they put it in. Berkshire is a giant basket of businesses with railroads, insurance companies, energy assets, and consumer brands. If Berkshire stops going down, which I think is probable, as people stop caring about the company, then the relative weakness of the Financials in general might just improve.

2) INFLATION – Current forecast for inflation ticked higher again this morning to +4.25% YoY for May. Rate cut expectations are gone and now, predictions of cuts have been replaced by belief fed funds are stuck on 3.75%. There’s a 180! Ok, so it is what it is…inflation is an issue. Best way to capture inflation is to own it – Commodities. We own PDBC for broad exposure, but investors could own just about any commodity these days – Copper being one of the best as it is up 12.15% over the last month. Just for reference here are some price increases over the last 5 years that are not great for consumers – new cars +20%, Groceries +26%, Health Ins +27%, Shelter +29%. And yet, the 'official government reported CPI over the last five years is just 24.7%. Ok…sure.

3) PROFITS – Rate of Change (RoC) is one of the most misunderstood items for retail investors. The number is important, but the growth or RoC from the previous quarter and previous year numbers are the key. In that regard, first-quarter profits at S&P 500 companies have surged 27% so far. The last time year-on-year earnings grew at that pace outside of recoveries from major shocks was over two decades ago, in 2004. The AI boom is real. Will it create a blow-off top? Probably. When?! When the signals show up, and now is not yet that time.