Morning Note

Warren Buffett’s out of airline stocks, sits on a mound of cash, and the take away from his annual shareholders' meeting over the weekend is, well, the famous value investor has dumped an industry that’s off 50% from its peak, and he sits on a mound of cash. 

Clearly, he doesn’t believe the tide’s yet gone out:

“Only when the tide goes out do you see who’s swimming naked.”

Or that traders/investors are properly fearing present conditions:

“...to be a successful investor, I simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

The headlines swirling around this morning’s dip reference Buffett and a rekindling of trade fears with China.

I wonder if doesn’t have a little to do with the fact that literally every recession since the Great Depression pales in comparison to current conditions, and that stocks are still trading at historically-high valuations:

Our own macro index:


Total US Market Cap to GDP:


S&P 500 Price to Sales Ratio:


S&P 500 Price to “Estimated” Earnings Ratio:


The Dow, the S&P and the Russell 2000 are slightly in the red as I type, however the Nasdaq is nicely green, although Nasdaq volatility (VXN) remains elevated (i.e., implied volatility (risk) priced into options is rising a bit this morning).

Speaking of “(risk)”, I’ve been making much ado about short interest of late; suggesting that the strong rallies we’ve seen have been helped along by bearish traders having to run for cover (buying back their shorted shares). Well, in terms of the S&P 500, while there was no doubt a lot of covering going on during those rallies, they’re (futures traders in the aggregate) circling right back around and reestablishing those shorts.

Here’s the latest net positioning among futures speculators in S&P 500 contracts:


Have a great day!
Marty