Investor Warren Buffett's every move in the capital market is closely watched, and is even considered a barometer for the development prospects of a company and even the economic outlook of the United States.

In recent months, Buffett has significantly reduced his heavy position in Bank of America, sparking heated market discussions once again.

It is worth noting that after selling a large amount of Bank of America's stock for several consecutive months, Berkshire Hathaway, led by the "stock god" Buffett, has become increasingly cash-rich.

Isn't the U.S. economy and stock market thriving and advancing vigorously according to official data, the Federal Reserve, and major investment banks with dollar capital?

Why has the "stock god" Buffett, revered by global investors, started to play the cash-is-king strategy?

Time came to October, and Buffett's latest market operations became even more interesting:

According to a newly filed document with the SEC, Berkshire Hathaway sold Bank of America shares for three consecutive trading days on October 3, 4, and 7, 2024, totaling 9.571 million shares, and cashed out about $383 million. Bank of America is currently the third-largest position in Berkshire Hathaway's portfolio.

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According to statistics, this is the 14th round of transactions disclosed by the company since mid-July, and Buffett has cashed out more than $10 billion in total, seemingly clearing the position.

This trend is very interesting.

On the one hand, under the expected management of the Federal Reserve, the U.S. stock market continues to rise;On the other hand, looking at the performance of the sectors, the stocks of American banks are actually doing very well:

On October 11th, U.S. bank stocks rose collectively, with JPMorgan Chase increasing by 4.44%, Goldman Sachs by 2.52%, Citigroup by 3.59%, Morgan Stanley by 2.2%, Bank of America by 4.95%, and Wells Fargo by 5.59%.

At this time, Warren Buffett's continuous large-scale reduction of Bank of America seems to be going against the trend.

One can question Buffett's background and character, but for this old master who has stood at the peak of the global investment field for decades, there is no need to question his sensitivity and vision.

So, what does Buffett's latest reduction trend mean, and what signal does it send?

1

What exactly is the "stock god" Buffett's clearance sale of Bank of America?

Buffett's Berkshire Hathaway has been reducing its holdings in Bank of America for nearly three consecutive months since the second half of this year.

And this amplitude has reached a critical tipping point at the beginning of October:

After reducing its holdings by 11.678 million shares of Bank of America on three consecutive trading days from September 25th to 27th, Berkshire Hathaway has sold more than 9.5 million shares of Bank of America in the last three trading days.This is the 15th round of transactions in which Berkshire Hathaway has disclosed the sale of Bank of America shares since mid-July, cumulatively cashing out approximately $10.5 billion.

On October 11th, documents submitted by Berkshire Hathaway to regulatory authorities showed that from October 8th to 10th, the company continuously sold Bank of America shares, recouping $382 million.

Since Warren Buffett established a position in Bank of America in 2011, the stock price of Bank of America has cumulatively increased by 8 times. Despite frequent reductions in Bank of America shares by Buffett in the second half of this year, the stock price has not experienced a significant correction. The stock price of Bank of America still has a gain of 21.06% this year.

On July 17th, Berkshire Hathaway reduced its holdings in Bank of America for the first time in several years. Prior to this, Berkshire Hathaway held 1.033 billion shares of Bank of America, accounting for 13.08% of the company. Buffett's shares in Bank of America originated from his investment in 2011. In 2011, when the stock price of Bank of America was low, Buffett's Berkshire Hathaway invested $5 billion in Bank of America, obtaining preferred shares and warrants. A few years later, as Bank of America increased its dividend payout ratio, Buffett converted them into common shares. After several adjustments, Berkshire Hathaway gradually became the largest shareholder of Bank of America. Between 2020 and July of this year, Berkshire Hathaway has always held 1.033 billion shares of Bank of America, without reducing a single share during this period.

After three months of reduction, Berkshire Hathaway's latest holdings in Bank of America are only 775 million shares, and the holding ratio has been reduced to below 10%. Berkshire Hathaway may still be the largest shareholder of Bank of America.

According to SEC rules, reductions below 10% do not require rapid disclosure.

This means that in the future, the public can only see Buffett's holdings in Bank of America from the company's quarterly reports.

In simple terms, in the next three months, Buffett may be able to clear the shares of Bank of America in batches or all at once, completing the cash withdrawal and leaving the market without market attention.

In fact, in the past six months, Berkshire Hathaway has successively cleared the shares of several banks, including U.S. Bancorp, Wells Fargo, and BNY Mellon.

In fact, Bank of America is not the company with the most reductions by Buffett. As of the second quarter of this year, Berkshire Hathaway reduced its holdings in Apple by as much as 390 million shares, reducing its holdings from 789 million shares in the first quarter to about 400 million shares, a reduction of nearly 50%.A simple calculation shows that in the second quarter, Apple's stock price rose from $171 to $210 at the close on June 28 (the final disclosed quarter of share reduction). Based on the lowest stock price during the period of $164.075, the sale of Apple shares resulted in over $63 billion (approximately 450 billion yuan) in cash. If calculated at the highest stock price of $220, Berkshire Hathaway cashed out over $85 billion (approximately 600 billion yuan).

Buffett's substantial earnings from these two stocks are not enough to prove the stock god's operational level. Looking at the timing of reducing the two stocks, cashing out at the peak (although Apple's stock is almost back up now) truly compels admiration once again.

Buffett's attitude towards significantly reducing Bank of America is quite resolute, and the market generally believes that Buffett may clear out Bank of America this time.

In addition to Bank of America, Buffett has made significant adjustments to his investment portfolio in recent years.

In the second quarter of this year, Buffett withdrew from the U.S. technology sector and increased investment in energy, insurance, and the beauty sector.

Berkshire Hathaway significantly reduced its holdings in Apple from 789 million shares in the first quarter to about 390 million shares in the second quarter, a decrease of 50.57%.

Chevron, Berkshire's fifth-largest stock position, was also reduced.

At the same time, Berkshire Hathaway cleared out its positions in cloud computing company Snowflake and Paramount Global.

It is worth noting that Buffett has been net selling stocks for seven consecutive quarters, with the overall U.S. stock position shrinking. Berkshire Hathaway's cash reserves at the end of the second quarter continued to reach a new high, amounting to $276.9 billion.

Buffett's continuous adjustments to the investment portfolio have attracted market attention and recognition, and Berkshire Hathaway's stock price hit a historical high on September 4th.The latest data shows that Berkshire Hathaway's year-to-date increase still exceeds 25%.

Market operations are just a matter of this kind, but why is Buffett, who is titled as the "Stock God," playing the "cash is king" game in the current market situation where the market is booming?

2

Logical analysis: What kind of market understanding does this latest reduction action correspond to Buffett?

Why does Berkshire Hathaway need to make a large reduction now?

It's very realistic, the principle that the older one gets in the world, the smaller their courage becomes, also applies to the United States and Buffett.

Buffett, who has experienced countless storms and fluctuations, and even cycles, has only two reasons for his reduction behavior in the financial market:

Either, it is a timely exit guided by investment discipline, reducing and cashing out;

Or, it is the wiser Buffett who may have already smelled some risks that are about to come.

Combining the current economic reality of the United States and the operation of the Federal Reserve's monetary policy, the latter possibility is greater.An undeniable reality at present is that from the perspective of the Federal Reserve's expectations management and the interests of the United States as a nation, the upcoming interest rate cuts in U.S. monetary policy will not be as rapid or as significant. The Federal Reserve has even released the minutes of the September meeting to cool down market expectations for rate cuts.

However, no matter how the United States manipulates the market, it is certain that the U.S. currency has entered an interest rate reduction cycle. All the current tricks are merely short-term management of market expectations. Perhaps it is in response to the potential resurgence of inflation, or perhaps it is a blatant financial war.

Since uncertainty has emerged in the interest rate reduction cycle, the first to be impacted and affected could be the U.S. banking industry. After experiencing historically "higher and longer" interest rates, the U.S. economy may actually be facing significant risks.

The current prosperity is nothing more than the United States' attempt to continue fighting inflation by using frequently revised economic data to support their high-interest rate policies.

Unlike the majority, when the market is dominated by the narrative that "interest rate cuts are good for the stock market," Warren Buffett may see risks and crises instead: under the influence of multiple factors, the Federal Reserve's monetary policy may experience fluctuations and changes, at least in terms of pace. So, which will come first: the real risks to the banking industry or the returns from the stock market?

Clearly, Buffett has given his answer with his actions, which is safety first. After all, the real money is the cash in your pocket, while stocks are merely tools for wealth transfer and temporary carriers.

The logic is that simple. Of course, some may think that Buffett is just cashing out at a high point. If that's what you think, then the nearly centenarian Buffett may not be worthy of the globally recognized title of "Stock God."

Every year, there are "gambling gods" and speculative geniuses whose returns exceed Buffett's. However, in nearly 60 years of investment history, there has been only one Buffett.Trend Analysis: Through Buffett's reduction actions and the corresponding logic, what impacts will it bring to China?

Objectively speaking, whether Buffett's high-position cashing out is to lock in profits or to avoid risks, what is more important is actually the hint of domestic economic risks in the United States behind Buffett's action.

Whether the United States will experience a new round of financial crisis is not the most important thing. For China, what may trigger this crisis in the United States is the key.

That is the direction of the Federal Reserve's monetary policy in the future.

In the history of the United States, there has never been a soft landing for inflation. Wanting both, in the end, you may not get anything.

Once the interest rate reduction begins, both the decline of CPI and the recession of economic data are needed.

Without this concern, the United States' previous efforts to falsify economic data will definitely be unnecessary.

At that time, what will be presented to the market must be an economic recession.

Therefore, the current economic data provided by the United States, the discussion of true or false, and the detailed analysis have lost their significance. The core value of these data is to serve the expectation management of the Federal Reserve's monetary policy.After inflation subsides, what may lie ahead is an economic crisis.

The Federal Reserve is well aware of this, and so is Warren Buffett.

But the real inflation situation is such that not only other countries, even the American public themselves are unclear about it.

Buffett, who believes in cash being king, also has an information advantage and seems to have already sensed the smell of a financial crisis, hoarding cash in preparation for future bottom fishing.

Online, netizens have compiled the situation of the U.S. stock market after Buffett's five large-scale stock reductions:

The first time, in May 1969: Buffett dissolved his partnership enterprise that had lasted for 13 years, and in just one year after that, both the Dow Jones Industrial Average and the S&P 500 Index plummeted by 35%!

The second time, before the 1987 stock market crash: Buffett sold almost all of his stocks, and in less than two months after that, the S&P 500 Index plummeted by more than 33%, and the Dow Jones Industrial Average plummeted by more than 36%!

The third time, around 1999: Buffett publicly expressed a bearish view on U.S. technology and internet stocks, that is, the NASDAQ. From March 2000 to October 2002, in just two and a half years, the NASDAQ Index plummeted by 78%!

The fourth time, before the 2007 global financial crisis: In 2007, Buffett significantly reduced his U.S. stock positions, and from November 2007 to March 2009, both the NASDAQ and the S&P 500 plummeted by nearly 55%. After that, Buffett successfully bottom fished in the U.S. stock market and became the world's richest man for the first time in 2008.

The fifth time, which is now, he has massively sold Apple and Bank of America, and currently his cash position (cash + U.S. Treasury bonds) is as high as nearly 50%.From the perspective of historical experience, Buffett has never failed, and a storm of economic recession in the United States is approaching.

From China's point of view, whether it is a crisis in the U.S. economy or the Federal Reserve slowing down the pace of interest rate cuts, using expected management and embellishing data to guide global capital is not a good thing.

China, which highly relies on the U.S. dollar-based foreign trade system to achieve economic growth, has encountered invisible containment in the upcoming economic stimulus and policy promotion.