A Pulse Check
The latest from Washington... DOGE talk and Congress' action... The 'Trump bump' has fizzled... What else to watch... Warren Buffett's cash... An opportunity that won't last long...
It looked like an episode of The Apprentice...
President Donald Trump sat in a high-backed chair, a spotlight illuminating his head from above. His Cabinet members sat around a long conference table at the White House, talking to reporters as part of the body's first meeting.
And off to the side, in the second row, standing and wearing a black "Tech Support" T-shirt, was Tesla CEO and Department of Government Efficiency ("DOGE") leader Elon Musk. This scene today was straight out of a reality-TV set.
Of everyone in the room, Trump asked Musk to say a few words first, and he did – about what's needed to cut $1 trillion from the federal deficit. He also faced a few questions, like about his e-mail to all federal workers asking for a list of five things they did last week.
Musk said the goal was a "pulse check," a way of ensuring the workers were alive and that the government wasn't paying them erroneously. Fair point, though he didn't go so far as saying that intent could have been made clearer to those living folks who received the note.
Then came an awkward moment... when another reporter asked if the Cabinet secretaries in the room agreed with how Musk was going about things. Eventually, to "take Elon off the spot," Trump said, he steered the discussion toward this message...
I think everybody's on board... We want to balance a budget. We want to have a balanced budget within a reasonably short period of time, meaning maybe by next year or the year after.
We shall see. At the same time, Congress is on a path to pass a new government-funding bill that, yes, includes a plan for up to $2 trillion in spending cuts but also $4.5 trillion in tax cuts that will raise the "debt ceiling" by about $4 trillion.
More debt is in the plan...
Last night, Republicans in the House of Representatives passed a new budget plan, nearly unanimously (though with all Democrats opposed). One Republican – Kentucky's Thomas Massie – voted against it, and he explained why to a small group of reporters...
If the Republican plan passes... we're going to add $328 billion to the deficit this year, we're going to add $295 billion to the deficit the year after that, and $242 billion to the deficit after that, under the rosiest of assumptions. Why would I vote for that?...
These [numbers] are not something I made up. This is the leadership's talking points... The only way they get to this magic thing where it's not going to kill our country is five years from now, they imagine that 2.5% [economic] growth accumulates.
So he's not a believer... And he also questioned a proposed cap on discretionary spending in the projections.
"You think we're going to cap discretionary spending and then spend at the rate of inflation after that?" Massie said. "That has never happened."
The 'Trump bump' has fizzled out...
The benchmark S&P 500 Index gained about 6% from Election Day through January 23, a few days after Inauguration Day. After that, it mostly traded sideways, then fell 3% in the past week.
At first, the markets loved the idea of a pro-business administration. But the threat of tariffs continues contributing to uncertainty and volatility... along with questions, as always, about the path of the economy, inflation, and the Federal Reserve's next moves.
Today, Trump made a new tariff headline that looked to me (Corey McLaughlin) like the catalyst for trouble in U.S. stocks.
He told reporters at the Cabinet meeting that he would very soon be announcing tariffs on the European Union... then basically announced it... talking about 25% tariffs on products that include auto imports. And, again, he said that tariffs on Mexico and Canada could still happen on April 2.
The major U.S. stock indexes fell from intraday highs after those comments. The S&P 500 was up nearly 1% at that point, turned negative, then finished the day slightly higher. The volatile times continue... and could go on this week.
What else to watch...
I am watching the latest earnings from Nvidia (NVDA) after today's close as another potential market-moving event. Others include another fourth-quarter GDP estimate tomorrow and a look at the Fed's preferred inflation gauge on Friday.
Incidentally, our friend and colleague, Greg Diamond, editor of Ten Stock Trader, is watching these events, too... Greg went live earlier today with another free episode of Diamond's Edge. Greg discussed the technical setups he's looking at right now, took viewer questions, and more.
Elsewhere, here's more from Warren Buffett...
Or, specifically, more from Stansberry's Investment Advisory lead editor Whitney Tilson on Buffett and his annual Berkshire Hathaway (BRK-B) shareholder letter, which we wrote about in Monday's edition.
Yesterday, Whitney shared the second part of his analysis, focusing on Berkshire's most recent performance that was disclosed as part of Buffett's annual report. Whitney discussed Buffett raising a massive "cash pile," which we wrote some about on Monday as well.
Here's Whitney's take...
This chart from the Wall Street Journal shows cash as a percentage of assets going back to 1998 through last year's third quarter (it rose slightly to 28.9% in the fourth quarter):
It's worth pondering why Buffett, the most talented capital allocator ever, is letting cash pile up like this.
I think it's simply by default. Sixteen years into a bull market, the valuations of both stocks and private businesses Buffett might buy are high by historical standards – and what Buffett likes to pay for things. And Berkshire is now earning a satisfactory rate on its cash, so Buffett is sitting tight.
As we wrote on Monday, the last times Berkshire had such a high percentage of its assets in cash were the lead-up to the great financial crisis and, before that, the dot-com bust. That's important context, but as Whitney says, this time...
I don't think it's a big market call. Buffett certainly hasn't given indications that he thinks the market is in a bubble that's about to pop – which he did during the Internet and housing bubbles.
We won't say Berkshire having a record amount of cash on hand guarantees a major sell-off to follow, but it's something to keep in mind. Buffett has rarely seen fewer buying opportunities based on today's valuations of stocks and private businesses.
As we wrote yesterday, we've had two straight years of 20%-plus gains in the S&P 500... So now it's time to be deliberate about putting new money to work. Sometimes, when everything seems to be going up, such caution isn't rewarded. That's not the case today.
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New 52-week highs (as of 2/25/25): AbbVie (ABBV), Abbott Laboratories (ABT), Automatic Data Processing (ADP), Alpha Architect 1-3 Month Box Fund (BOXX), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), CME Group (CME), Gilead Sciences (GILD), Intercontinental Exchange (ICE), Paychex (PAYX), Roper Technologies (ROP), Republic Services (RSG), Starbucks (SBUX), UGI (UGI), Verisk Analytics (VRSK), and VeriSign (VRSN).
In today's mailbag, more feedback on Buffett's "case for capitalism" and responses to yesterday's mailbag... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"The U.S. hasn't been a capitalist country since the 1890-1920 period. It has been a triple play with entrepreneurs on one side and workers/unions on the other with the government in the middle supposedly moderating things. Unfortunately, capitalistic money has been able to buy politicians and has been more successful in getting concessions, so we have moved back toward being a capitalistic country with the Marxist problems emerging. Clearly a reset is in order, but there is no one to make a compelling case for one. So on with chaos..." – Subscriber Chris A.
All the best,
Corey McLaughlin with Nick Koziol
Baltimore, Maryland
February 26, 2025