Buffett takes advantage of high interest rates | 10 November 2023

#SP500:

US margin position data for October showed a slight month-on-month decline in leverage of $7 billion to $680 billion, but free cash on margin accounts fell at a faster rate to a meagre $136 billion, leverage exceeds cash by 5 times - a record. In essence, the US market continues to operate at record levels of credit leverage, which is gradually "consuming" available funds. At the current level of margin debt and the high interest rate on that debt, if the market does not grow, free cash will continue to decline and any significant market decline will be exacerbated by margin calls.

Trading recommendation: sell 4397 and take profit 4200.

Berkshire:

Berkshire Hathaway's balance sheet stands at a record $157.2 billion. Warren Buffett openly admits that higher interest rates and the lack of major transactions are forcing him to reduce investments. The super-rich billionaire's money is invested in a fund of short-term government bonds, which allowed the conglomerate to post an operating profit of $10.76 billion. In simple terms, this is a specific increase in profits, thanks to the benefit of higher interest rates on cash flows and profits from its insurance business. The easy money allowed the company to buy back $1.1 billion worth of its own shares, bringing total proceeds for the first nine months of the year to around $7 billion.

Trading recommendation: buy 342.15 and take profit 349.41.

#WTI:

Oil prices rose after top exporters Saudi Arabia and Russia reaffirmed their commitment to extra voluntary oil supply cuts until the end of the year. Saudi Arabia confirmed it would continue with its additional voluntary cut of 1 million barrels per day in December to keep output around 9 million bpd, a ministry of energy source said. Russia also announced it would continue its additional voluntary cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December. The cuts could be extended into the first quarter of 2024 because of seasonally weaker oil demand at the start of every year, ongoing economic growth concerns and the aim of producers and OPEC+ to support the oil market’s stability and balance.

Trading recommendation: buy 78.15 and take profit 80.15.