Making Hay Monday – February 24th, 2025
Making Hay Monday
Six Per Cent
Fund Manager Survey (FMS) by BoA’s Michael Hartnett
BofA, sourced from The Felder Report
In one of our recent Haymaker Dailies, we ran a chart showing the literal mountain of cash held by Warren Buffett’s Berkshire Hathaway. This weekend’s edition of the Wall Street Journal carried a related article, with a similar chart, titled Buffet Is Hoarding Lots of Cash, Raising Eyebrows on Wall Street. However, per the above image, you can see that while eyebrows might be raised on Wall Street right now, cash levels most definitely are not. In fact, they are at a nadir seen prior to major market sell-offs. Similarly, they are a fraction of the levels at which prior big rallies have begun.
This spent cash almost certainly has been chasing momentum stocks that, improbably, even included Walmart, as we noted in our Daily from last Tuesday. Yet more oddly, right after we ran that warning on WMT, and a similar one on Palantir (PLTR ) in last week’s Making Hay (Almost) Monday, the momentum trade suddenly ran in reverse. (Please see our “On the Ropes” section below.)
Although high-momentum stocks have shown a repeated ability to sell-off hard and then rally to new peaks, this episode could be a tougher test. One factor behind a more lasting decline could be the growing awareness that Team DOGE means business. If so, the hyper-stimulative effect, to both the economy and corporate profits, of $2 trillion deficits may soon go missing. Another case of no pain, no gain.
Colquitt, Skillman
Last week serves as a reminder of how the macro forces that have been building over the past several quarters, including inflation, interest rates, and geopolitics, may finally be suggesting that an economic deceleration is upon us. In January, the U.S. composite PMI reading dropped sharply to its lowest level in nine months. This past week, the February reading dropped sharply again, this time to a 17-month low. Perhaps even more concerning is the fact that the services component of this number came in at 49.7, indicating a contraction in activity for the first time in two years. It’s a stunning reversal that’s taken just two months to go from strong to stagnant.
Other data points that hit just this week:
- The University of Michigan consumer sentiment reading was revised lower to its lowest level since November 2023.
- Existing home sales in the United States had their biggest single-month decline since June.
- And that doesn’t even include a Walmart earnings report that included a disappointing consumer outlook…
Roughly… | Image: Shutterstock
“The defining feature of any asset bubble is the extrapolation of the unsustainable.” -Jesse Felder
The [~] 6% Solution
Champs!
Few industries have endured a stress test as, well, stressful, as midstream energy did during Covid. The unparalleled collapse in demand for energy of all types, as Planet Earth’s brilliant leaders shut down the global economy, created an equally unprecedented share-price collapse for this sector. If you think that is an exaggeration, please check out this chart. To save you the calculation trouble, that cliff dive in the first four months of 2020 amounted to a 60% value vaporization, despite this sector’s utility-like nature.
Yahoo! Finance
This devastation occurred despite the fact that, in almost all cases, the companies themselves remained solidly profitable. As a refresher, the midstream industry is comprised of oil-and-gas pipeline operators, related storage facilities, and processing plants. The latter includes fractionating (i.e. splitting) natural gas into its various marketable components, such as ethane, propane, butane, and natural gasoline. It’s a steady (though unglamorous) business.
That steadiness, however, didn’t prevent companies like ONEOK (OKE) from experiencing a rather severe “correction”. At the start of 2020, as Covid was preparing to literally go viral, it was trading near $80. By the spring it was down to $12. Even as the S&P 500 rocketed to a new all-time high at the end of 2020 from the depths of its spring trough — despite no relief on the worldwide lockdown front — OKE remained at half of its apex at the start of the year…
Subscribe to Haymaker to unlock the rest.
Become a paying subscriber of Haymaker to get access to this post and other subscriber-only content.
A subscription gets you:
 | Subscriber-only posts and full archive |
| Post comments and join the community |
IMPORTANT DISCLOSURES
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
David Hay shall have no responsibility for: (i) determining that any opinion, forecast, projection, risk assumption, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinion, forecast, projection, risk assumption, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinion, forecast, projection, risk assumption, or commentary discussed herein to any particular reader’s investment objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that David Hay has an advisory agreement, oral or otherwise, with any reader.
David Hay serves on the Investment Committee in his capacity as Co-Chief Investment Officer of Evergreen Gavekal (“Evergreen”), registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Evergreen in no way implies a certain level of skill or expertise or that the SEC has endorsed the firm or David Hay. Investment decisions for Evergreen clients are made by the Evergreen Investment Committee. Please note that while David Hay co-manages the investment program on behalf of Evergreen clients, this publication is not affiliated with Evergreen and do not necessarily reflect the views of the Investment Committee. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
20250225
