Subject: Both Japanese & Korean equity markets at new h
X-Post from Berkshire Hathaway:

Both Japanese & Korean equity markets at new highs - as has the US S&P index. All of these are a fixture of an expectation of a Federal Reserve interest rate cut this week.

Berkshire Hathaway has benefitted (as have I personally) by acquiring significant in Japan's main trading companies (Itochu Corp, Marubeni Corp, Mitsui, Sumitomo and Mitsubishi)

On a parallel post on Shrewd'm:
"Berkshire Could See $3 Billion Hit to Interest Income If Fed Slashes Rates in Next Year."

This brings up a discussion I recently had with WendyBG about how to structure a balanced approach to insulating us from a substantial reduction in US equity prices. Of course what causes the US equity market to revert to the mean will matter, but at some point, revert it will.

Depending on our age, we both remember decades of "normal" financial conditions with %4-ish interest rates, stock P/E ratios of sub-10 being normal and recession/"equity crashes" every decade or so - but the banking system was rock-solid under Glass-Stiegel (though a credit union crisis did point to potential vulnerabilities). A gross-oversimplification, but just making a point.

Then inflation gripped the economy and banks/bonds paid substantial interest rates. Many got used to "making money" from the interest payments - ignoring the fact that inflation was higher than the interest rates and, adding insult to injury, you paid income taxes on the interest.

Volker brought this under control by the Fed increasing the cost of investor's ability to borrow money. Those whose strategy included buying long-bonds at the higher rates benefited for years afterwards (and, frankly created my kid's college fund).

I won't bore you with the ups and downs of the markets since then other than to state that we are now in unprecedented times which combine a lack of banking regulation not seen since the 1920's, stock valuations which are "frothy" to be polite and a Fed which is likely to become increasingly "accommodating" considering the likelihood that it will become politicized.

Many berate Buffet for holding a relatively huge cash hoard - partly created from unspent income and partly by the sale of appreciated equities. The truism that "nobody can time the market" is used to promote complete investment. While neither Buffet nor I can predict when, or even how, a major decline in the stock market (actually markets, as it has been demonstrated that the global markets are bound like Siamese twins to the US ones), we both, apparently, feel it is beneficial to hold an oversized powder keg in preparation for the inevitable decline from these lofty heights.

So, the question is not only what to hold to maximize portfolio value today, but possibly more imports, what will be most resilient by providing income (or equivalent benefit) as well as survivability. Choosing the best time to redeploy cached resources will have to wait for the point of maximum pain and fear.

So, the moral is not to lament that money's utility to make maximum profit today is a waste, but rather that it is a prudent policy at this point of time.

Within that context, what should a prudent equity portfolio look like today? Likely, it should have some growth stuff. I'm not smart enough to choose which AI play will be the chosen one, but have put more chips onto electrical infrastructure plays. I have no idea which manufacture will benefit, so I have invested in general miners (RIO, BHP, Vale, etc.) as stuff will have to be made from "something". Considering the current state of geopolitics, I have elected (actually for decades) to diversify beyond the US dollar and and currently have over half of my equity portfolio invested in foreign companies.

Most of my current bond portfolio is invested in TIPs as I believe the Fed will be forced politically to allow inflation to become rampant - as paying back US bonds with depreciated bucks will appeal to the same crowd as a lower USD.

There is no rest for the weary, despite my selling of a chunk of my portfolio (including half my Berkshire Hathaway), the rest has done well and the portion of liquid assets invested in equities is back to 36.5%. Well, as I continue the waiting game, it just means that the fall of Icarus will be from a more lofty position when the sun explodes.

Jeff