Warren Buffett Gives Dire Warning (Uncut) 02-27-2025

Warren Buffett is giving a dire warning about the U.S. economy and the stock market, not necessarily through his words, but more so his actions. His cash position as a percentage of his portfolio is currently at its highest level since the GFC. Warren Buffett, who’s sitting on a record cash pile at over $325 billion.

It’s the largest cash pile that any company, any public company in history has ever had. I’m going to explain why he’s selling so many shares and building this huge cash position in three simple, fast steps. Step number one, let’s go over the elephant in the room, stock market valuations.

You guys know the stock market is in a bubble at nosebleed levels. Now, that doesn’t mean that it can’t go higher, but what you have to do is determine if it’s cheap or if it’s expensive. That’s what Warren Buffett’s doing, and I can assure you he is looking at all of his indicators and they are flashing red, meaning that it’s not just expensive, it is wildly overpriced.

So let’s look at Buffett’s favorite indicator. That would be the Buffett indicator. It’s basically the Wilshire 5000 versus the GDP of the United States.

And we go back to 2005 to today’s date on the left, we go from 0% up to 200%. So we start 2005, let’s call it 75%. So what this means is the combined market cap of the Wilshire 5000 is 75% of the United States GDP.

Okay, got it. And as you would imagine, this plummets during the GFC, it goes down to about 50%. And we go up, up, up, up, up, we get to the Cervasus sickness, you guys know what happens.

And then after the Cervasus sickness, with stimmy madness, it goes straight up to almost 200 or right around the 200% level. So think about that. The total market cap of the Wilshire 5000 is 200% of GDP.

When back right after the GFC, we’re at 50%. So if you ever had any doubt as to whether or not this stock market was overpriced, I give you this chart, but it gets better. Then the Fed started increasing interest rates, it goes straight down to we’ll call it 150%.

And then it rips higher and higher and higher to a point where we are today, where it’s above the levels of stimmy madness. And editor, go ahead and throw up a chart of the Buffett indicator going back to the 1980s to give the viewers some context to see where these levels usually are. And I think the average is right around 75 pretty much where we were in 2005.

So your view could be the stock market is going higher, that’s totally fine. But you have to admit that the stock market is not just overpriced, it is wildly overpriced, and definitely in a bubble. And this is most likely one of the main reasons why Warren Buffett is selling so many shares.

But it’s not just the Buffett indicator, look at the CAPE ratio. So the cyclically adjusted price to earnings ratio. This is from Robert Shiller, I believe.

And right now, it’s about 38. To give you some historic context, usually the average is about 17. So again, it’s telling you the exact same thing as this chart.

But like I said at the beginning of the video, it’s not about what Warren Buffett is saying. It’s about his actions, and also what he isn’t saying. So we know that his cash position right now is a percentage of his portfolio, right around 30%.

Now going into the GFC, which he nailed, it was right around 25%. So this tells you that he is more fearful now than he was prior to the global financial crisis. So then you have to look at what he’s actually selling.

And it’s mostly Apple and Bank of America. So Apple would be the consumer, Bank of America would be the overall domestic economy. Again, more on that in step number two.

But then he just came out with his investor letter, which people were hoping he would shed some light and give some details as to why he is accruing this massive pile of cash. And if he’s truly worried about things, or if it’s just valuations, or it’s the underlying economy, the global economy, what is going on here, Mr. Buffett? But in this letter, he didn’t say. In fact, in this letter, he said that he would much prefer to be in equities than in cash.

Well, at the same time, he’s building this huge cash position. So let’s go ahead and think this through. If Warren Buffett is saying that he would much prefer to be over here in equities than in cash.

But you look at what he’s doing. And he’s going more and more and more and more into cash. That tells you everything you need to know about what he thinks about the U.S. economy and the U.S. stock market moving forward into 2025 and possibly into 2026.

But wait, there is more. You see, Warren Buffett isn’t just building this huge cash position because he is defensive. You have to also ask, well, what is he doing with that cash? Because it’s not in a checking account, let’s say in Wells Fargo or Bank of America.

It’s actually sitting in U.S. treasuries. And why is this important? Because I’d like to highlight for the viewers that just today, the 10-year treasury went under the federal funds rate once again. So that means that the yield curve has inverted again.

I mean, this is crazy, almost unprecedented stuff. So I’m not saying that Warren Buffett is out there buying the long end of the curve. Obviously, he’s buying short-term T-bills.

But a lot of investors are buying the long end of the curve. Why? Because growth and inflation expectations are coming down because they see exactly what Warren Buffett sees. Step number two.

Now let’s go into some of the economic reasons why Warren Buffett could be selling so many shares. First and foremost, let’s just look at the recent news. Just yesterday, Starbucks comes out and says that they’re laying off 1,100 corporate workers as sales sag.

That’s not a good sign from the consumer. And we’re also seeing some huge corporate bankruptcies just in the last week. Let’s go to Zero Hedge, and we can see Joanne, which I always thought was Joanne Etc.

But I think they may have just changed their name. Joanne to close all 800 stores after second bankruptcy in 12 months. Now, most of you have seen these stores.

They’ve got one shown right here in the Zero Hedge article. So the point here is it’s not just about this huge corporate bankruptcy closing 800 stores. There’s also a chain reaction.

There’s knock-on effects that we have to think through that could ripple through the entire economy. But it’s not just Joanne Etc. and these fabric stores.

It’s also places like Walmart. Now they’re not going bust, I can assure you. But they came out and gave a warning about their revenue for the rest of 2025.

And it’s also companies like McDonald’s saying that the American consumer is just simply tapped out. There is no more purchasing power. So if aggregate demand goes down, then what you would likely see is an economic contraction.

And if we see an economic contraction, what does that mean for jobs? Well, then a lot of these places like Joanne Etc. are going to be laying off, or in this case firing, all of their workers. So when you have Starbucks firing workers, you have all these other corporations firing workers.

Because the economy isn’t as good as people thought, then it makes the economy even worse. Because those people’s purchasing power goes away for the most part. And that reduces aggregate demand even further.

But I want to be very clear. It’s not just George Gammon saying this, or Warren Buffett with his actions. It’s also what we were talking about in step number one.

What we are seeing play out as we speak in Let’s go right over to the 10-year treasury yield that today has gone below the Fed funds rate. So the curve, the yield curve as they call it, is now inverted once again. There’s only one reason why these huge sophisticated investors buy the long end of the yield curve, the 10-year treasury.

It’s because they see growth in inflation expectations collapsing. In other words, for the layman watching this video, they see the potential, the probability for a recession increasing dramatically. Step number three.

So let’s assume for a moment you think Warren Buffett’s warning, along with the yield curve’s warning, is actually correct. The difficulty is how do you time this stuff? How do you know when the United States is going into a recession? And how do you know, more importantly, when it’ll actually matter to the stock market? Let’s start by looking at a chart from today’s date going back to 2016. On the left we go from 2% up to 11%.

This is corporate credit spreads. Now there’s a lot of these charts. There’s a lot of different corporate credit spreads.

This one in particular is from the Fred website, and it’s the B of A U.S. high yield index. And we’re just using this as a proxy for overall corporate credit spreads. Now back in 2016, it shot up to 9% and comes back down.

2019, it shot up as well. Then obviously during the Cervasus sickness, it moons up to almost 11%. But notice where we are today.

We are at all-time lows going all the way back to, you guessed it, the GFC. So what these credit spreads are telling us is the difference or the delta between the yield on a specific corporate bond versus the same maturity U.S. Treasury. So when risk explodes or perceived risk explodes, then the probability of corporations going bust goes up as well, and therefore people are willing to pay a lot less for those bonds.

There’s an inverse relationship between the price and the interest rate. So as you would expect, interest rates skyrocket. Or said another way, the interest rate on the corporate bond skyrockets while the U.S. Treasury with the same maturity stays the same, if not goes down.

I know a lot of you right about now are saying, okay, George, what’s great news? Because the credit spreads are almost historically low, and maybe you’ve got to go back to when the last time we saw it at, let’s say, 2.7. That was just prior to the GFC. So it’s like the unemployment rate. Usually it’s at an all-time low before you get that recession, and it skyrockets higher.

So my point is when we’re trying to determine if the stuff is hitting the fan, we have to pay very close attention to when these spreads really start to blow out. In other words, they really start to increase. And as you can see, it hasn’t happened yet.

So my point is we’ve got to watch this like a hawk. Because if you see this doing something like this, along with all the other data, then you know the probability is very high that the stuff has hit the fan. And I want to emphasize, you have to look at this along with all the other data.

Because we see at times like 2016, 2019, when you saw this big spike up, but the rest of the data didn’t correspond with what we were seeing in the corporate credit market. And therefore, it was basically a nothing burger. The next thing to pay very close attention to is something I talk about a lot on my videos.

That is the narrative. Now, obviously, over the last few years, the stock market hasn’t traded based on the fundamentals of the underlying economy. In fact, there’s almost an inverse relationship.

But that might not last forever. The way we say this is bad news is good news. So when we have bad economic data, well, the market sees that as an increased probability that the Fed will drop rates.

And therefore, that adds a tailwind to the stock market and buy, buy, buy, buy, buy. But what we’ve seen in past cycles is there’s a shift in the narrative where bad news goes from being good news back to bad news. And when that line in the sand is crossed, you see the opposite happen.

The market, instead of saying, oh, boy, this is fantastic, because it means the Fed’s going to drop interest rates. The market says, holy cow, this is even worse than we thought because the economic data is getting so bad that we’re most likely headed for a recession. So how do you determine when you have that narrative shift? Well, I think what we have to do is look at the consumer sentiment first and foremost.

And the Michigan survey just came out last week and it absolutely plunged. In fact, it was down almost 10% just from the prior month. And when you look at what consumers are saying about current economic conditions, it’s even worse, down 12.5% just from the prior month.

And when you look at what consumer expectations are, it isn’t much better, down 8% month over month. But unfortunately, it’s not just the Michigan survey, it’s also the conference board survey, which just came out. Editor, go ahead and cut to the press release and we can see this shocking headline.

Pessimism about the future has returned. But now let’s look more specifically about what consumer expectations are or how they’ve changed. The expectations index based on consumers’ short-term outlook for income, business, and labor market conditions dropped 9.3 points to 72.9. For the first time since June, 2024, the expectations index was below the threshold of 80.

That usually signals a recession ahead. So the bottom line is according to the average Joe and Jane, the stuff is already hitting the fan in the real economy. So then the question becomes, when will it matter to the stock market? When will bad news become bad news again? Well, we’ve seen this start to play out in the S&P 500 and especially in the NASDAQ over the last week, where when the Michigan survey came out, the market went down.

And then when Walmart came out and said they’re not looking optimistic about 2025, like we said in step number two, the stock market went down. And that was very odd because it increased the probability the Fed drops rates, and therefore you would expect the stock market to go up, but it did the exact opposite. So maybe, just maybe, what this was telling us is that line in the sand has been crossed.

The narrative has changed. I’m not saying it has, but I’m saying maybe. And this is something we’ve got to pay attention to.

Why? Because in past cycles, this can lead to a doom loop. Let me show you what I’m referring to. We’ve got the average Joe right here, and as you can see, he is pretty gloomy about the economy.

He’s seeing that it’s harder to get a job, it’s harder to put food on the table, put a roof over his head, and he’s seeing the same thing with his friends and family members. So his expectations are going down. Well, a lot of times when this happens, the economic data starts to go down as well.

Let’s think about it. Consumption is 70% of the economy. So if Joe and all of his friends are seeing storm clouds coming, they’re going to spend less, and this could often lead to an economic contraction.

So the expectations, consumer expectations go down. The data, the economic data starts to soften. Then we see this narrative really start to shift, which makes the stock market go down even further.

This is a big, big problem. Why? Because the U.S. economy is completely and totally dependent upon asset prices like the stock market. So the stock market going down leads to the economic data becoming worse, which takes us right back to the narrative becoming worse.

Stock market goes down even more. Joe sees his 401k go from, let’s say, 100 down to 50, takes a huge haircut there, and he spends even less, which makes the data get worse, and you go right back into this doom loop. So can we conclude that the stock market is going to crash and we’re going into a recession? Absolutely not.

We have no idea what the stock market is going to do. The only thing we know for certain is that it’s wildly overpriced, just like we talked about in step number one. But it’s been wildly overpriced for the past three years.

It keeps just going up and up and up. So the only thing that we can do is look at this dire warning that Warren Buffett is giving us and combine that with all the other signals we’re getting and then come to a conclusion as to what the probabilities are that the economy is starting to contract and the narrative is starting to shift, which means there’s a higher probability the stock market continues to go down. So the visual I want to give you is we’ve got this big dam, and the dam is starting to get a lot of cracks.

Now, that doesn’t mean that the dam bursts, but what we have to do is we have to notice those cracks, and then we have to include them in our analysis. At the end of the day, there are no certainties. There are only, well, you guys know exactly what I’m going to say.

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