How I Know We’re in a Mega Melt-Up

February 21, 2025

How I Know We’re in a Mega Melt-Up

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

A mainstream media fear tactic you should understand…
Why Buffett’s cash hoard is a massive nothingburger…
Two “mega melt-up” signals you cannot ignore…
How you can profit on the way up and down…
Our can’t-miss event will share 20 trade ideas for free…

The financial media loves big, scary numbers…

If you’re a mainstream financial rag, big numbers are a great tool to drive fear… and clicks.

All you need to do is find a really, really big number – ideally a Biggest Ever™ number – and stick that number in your readers’ face and try to scare them with it.

The fear keeps them reading… and clicking… raking in the ad dollars for you.

We don’t operate that way here. In fact, we don’t even get paid when people simply view our ads, like most media does. We only get paid when people trust us enough to pay for our research.

So, understand this difference. Any effort of ours to get you to read is ultimately an effort to educate you and earn your trust.

And today’s a great opportunity to do just that…

Right now, there’s a big scary number going around: Warren Buffett’s cash hoard.

Berkshire Hathaway currently holds $325 billion in cash. You’re not gonna believe this but… It’s the Biggest Ever™ amount of cash Berkshire has held. (Disclosure, I own shares of BRK.B at time of writing.)

Why is one of the world’s smartest investors holding so much cash right now?

Does he think… maybe even know… The market is going to crash?

Should we raise cash too, and run for the hills?

No.

Funny enough, we should do the opposite.

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Here’s the data…

Scary headlines about Buffett’s cash hoard are errors at best, or deception at worst.

At the very least, they leave out a ton of context.

As we showed you back in January, big numbers mean a whole lot less today than they did just a short time ago. The Federal Reserve saw to that, with about 40% more money in the system today (going by M2) than there was in January 2020.

That fact alone tells you that Berkshire’s $325 billion today is roughly the same as $195 billion back then. Already, we’re seeing how context changes things.

But never mind that. The real story is Berkshire’s cash position isn’t all that large. It’s been even larger in the not-so-distant past.

And here’s the kicker…

The market didn’t crash all those times Berkshire’s cash hoard got even bigger than today. In fact, it always went much higher.

The chart below shows Berkshire Hathaway’s share price (purple), its quarterly position in cash and short-term investments (orange), and the ratio between that cash position and its market cap (blue, at bottom). I’ve also marked a few spikes in the ratio with vertical lines.

Notice anything?

I noticed some things:

Berkshire’s cash as % of total market cap has fluctuated between 12% and 40% for the past 15 years. Today, it’s at 32%: admittedly on the high end of this average range.
All the times Berkshire’s cash as % of total market cap raised to “abnormal” levels was a great time to buy stocks.

Look at 2005… and 2010… 2011 and 2012… and most of all June 2020, the last time we saw the cash ratio at this level.
The S&P 500 and BRK.A shares are pretty well correlated over the last 20 years. That should show you just how good these signals worked. Here’s a chart of that:

Now, you might look at that orange line showing how much Berkshire’s nominal level of cash has grown since 2022, more than tripling, and still be concerned.

But to do that would be ignoring the ratio. Berkshire Hathaway’s market cap has also grown by about 75% during this time. The cash pile has grown, but it’s grown along with Berkshire’s value.

Plus, Berkshire has very good, relatively new reasons for holding so much cash.

For one, if all that $325.21 billion is sitting in short-term Treasurys, it’s earning ballpark 4.3% a year. That’s just under $14 billion every year… or more than $1 billion per month.

In other words, for the past three years, Buffett has been taking advantage of short-term paper while its yield is at its highest since 2007. Wouldn’t you? Aren’t you?

And second, Berkshire happens to own a ton of insurance companies. Insurance companies are required to hold cash for insurance claims, or reinsurance in the case that other insurers go bust. After the natural disasters we’ve seen over the past couple years in Tampa, Asheville, Los Angeles, and elsewhere… It’s prudent for an insurer to hold an excess of cash.

Long story short, every headline you see warning about Buffett’s cash pile is a load of bunk.

There is nothing to see there. Stop worrying about it and stay invested.

Now that I’ve hopefully earned your trust…

Let me tell you about something we discovered in the TradeSmith Research Lab that blew my mind this week.

You might remember last week I showed you why I think we’re in a mid-‘90s-style market environment.

There’s plenty of parallels:

Breakthrough technology (then the internet, now AI)
Freer market access (then online brokerages, now zero-commission trading and apps)
Liquidity expansion amid moderating but sticky inflation
High and declining short-term rates
And one more factor I didn’t consider until recently: a government focused on cost-cutting and austerity.

It’s undeniable. We are living in a remarkably accurate mirror of the 1990s.

But what really got me excited was to see that our research team, led by TradeSmith CEO Keith Kaplan, independently came to the exact same conclusion.

According to Keith and our team, who used advanced quantitative metrics to compare price action to previous times in history, we’re in the midst of a “mega melt-up” the likes of which we haven’t seen since… the mid-‘90s.

And it’s only happened one time before then… the Roaring ‘20s from 100 years ago.

Funny enough, we have some parallels there too:

The breakthrough technology of the time, electrification, which revolutionized industry and greatly improved people’s lives…
The very first margin loans allowed investors to borrow to buy stocks, both contributing to the melt-up and playing a big role in the ensuing meltdown…
An explosion of consumer credit leading to borrowing that stimulated the U.S. economy

What does this mean?

It means by all accounts, the TradeSmith team is united in the thesis that the last two years’ above-average returns were no one-off anomaly. We could see it happen again this year. And maybe even for several years.

But the other side of this coin is that, eventually, there will be an epic meltdown that could take a huge chunk out of your returns… possibly reversing most if not all of the melt-up move altogether.

This is big…

This could well prove to be both the biggest wealth creation and destruction event for many, many years.

If you play it right, you could walk away at just the right time… escaping with massive gains before the big crash wipes most investors out.

Here’s how we’re preparing you for that.

When Keith discovered that we’re in a melt-up, he got to work developing a new indicator of when a melt-up has run its course and a meltdown is on the way.

In addition, he developed a strategy that isolates deep sell-offs in quality stocks, and then buys those stocks to trade the rebound for 21 trading days.

This works both in bull and bear markets… But it works especially well when the market sells off in quick fashion.

No matter when it’s working, it boasts a near 80% win rate and an average return, counting wins and losses, of just under 16%.

This is exactly the kind of thing you need for both a melt-up and a meltdown. During melt-ups, investors are desperate for reasons to sell… causing big one-off moves that – as long as the melt-up is on – are dips to buy.

And in meltdowns, big down moves spur equally big bear market rallies… as investors try to time the bottom.

All of this will be part of a free research demo airing next Thursday at 8 p.m. ET.

There, Keith will:

Demonstrate how he uncovered the mega melt-up signal.
Explain how he’s preparing our users to take advantage of it.
Give out the names of 10 stocks poised to thrive in the melt-up, and 10 stocks to steer clear of… completely free.
Release this new strategy to new and current members of our elite analysis suite, Trade360.

You cannot afford to miss this event. Whether you decide to join Trade360 or not, the information Keith will share at his Last Melt-Up event will make a substantial difference in how you play the markets over the next year.

Click right here to sign up and get the full details on Thursday…

To your health and wealth,

Michael Salvatore signature