Haven or dry powder, cash did fine in March, just ask Buffett

Berkshire Hathaway ended 2025 with about $373bn cash and CEO Warren Buffett said the firm bought $17bn of T-bills this week, keeping cash “somewhere north of $350bn” as short-term yields sit near ~3.6%. Commodities and energy have surged amid the Iran war shock (CRB core index ~+20% last month; oil and gas higher) while the dollar index rose ~3%, and gold and Treasuries failed to act as reliable hedges. S&P 500 full-year earnings growth has nudged to ~17% even as 12-month forward P/E fell >10%, prompting strategists to favor industrials, utilities, materials and energy over bonds or gold as defensive positioning.

Analysis

The market is treating cash as an asymmetric option: it delivers carry plus immediate buying power while traditional hedges (long-duration bonds, gold) have shown impaired crisis characteristics. That reduces the cost of waiting for idiosyncratic entry points into stressed cyclicals and strategic assets, particularly where supply shocks create durable scarcity rather than temporary dislocation. Expect this positioning to persist through episodic geopolitical flare-ups until a clear macro inflection (growth shock or Fed pivot) reintroduces price symmetry across asset classes.

Commodity and industrial exposures now benefit from two reinforcing forces: sustained procurement for defense and accelerated capex for AI hardware and power infrastructure. The combination steepens marginal utility curves for copper, nickel, specialty chemicals and energy midstream — meaning producers with flexible output can see margin expansion even if spot commodity moves moderate. This creates a shorter path to free cash flow upside than for broad energy majors, and an elevated idiosyncratic premium for firms with secure logistics and offtake agreements.

The correlation regime between equities and nominal bonds is no longer stable; it is regime-dependent on whether the shock feeds inflation or growth. A run toward recession or a quick Fed easing would flip correlations back and re-monetize long bonds as hedges within 1–3 quarters; conversely, prolonged supply-driven inflation keeps real yields and cash attractive and maintains bond-equity co-movement. Monitor high-frequency inflation surprise indices, shipping lead indicators, and central-bank forward guidance as the three earliest reversal signals.

On market structure, large, patient cash pools reduce near-term M&A urgency and amplify seller bargaining power for strategic assets, pushing private market valuations higher and compressing callable transaction flow to public buyers. That dynamic favors liquid exposure to industrials and materials while increasing dispersion within cyclicals — pick names with visible operating leverage and balance-sheet optionality rather than index beta.

Key Decisions for Investors

• Buy short-duration Treasury ETF BIL (or SHV) 20–40% of tactical cash allocation for 1–6 months to earn carry while retaining dry powder; reward: replace negative carry of cash alternatives, downside: purchasing power loss if inflation surprises materially higher (~loss capped to CPI delta).
• Long Freeport-McMoRan (FCX) 6–12 months — conviction trade on copper/industrial metals tightness. Position size 3–6% portfolio; target +35–50% if CRB-style reflation persists, downside -30% if global demand softens; use 25% stop or buy-on-dips to $X (set per desk).
• Pair trade: Long XLB (materials ETF) / Short SPY 3–9 months to capture commodity-led dispersion; expected excess return 6–12% if input scarcity continues, risk is broad risk-off where both legs fall — cap pair exposure to 4% net portfolio and rebalance weekly.
• Short long-duration Treasuries via TLT puts or inverse ETF TBT for 1–4 months as a hedge against renewed reflation from supply shocks; reward: 1.5–3x asymmetric payoff if yields reprice, risk: sharp dovish pivot causing TLT rally — size to 2–3% notional and hedge with time decay-aware options.
• Long select defense/automation names (e.g., LMT, LRCX) for 6–18 months to capture persistent procurement and AI-capex tailwinds; target 25–40% upside from order-book conversion, downside linked to budget/policy shifts — use staggered entries to manage catalyst risk.