Warren Buffett (Photo credit: Wikipedia)
Newsmax recently reported in “Billionaires Dumping Stocks, Economist Knows Why,” that, “despite the 6.5% stock market rally over the last three months, three billionaires are quietly dumping their American stocks . . . and fast.”
1. Warren Buffett, a perennial cheerleader for U.S. stocks, “recently complained of ‘disappointing performance’ in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods” and has therefore, drastically reduced his exposure to stocks that depend on consumer purchasing habits.
2. John Paulson made a fortune betting on the subprime mortgage meltdown and is now also clearing out of U.S. stocks. Last year, Paulson’s hedge fund dumped 14 million shares of JPMorgan Chase as well as its entire position in discount retailer Family Dollar and consumer goods maker Sara Lee.
3. George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. It’s widely believed that Soros converted much of the funds received for those financial stocks into physical gold.
I have to assume that these billionaires have access to information and evidence that is not available to me. They know things that I don’t know. They know things that I, at best, can only suspect.
For me, they’re like canaries in the coal mine. The coal mine may seem safe just now. But canaries can know things that I can’t yet know. So, when the canaries start flying out of the mine, I have to believe it’s time for me to follow suit.
The fact that the canaries are flying out of the mine doesn’t prove that the mine will soon cave, but it’s good evidence that staying in the mine may be hazardous to my health. Therefore, it’s not a bad idea to get clear.
• Newsmax suggests that these three billionaires may be aware of research that “points toward a massive market correction, as much as 90%.”
I don’t believe we’ll see a 90% collapse in the stock market anytime soon. If a 90% collapse was truly possible this year, that information could not be concealed. Even the general public would already hear or sense “diminished” warnings of 15% to 25% market declines. No such warnings are currently available.
Therefore, if our three “canaries” are right to suppose that there’s going to be a “significant” decline in the US stock markets in, say, the next six months, I’d bet that decline is 10% to 20%. If so, the impact of the decline may not be financially devastating so much as psychologically devastating. I.e., a 10% drop in the stock markets might be enough to quash any talk or hope that we’re on the verge of an economic recovery.
Could President Obama and the Federal Reserve explain a significant decline in the stock markets without admitting that the government’s economic policies for the past four years have been futile and ineffective?
If the markets fell significantly, could the American people retain any semblance of confidence in the government and/or our financial system?
If the markets fell significantly, would a resulting loss of public confidence precipitate subsequent and potentially greater declines?
Whatever Buffet, Paulson and Soros are up to, the fact that they seem to be moving in concert suggests that something big may be just around the corner.
Buckle up.
