Billionaires Dumping Stocks- What Does It Mean For Your Portfolio?

Let’s face it. Markets are driven not by the small retail investor, but rather by the big fish-the large banks, financial institutions and people or groups with enough capital to make a dent. These larger market players often attempt to hide or mask their intentions, as retail investors will often try to catch a ride on their coattails. That being said, there have been some interesting developments as of late. Several big market players, guys with names like Warren Buffet and Berkshire Hathaway, John Paulson of Paulson & Company and George Soros have been quietly but decidedly dumping long equity positions.

This has been taking place as markets continued their rally to new all- time highs.  What do these billionaire investors know that the rest of us don’t?

It’s no secret that Warren Buffet has been bullish the stock market for some time. According to Moneynews, Mr. Buffet has been dumping large positions and doing so at an expedient pace. Mr. Buffet apparently cited poor performance in companies such as Kraft Foods, Johnson & Johnson and Procter &  Gamble.  Buffet’s holding company, Berkshire Hathaway, recently about 19 million (Yes, 19 million) shares of Johnson & Johnson. This was done in an effort to reduce the company’s exposure to consumer products.

John Paulson, of Paulson & Company, has also been busy. According to Moneynews, Mr. Paulson has recently dumped his entire stake in consumer goods maker Sarah Lee as well as discount retailer Family Dollar. In addition, Mr. Paulson sold a stake in U.S. Bank JP Morgan Chase.

According to Moneynews, George Soros has recently sold the majority of his bank stock holdings which included such companies as Citigroup, Goldman Sachs and JP Morgan Chase.

George_Soros_-_Festival_Economia_2012_01

So what’s the big deal?

These guys are investment titans-why do I care what they are selling? Well, you should. There are some alarming “patterns” emerging that could potentially spell trouble for the stock market-a lot of trouble.

First of all, these guys are selling large stakes in U.S. companies. If the U.S. economy is really on the mend, and things are getting better and better, then why are these guys cashing out? Secondly, there seems to be selling in consumer products companies. Now why, if the economy is driven by consumers, would these guys look to sell these stocks? If the economy is improving, why would consumer spending not increase? Needless to say, consumer spending is the primary driver of the U.S. economic engine, and if these players do not seem to have a lot of faith in this sector-what does that say? It is a cause for concern to say the least….

What could possibly be behind these expert investor’s attitudes towards stocks currently? Well, first of all, no one can see the future. Not Warren Buffet, not George Soros no one. And one also must consider the fact that yes-these guys could be totally wrong in their strategies or opinions. The selling of stocks does beg the question, however, of what are these guys thinking?

Well perhaps they are worried about a large scale correction in U.S. equities. This would not be too far-fetched after all. Stocks have been on a five year tear and have hardly looked back during that time. There have been a number of notable divergences recently that could potentially indicate a top in equities is near. Perhaps these investment professionals are seeing research or data that is making them cautious….

Enter Robert Weidemer. According to Weidemer, the stock market could undergo a correction of as much as 90 percent-you read that correctly, 90 percent.

But wait-who the heck is Robert Weidemer and what does he know?

Robert Weidemer is an economist as well as a New York Times bestselling author. His book Aftershock outlines how to try to protect yourself from the next financial crises.

Weidemer and a team of economists published a book titled America’s Bubble Economy back in 2006 in which they accurately forecast the collapse of the U.S. housing market, the sub-prime mortgage crises and the dire situation that American investors found themselves in as markets collapsed. Needless to say, this gave Mr. Weidemer a great deal of credibility. Now, when Weidemer speaks, industry experts listen.

In a recent interview for his new book Aftershock, Weidemer does state that a 90 percent drop is more of a worst case type of scenario. Weidemer then goes on to give his simple explanation of why this could occur. He believes that the Fed has set markets up for a fall by pumping tons of money into the system. The problem, he says, is that these funds have not yet made it into markets or the economy. His contention is that once these funds do start flowing through the system, it will create a surge of inflation. In fact, Weidemer calls it a mathematical certainty.

What’s so bad about some inflation you might ask?

Weidemer explains that with a 10 percent inflation rate, the ten year note loses about half of its value. At a 20 percent inflation rate, the note has no value. At this point, he explains, interest rates could rise dramatically and sink the housing market in the process. The housing market collapse will lead to another equity market collapse and other problems.

In his opinion, expert investors like Warren Buffet and George Soros may be dumping stocks because they see the writing on the wall. As inflation rates surge, companies and businesses have to spend more money on borrowing costs. This, in turn, will lead to decreased expansion, hiring and margins.

HIGHER RATES=LESS GROWTH

What if these guys are right, how can I protect myself?

Hopefully Weidemer’s scenario will not play out. Given his prior forecasting ability, however, we have to listen to what he has to say. The question then becomes, if I am worried about inflation or about another stock market collapse, what are some things I can do to try and insulate myself? While we do believe that investors should discuss these and other concerns with their financial advisors or professionals, there is an asset class that we believe could potentially stand to benefit during such a scenario. That asset class is precious metals. Gold, silver, platinum-Hard assets. Gold and precious metals have been a reliable store of value for thousands of years and we do not expect that to end anytime soon. Gold and silver may potentially allow one to hedge some of their inflation risk. In addition, precious metals may potentially increase in value as investors look for alternative asset classes to put capital to work in.

Will an allocation in precious metals solve all of my problems? No. It can, however, give one the potential to preserve their purchasing power as well as the potential for price appreciation.  As investors dump risk assets, that capital will have to flow somewhere. We believe that gold and silver could potentially see a lot of that investment capital under such circumstances. Finally, an allocation in gold or silver may help one stay more diversified. Diversification, we believe, is the key to long-term investing.

If you are worried about the potential for another financial crises or stock market crash, and are interested in learning more about allocating funds into precious metals, do not hesitate to contact an Advantage Gold specialist today at 800-341-8584. Our knowledgeable team will walk you through the process step by step, and show you just how easy it is to add hard assets like gold and silver  to your portfolio or IRA account.

 

 

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