Why Could Billionaires Be Dumping US Stocks

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• published: 21 May 2013
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http://www.moneynews.com/MKTNews/billionaires-dump-economist-stock/2012/08/29/id/450265?PROMO_CODE=110D8-1&utm;_source=taboola Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast. In the latest filing for Buffett's holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in "consumer product stocks" by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel. With 70% of the U.S. economy dependent on consumer spending, Buffett's apparent lack of faith in these companies' future prospects is worrisome. Unfortunately Buffett isn't alone. Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson's hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee. Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares. So why are these billionaires dumping their shares of U.S. companies? After all, the stock market is still in the midst of its historic rally. Real estate prices have finally leveled off, and for the first time in five years are actually rising in many locations. And the unemployment rate seems to have stabilized. It's very likely that these professional investors are aware of specific research that points toward a massive market correction, as much as 90%. One such person publishing this research is Robert Wiedemer, an esteemed economist and author of the New York Times best-selling book Aftershock. Editor's Note: Wiedemer Gives Proof for His Dire Predictions in This Shocking Interview. Before you dismiss the possibility of a 90% drop in the stock market as unrealistic, consider Wiedemer's credentials. In 2006, Wiedemer and a team of economists accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States. They published their research in the book America's Bubble Economy. The book quickly grabbed headlines for its accuracy in predicting what many thought would never happen, and quickly established Wiedemer as a trusted voice. A columnist at Dow Jones said the book was "one of those rare finds that not only predicted the subprime credit meltdown well in advance, it offered Main Street investors a winning strategy that helped avoid the forty percent losses that followed . . ." The chief investment strategist at Standard & Poor's said that Wiedemer's track record "demands our attention." And finally, the former CFO of Goldman Sachs said Wiedemer's "prescience in (his) first book lends credence to the new warnings. This book deserves our attention." In the interview for his latest blockbuster Aftershock, Wiedemer says the 90% drop in the stock market is "a worst-case scenario," and the host quickly challenged this claim. "Once you hit 10% inflation, 10-year Treasury bonds lose about half their value. And by 20%, any value is all but gone. Interest rates will increase dramatically at this point, and that will cause real estate values to collapse. And the stock market will collapse as a consequence of these other problems." And this is where Wiedemer explains why Buffett, Paulson, and Soros could be dumping U.S. stocks: "Companies will be spending more money on borrowing costs than business expansion costs. That means lower profit margins, lower dividends, and less hiring. Plus, more layoffs." No investors, let alone billionaires, will want to own stocks with falling profit margins and shrinking dividends. So if that's why Buffett, Paulson, and Soros are dumping stocks, they have decided to cash out early and leave Main Street investors holding the bag. But Main Street investors don't have to see their investment and retirement accounts decimated for the second time in five years.