This is on CNN, no less:
Stocks have had a stellar year so far. In fact, the rally has gotten so heated that some investors are making bets on a big crash.
Universa Investments, which spends hundreds of millions of dollars a year buying crash protection, has attracted a record amount of money into its fund this quarter.
“People are starting to recognize that these market moves are unnatural and distorted,” said Universa president and chief investment officer Mark Spitznagel, who declined to say how much is spent on crash protection, citing SEC rules.
Universa’s view that a crash is coming is not widely held, making crash protection cheap, he said. Universa buys this protection in the form of options that generate huge returns when the stock market falls by more than 20%. Universa’s adviser, economist and former derivative trader Nassim Taleb calls it ‘black swan’ hedging.
Billionaires Dumping Stocks, Economist Knows Why
Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.
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.
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