Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.
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.
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%.
Before you dismiss the possibility of a 90% drop in the stock market as unrealistic, consider Wiedemer’s credentials.
As we noted earlier, the main reason for the surge in consumer “confidence” in September was the near record surge in sentiment for those making $15,000-$25,000, which soared from 43.5 to 62.4 in the month, the most since April 2009.
And whether this was due to their forecast of the future, and expectation that things will get much better, or not, we don’t know, what we do know is that half all of those people whose sentiment defined the market tone today, and who may be quite instrumental in the outcome of the upcoming election (per Mitt Romney), have less than $100 in cash savings.
Other findings: both males and females reported similar savings patterns; however, 55 percent of Americans with children under the age of 18 reported having less than $800 in emergency savings…
The Market Will Likely Continue To Decline As More People Are Realized That QE Doesn’t Necessarily Produce Growth
“Markets have started to turn,” said Andreas Utermann, global chief investment officer at Allianz Global Investors, which oversees $360 billion, in a television interview. “People are facing up to the reality of a macro economy that’s not good. We’ve seen QE3 and now we’re back to the real world. Monetary easing doesn’t necessarily produce growth.”
Federal Reserve Bank of Philadelphia President Charles Plosser said new bond buying announced by the Fed this month probably won’t boost growth or hiring and may jeopardize the central bank’s credibility.
“We are unlikely to see much benefit to growth or to employment from further asset purchases,” Plosser said in a speech today at the district bank in Philadelphia. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.”
The Federal Open Market Committee said Sept. 13 that it will undertake a third round of quantitative easing by purchasing mortgage-backed securities at a pace of $40 billion per month until labor markets “improve substantially.” Policy makers are using unconventional tools to attack a jobless rate stuck above 8 percent since February 2009.
Economic research indicates that additional asset purchases are “unlikely to reduce long-term interest rates by a significant amount” and that lowering rates “by a few more basis points” won’t spur growth and hiring, said Plosser, who doesn’t have a vote on policy this year. The U.S. economy is growing “at a moderate pace” and probably will expand by about 3 percent in 2013 and 2014, he said.
In a new report entitled Gold: Adjusting For Zero, Deutsche Bank analysts Daniel Brebner and Xiao Fu paint an incredibly dark picture of the bind the global economy is in right now.
Brebner and Xiao are pretty frank about how levered up the financial system is at the moment, and they warn that the next shock will be totally involuntary and unexpected.
Here is what the analysts have to say about how upside down the world is right now and the risks looming on the horizon:
We believe the balance of 2012 could remain challenging for investors, given the many negative indicators and warning signs. Certainly extremes in leverage in the Western economies and questions regarding growth in China present investors with a worrying post-2012 future. However, in our view there are nearly zero real choices available to global policy makers. The world needs growth and it is willing to go to extraordinary lengths to get it. This is creating distortions where old rules don’t seem to apply and where investors face a disturbing paradox:
- Those who are right are likely to be wrong
- Those who lose, often win
- Those who are imprudent can be rewarded
- Dumb money can win
Markets in Europe are way down.
England’s FTSE 100 is down 1.1%.
France’s CAC 40 is down 1.9%.
Germany’s DAX is down 1.5%.
Spain’s IBEX is down 2.4%.
Italy’s FTSE MIB is down 2.2%.
Spain took to the streets yesterday to protest austerity. Leaders are expected to soon unveil a new budget, which is likely to come with harsh cuts.