Stock Market Sell OffThree of the richest men in the world, billionaires Warren Buffet, George Soros, and John Paulson, are selling off millions of shares in U.S. companies at an alarming rate. This might be surprising for the average Main Street investor since recent reports state that the housing crisis is leveling off, unemployment rate is declining, and stocks are displaying a 6.5% market rally over the last three months. Why then are billionaires quietly dumping American stocks so quickly?

Buffet recently complained about the “disappointing performance” of American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods. His holding company Berkshire Hathaway sold approximately 19 million shares of Johnson & Johnson and reduces his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold all its shares of computer parts supplier Intel. In addition, Paulson’s hedge fund Paulson & Co. sold off 14 million shares of JPMorgan Chase and dumped its entire stake in discount retailer Family Dollar and consumer-goods manufacturer Sara Lee. Ultimately, Soros sold almost all of his bank stocks, including JPMorgan Chase, Citigroup, and Goldman Sachs. In total, Soros dumped more than a million shares.

The fact that billionaires like Buffet, Paulson, and Soros are losing their faith in large American consumer-oriented corporations is particularly disconcerting considering that 70% of the U.S. economy depends on consumer spending. Billionaire investors are usually “in the know” and can often predict imminent market developments before anyone else. It is very likely that these professional investors are aware of specific research indicating massive market correction in the near future. In fact, some esteemed economists even anticipate a daunting 90% drop in the stock market.

One of them is Robert Wiedemer, author of New York Times bestseller Aftershock. He and a team of economists already predicted the 2008 fallout in 2006. Their research, published in the book America’s Bubble Economy, foreboded the collapse of the U.S. housing market, equity markets, and consumer spending. Wiedemer’s research garnered a lot of attention from economics journalists and investment strategists to business magnates and individual investors. Since his predictions have been incredibly accurate in the past, Wiedemer’s latest book Aftershock, in which he details all the trigger points of a major impending catastrophe, certainly demands attention.

In a recent interview, Wiedemer explained why a 90% drop is a virtual certainty. First, he laid out how the Federal Reserve prints massive amounts of money out of thin air in order to stimulate the economy. However, he pointed out that “these funds haven’t made it into the markets and the economy yet. But it is a mathematical certainty that once the dam breaks, and this money passes through the reserves and hits the markets, inflation will surge.” He further explained that “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.”

According to Wiedemer, billionaires like Buffett, Paulson, and Soros could be dumping U.S. stocks because companies will be spending more money on interest than business expansion costs. He stated that “that means lower profit margins, lower margins, lower dividends, and less hiring. Plus, more layoffs.” No investors, especially professional billionaire investors, want to own stocks with falling profit margins and shrinking dividends. Thus, investors like Buffett & Co. might be dumping their stocks because they want to cash out early and leave Main Street investors holding the bag. This would mean that they would see their investment and retirement accounts decimated for the second time in five years.

Investing in Gold and Silver

Pile Gold and Silver Coins

Wiedemer and the three billionaires mentioned above may be investing massively in precious metals which are hitting record levels: the value of gold has increased over 600% in the last decade and the price of silver is up 950% from 2004 to 2011. Soros recently expanded his gold holdings to over 130 million and Paulson has over 44% of his billion-dollar fund tied to gold. Buffett1 famously purchased 130 million ounces of silver several years ago, giving him ownership of 37% of the total silver in the world at the time (however, he also famously missed out on gold & has sold his silver holdings). But, recent rumblings have it that Warren Buffett is re-entering the silver market under the cover of the solar energy.

Investors who owned gold and silver during the 2008 crisis were not only protected, but made huge profits. As long as the Federal Reserve continues to print money at this rate, there are strong indications that investors anticipate big gains from precious metals while anticipating immense losses from stocks.


Additional Sources

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