YW Blogcast 56 - The Real Reason Billionaires’ are Dumping Stocks

Like rats leaving the Titanic, billionaires’ Warren Buffett, John Paulson, and George Soros have been quietly divesting their portfolio of of stocks. The question is why? The stock market is in the midst of a historic rally, real estate prices have been showing signs of strength in some areas, and unemployment, if not exactly improving, at least seems to have stabilized somewhat. So why the rush for these financial titans to get out of stocks? Is it possible they don’t know what they’re doing?

Ha! Possible but not likely. The more probable reason is that they’re paying attention to something that the majority of investing schlubs haven’t noticed yet. In fact, there is a specific bit of research from a well-respected source that indicates the stock market is set to correct itself soon, perhaps by as much as 90%. Before you dismiss the number as ludicrous, consider the source. This prediction comes from Robert Wiedemer, the man who correctly called the most recent housing market collapse and published his research in a book called America’s Bubble Economy.

A variety of financial experts, drawn from sources like Dow Jones, Standard & Poor’s, and Goldman Sachs, believe we should be paying close attention to Weidemer’s newest book, Aftershock. While Weidemer acknowledges that a drop of 90% is a worst-case scenario, he believes some sort of large drop is almost guaranteed.

Here’s why. By the way, followers of Jason Hartman’s predictions will find the following reasoning very familiar. Jason has been saying the same thing for years.

The problem starts with the Federal Reserve’s continuing quest to stimulate the economy by printing massive amounts of money. Weidemer is quoted on MoneyNews.com: “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. 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.”

The logical result of the preceding scenario is that businesses will stop expanding and begin either laying off workers or at least freeze hiring, actions which will result in lower profit margins and lower dividends. No self respecting billionaire will accept these eventualities on his holdings. That’s why the big boys are dumping stocks. You might be wise to assess whether you should do the same.