What Three Billionaires Are Doing with Their Money

–

It is interesting to contrast what the “irrationally exuberant” average investor has been doing vs. the recent activity of a few high-profile billionaires.

Richard Russell, editor of Dow Theory Letters, says that if we judge them by their recent activity, Warren Buffett, John  Paulson, and George Soros are pessimistic about American consumers. They are selling consumer-oriented stocks. This is interesting particularly from Buffett, who has been a “cheerleader for US stocks” all along.

In the last quarter, Buffett sold off a large share of consumer stocks. Berkshire’s overall stake in such investments as dropped by 21%, including significant sales of Kraft and Proctor & Gamble. He dumped his entire position of Intel. He also sold 10,000 shares of GM and 597,000 shares of IBM.

John Paulson liquidated 14 million shares of JP Morgan, and sold off his full stake of consumer-oriented Family Dollar and Sara Lee.

George Soros also unloaded JP Morgan shares, and almost all his other bank stocks as well, including Citigroup and Goldman Sachs.

These billionaires — right or wrong — are shifting to greater cash holdings and away from American consumers. In America, consumption is 70% of the economy. The billionaires seem to anticipate a hit to consumption as the economic strain on American consumers grows.

The US is Canada’s biggest trading partner. It is the world’s largest consumer. Most of the world is structured around selling stuff to Americans. If the US consumer’s situation is worsening, it creates challenges for the Canadian economy.

A nearly universal bullish sentiment is driving average investors into the American stock market. This could certainly drive the American stock market higher for some time yet. Eventually, however, the offers will start coming in with no bids, and the system will violently recoil.

— Read more at King World News Blog —