A recent article on Money News indicated large investors such as Warren Buffett, John Paulson, George Soros and others were dumping prime big name stocks. These stocks include Johnson and Johnson, Proctor & Gamble and Kraft Foods. Their reasoning: disappointing performance
From Money News: “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.”
Doesn’t our economy depend on consumer spending? Are not these companies the backbone of so many American products? What does their move away from core American companies tell us? To me it says that they feel the American Stocks are overrated and a market correction is coming.
This fits in with the Federal Reserve announcing their QE3 buy of US Treasuries is beginning to be reduced. Once that happens then interest rates will escalate and more and more money will move from the market to fixed arte deposits.
The stock market makes corrections all the time, but this move by Buffett and friends tells me that they are far more concerned about a simple market correction; they are worried about something of nuclear proportions. Are they right? I suppose time will tell, but for now I think a careful eye towards safety and security might be prudent.
The concern of course is inflation and the need to pay down our national debt of $17 trillion especially with a devastating federal budget deficit. So if inflation is a concern, why such a big move from these American stocks? Obviously fear is their value will be less that the possible cost of inflation.
Inflation could also be devastating to bond holders, a recent report by Wiedemer and Associates found that a 10% inflation rate could reduce the liquidable value of UDS Treasuries by almost ½. So where does one go for safety and security?
The banking industry offers safety as do fixed rate annuities. I am scratching my head over this, I think the underlying concern amongst these large investors is fairly simple, they think something devastating is coming our way.
Here is the link to the Money News website, might want to have a look