Billionaires Tell Americans to Prepare for Financial Ruin

May 24, 2013

In spite of the 6.5% stock market increase in the last three months, several billionaires are quietly dumping their American stocks very quickly.

Warren Buffett is dumping stocks at an alarming rate. He recently griped of “disappointing performance” in American companies such as Johnson & Johnson, Procter & Gamble, and Kraft Foods. He has dumped stocks that depend on consumer purchasing habits the most. He has gotten rid of his entire investment in Intel stocks.

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.

With 70% of the United States economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is unsettling. Part of being prudent is keeping our eyes open as to economic trends which could quickly dissolve or destroy your investments. Planning on a comfortable retirement is commendable so you can live without relying on others or on welfare. Fact is, the best-laid plans of are often upset by unforeseen circumstances.

Another billionaire, John Paulson, who made a fortune betting on the subprime mortgage meltdown, is moving out of United States stocks as well. During the second quarter of the year he dumped 14 million shares of JP Morgan Chase. He also dumped his entire stake in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Yet another billionaire, George Soros recently sold more than a million shares in JPMorgan Chase, Citigroup, and Goldman Sachs which is nearly all that he had invested in them.

So why are these billionaires dumping their shares of U.S. companies? It’s very likely that these professional investors are aware of specific research that points toward a massive market correction, as much as 90%. This is predicted by Robert Wiedemer, an esteemed economist and author of the New York Times best-selling book Aftershock.

A Dow Jones columnist said the book was “one of those rare finds that not only predicted the subprime credit meltdown well in advance, it offered Main Street investors a winning strategy that helped avoid the forty percent losses that followed…”

The problem starts with the careless strategy of the Federal Reserve to print a massive amount of money out of thin air as they attempt to stimulate the economy.

“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,” said Wiedemer.

“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.”

And this is where Wiedemer explains why Buffett, Paulson, and Soros could be dumping U.S. stocks: “Companies will be spending more money on borrowing costs than business expansion costs. That means lower profit margins, lower dividends, and less hiring. Plus, more layoffs.”

It seems like a few leaks of truth are seeing daylight. In a shockingly frank interview, the CEO of Saxo Bank (Denmark) describes the Euro's recent rally as illusory and that "the whole thing is doomed." Further, "right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all." Confirming that the only thing holding the farce together is political not economic efforts, he sums the situation up perfectly: "people have been dramatically underestimating the problems…. It’s the political world that has been extremely supportive of the Euro, not for economic reasons but for political reasons,” said Christensen.

So in planing for the future, we need to assess how we intend to hold onto the value we have. The basic necessities of life will always have value. We can learn from the past as we look to securing our future. Bartering for what we need may be the only thing we have left when the inflation of the dollar hits our country. Don't wait until it is too late to prepare for the uncertain times ahead of us.