Warren Buffett's massive stock sale suggests the Oracle of Omaha is battening down the hatches for another massive stock market drop
When the Oracle of Omaha speaks, you’d better listen. And Warren Buffett sent investors a clear message this week: It’s time to take profits before the stock market suffers another reversal.
His holding company – Berkshire Hathaway (NYSE:BRK.A) – revealed it had sold $30 million worth of stock, likely in an attempt to pocket the incredible gains the market has delivered over the past two weeks.
Buffett unloaded 869,103 shares of Bank of New York (NYSE:BK) on April 7 and 8 to add $30.9 million to Berkshire’s cash pile. The sale relieved Berkshire of its majority holding in BK.
Bank of New York stock is still down this year, but the stock rose a whopping 28% from its March 23 lows. The sale suggests that Mr. Buffett thinks this rally is coming to an end. He’s taking his own advice to:
Be greedy when the market is fearful, and fearful when the market is greedy.
And the market certainly is being greedy.
The Dow has rocketed higher in the past three weeks despite increasingly concerning economic data.
Investors are optimistic about the chances of a v-shaped recovery despite mounting evidence to the contrary.
Greedy is an understatement – and Buffett knows it.
Perhaps the most telling evidence of the irrational exuberance in today’s market is a Conference Board study out this week.
The study surveyed U.S. CEOs to get a gauge of where they see their businesses heading. The results were downright terrifying.
The Conference Board noted that this kind of CEO concern hasn’t been seen since the Great Recession.
In late March, CEO confidence declined to levels not seen since the height of the Great Recession. The sharp fall was driven by a dramatic deterioration in sentiment about the current state of the economy.
The Conference Board’s results essentially suggest that investors are betting on companies whose leaders aren’t even betting on themselves.
Bulls will argue that the Federal Reserve’s stimulus will tide the economy over until it can function again. They point to government assistance and business loans as a bridge between the economy before coronavirus and the recovery afterward.
But again, that thinking is greedy. Evidence shows that’s not at all what’s going to happen.
More than 16 million people are unemployed for the foreseeable future. Airlines, hotels, restaurants, and a host of other industries probably won’t see demand return for at least a year as social distancing continues to discourage people from unnecessary social contact.
The retail sector, which was already struggling to keep up with a new digital world, is about to collapse. Even without ongoing lockdown orders, Cowen sees holiday retail sales falling by up to 30%, a decline that many companies simply can’t weather.
PVH CEO Manny Chirico is expecting between 20% and 25% of all U.S. retailers to go out of business over the next three years.
Retail companies are not built to have their stores closed for extended periods of time, and unfortunately we need to really plan for the worst and hope for the best.
The retail industry supports over 42 million jobs. Even if you’re more optimistic and forecast that just 15% of stores shutter, that’s still 6.3 million Americans out of a job indefinitely.
Add to that the 10 million jobs supported by the airline industry. After 9/11, airlines cut about 20% of their workers. Coronavirus may exert a much deeper impact on airline travel. Even a rosy estimate implies another 2 million aviation-related job losses.
The list of industries who will feel the burn from coronavirus long after lockdowns are lifted goes on and on. Can an economy roar back to life with millions of people suffering long-term job losses?
Warren Buffett’s stock dump suggests that he thinks not.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: September 23, 2020 1:48 PM