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$30 Million Stock Dump Proves Warren Buffett Is Bracing for a Market Crash

Last Updated September 23, 2020 1:48 PM
Laura Hoy
Last Updated September 23, 2020 1:48 PM
  • Warren Buffett’s decision to sell $30 million worth of stock suggests the famed investor is preparing for a stock market crash.
  • Buffett’s investment theory teaches investors should pull back when the market is getting greedy.
  • The Dow’s 20% rally is more than greedy in the face of troubling economic data.

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.

Warren Buffett Takes Profits as Stock Market Rallies

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. 

BK stock, Warren Buffett
Although it’s below all-time highs, BK stock has had an impressive recovery over the past few weeks. | Source: Yahoo Finance 

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.

the dow, Warren Buffett
The Dow’s impressive recovery has been based on false optimism. | Source: Yahoo Finance 

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.

CEOs Sound Stock Market Crash Alarm

Perhaps the most telling evidence of the irrational exuberance in today’s market is a Conference Board study out this week.

Wall Street, stock market
The pessimistic mood on Wall Street isn’t reflected in the stock market’s rally. | Source: Spencer Platt/Getty Images/AFP

The study surveyed U.S. CEOs to get a gauge of where they see their businesses heading . The results were downright terrifying.

  • More than half are planning furloughs and mass layoffs.
  • Nearly half plan to cut wages.
  • Over 80% expect coronavirus to have a significant impact on their business.
  • 43% anticipate cash-flow issues.

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. 

Unemployment Will Persist

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. 

stock market, warren buffett, u.s. airline industry
The impact of coronavirus will be lasting for the airline industry. That will result in large-scale job losses. | Source: Tom Pennington/Getty Images/AFP

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.