Billionaire’s Warning to Wall Street
Recently, billionaire David Tepper went on CNBC to declare that the moves by China’s equivalent of the Federal Reserve to stimulate their economy amounted to a “buy everything” call.
Similar to how we stated “buy everything” in US markets back in 2010 when the Federal Reserve announced their commitment to do whatever it took to stimulate the US economy, Tepper believed the same to be true for China now.
Lost in that interview, though, was another statement Tepper made, and one which can be seen in the actions of Warren Buffett. Tepper effectively claimed that the US markets were at the very least fully valued now, if not overvalued. Nowhere is that more evident than in the moves the Oracle of Omaha is making now.
Key Points
- David Tepper sees China’s economic stimulus as a “buy everything” opportunity, similar to the US in 2010.
- Warren Buffett is selling assets like Apple and Bank of America, signaling potential overvaluation in US markets.
- Investors might benefit from shifting to Chinese markets, with ETFs like FXI and PGJ offering better growth prospects.
What Is Buffett Doing?
When news that Buffett had offloaded a huge chunk of his Apple position was revealed, it sent shockwaves throughout the financial industry.
At the time, Buffett alluded to tax rates as the reason. Or more specifically future tax rates likely being higher meant that capturing gains sooner at lower tax rates was the smart move.
These are the kind of astute moves that have led to Berkshire shares rising by over 5 million percent since he took over as CEO and it is why Berkshire Hathaway’s 13Fs and SEC filings are so carefully examined.
So what are they revealing now?
In short, Buffett is selling. Those Apple sales were just the beginning. For Buffett, who is a value investor at heart, it’s a tough time to find opportunities and it appears clear that he sees risk on the horizon.
For example, just a few days ago Berkshire filed a Form 4 revealing the sale of 21.56 million shares of Bank of America (BAC), amounting to $862.7 million sold.
That follows a string of sales in which Buffett has captured almost $9 billion. Where he once owned over a billion shares of Bank of America, he now owns just over 841 million.
So, What Should You Do?
Buffett’s mentor, Ben Graham, famously described the markets as a voting machine short-term and a weighing machine long-term.
In the short-term the voting boils down to those buying and selling setting the price. Over the long-term, the future cash flows discounted to present value weigh up what the stock is worth.
So, it’s possible that Buffett is seeing his famous indicator of Total Market Cap/GDP his all-time highs and thinking, it’s time to take profits. But he may also be de-risking and going to cash in expectation that the market will return to median levels, amounting to a sharp correction.
The lesson from Tepper is to move where the supportive flows are. When the US support from the Federal Reserve was unrelenting, you wanted to buy the S&P. Today, those are in China, so ETFs like FXI and PGJ may be the better long-term bet.
At the very least, a little allocation away from what two billionaires appear to signal is an overvalued market and toward a market with more upside seems to be the smart play.
