Stock Market Crash in 2014 Now Predicted by World’s Largest Investors
Six months ago, I started writing that a stock market crash in 2014 would prove to be increasingly likely this fall, even though I had refused to join the chorus of doom and gloomers who made the same claim for 2013. Now several of the world’s biggest investors appear to be placing major bets on a huge stock market crash being imminent, including some investors who are almost always bullish on the market.
We’ve entered October, and this is the month that has historically seen more major crashes than any other month. So, what are the big names in the world, including those who are usually bullish on the market, saying about a stock market crash in 2014 now that we’ve entered the traditional month of market doom and gloom?
Who are the big names betting on a stock market crash in 2014?
What is Warren waiting for?
Warren Buffett, usually bullish on the maket, appears to have made an enormous $55 billion bet on an imminent stock market crash in 2014. Not being a doom and gloomer, the bull’s bet looks like this: According to SEC filings, Buffet is now sitting on $55 BILLION dollars in cash. That’s cash that could be invested in the stock market but is not.
Why would the world’s most respected investment mogul choose to keep $55 billion dollars out of the market and just sit on it? This is the biggest cash hoard that Berkshire Hathaway has held during the forty years that Buffet has run the company, so it’s a very strange position for Berkshire Hathaway. At the market’s recent rate of rise, this bet is costing Berkshire Hathaway $29 million a day!
Some say Buffett is saving the cash to invest it in the businesses that Berkshire Hathaway already owns, but then why isn’t he doing that? The cash clearly is not being invested in companies he owns, or he wouldn’t have it to sit on. Why delay with that much cash? It seems clear that he is waiting for the stock market to fall so that he can swipe up huge savings on company purchases when their stock prices plummet? Just look at his own reflection on this:
“Just standing there, day after day, with my bat on my shoulder is not my idea of fun.”
He’s waiting to stake a swing, and Buffet doesn’t swing until stocks are priced low. Buffet looks for a stock bargain, and the stock market right now is priced to perfection, meaning everything is priced at its maximum actual value. There are no bargains for Buffet to buy. That means the market has nowhere realistic to go but down. It could still rise on unrealistic speculation, but Warren doesn’t do wild speculative buying. He swings when he sees a good ball right over the plate. He doesn’t reach for high balls.
At the same time, Buffet has been reducing his exposure to stocks that depend on consumer purchasing habits, an indicator that he believes times are going to become tougher for most consumers. Bershire Hathaway has reduced its position in companies that rely on retail sales by 20%.
By George, George isn’t Buying
George Soros is selling the market short. In the past year, Soros has increased his short position in the S&P 500 by 605%! That adds up to the biggest market “put” in Soros’s history! In a short position, someone like Soros in essence borrows stocks and promises to replace them with the same number of shares at a later date. It’s a bet that he can buy those shares at a later date for much less than he sells his borrowed ones for today. Soros has expanded 605% his bet that stocks in the S&P 500 will be cheaper tomorrow (when he has to return shares he borrowed) than it is today.
At the beginning of 2014, Soros had a $1.3 billion position in short options. That was his all-time high until he bettered that by almost double to $2.2 billion in shorts midyear. Doubling down on his bet that the stock market will crash certainly makes it look like he is more certain than ever and that it will happen soon.
Soros came into big acclaim when he made $1 billion on a bet against the British pound in 1992 and won, hugely hurting the British pound. Is this about to become another one of Soros’s famous bets? Bear in mind that Soros’s hedge fund was the best-performing fund in 2013.
Soros is soaring in gold, too, which hedge fund managers turn to when times for the stock market look bleak. Looks like Soros is now betting against the stock market in 2014 like he did against the British pound in 1992 because Soros has never bet this big against the stock market.
Other names predicting a stock market crash in 2014
Gary Shilling, a big Wall Street economist, says the S&P Index could drop as low as 800, which would be more than twice the drop that makes for a bear market.
Jeffrey Gundlach is one of the world’s biggest bond fund managers, and he predicts that the real damage from the Great Recession is yet to come in an “ominous third phase” that will “far exceed the damage of 2008.”
The usual prophets of no profit also predict a stock market crash in 2014
Mark Faber, Jim Rogers and to some extent Nouriel Roubini are, of course, staying with their bets that the market will crash in 2014. But, then, they also predicted it would have a major correction in 2013, which it didn’t. And in 2012. And in 2011. Since even a broken clock is right twice a day, they will eventually be right and say that they told you so. I, on the other hand, said it wouldn’t likely happen in 2013, but am saying now that a stock market collapse in 2014 looks likely.
Peter Schiff, author of [amazon_link id=”1250046564″ target=”_blank” ]The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country[/amazon_link], is another perennial prophet of doom. He has been right in predicting past economic collapses but, perhaps, only because he keeps predicting them until they happen. Nevertheless, his reasons for thinking the economy will fall are sound. What tends to go wrong with most of these prophets of no profit is that they fail to figure out what countermeasures the government might take to forestall the inevitable and fail to estimate the government’s capacity to forestall the inevitable. Undaunted by the number of years in which he was rong, Schiff continues to say, “I am 100% confident the crisis that we’re going to have will be much worse than the one we had in 2008.”
Why do I predict a stock market crash in 2014?
No one can be certain the market is going to crash in any given period of time. It’s a matter of probabilities, but the probabilities are growing rapidly, and one sign of that is that the big boys are staying out of the stock market or betting against it with some very, very large amounts of money at stake. Neither do the trends of latest statistics, such as jobs reports, help much because these are only a picture of what is already happening (and often a distorted picture).
My basis for predictions is not a crystal ball or a line to God or some kind of natural prescience. neither is it a set of charts or mathematical formulas or systems for knowing what the market is about to do by looking at the market itself. Nor do I predict the same doom endlessly each year until I happen to get it right as Faber and Rogers and Schiff seem to be doing (though I agree with them on the fundamentals that are behind the coming crash).
My approach, which led to my predicting to friends and family the crash of 2008, is to look at crumbling fundamentals and rapidly growing external pressures that mean the probability of a collapse is rising quickly. I’ve bet my blog that the pressures for economic collapse will become very apparent this fall. In the very least, it will be clear that we have entered a decline toward that collapse. I think there will be no doubt about it.
My bet is not based on certainty, but based on probabilities that are ganging up against the global economy. To understand those predictions, you need to take the time to read enough articles on this blog to get a clear picture of how intense these pressures are, how pervasive, how likely to be unrelenting, and how exhausted the government’s efforts are to hold against those forces. You have to, in other words, look at the big picture in order to see the storm that is gathering, for these are earth-changing forces.
Last year, I said the economy would not collapse that year. I did so, in spite of these pressures that were forming because they were not building fast enough to down the economy and because the governments of this world have a lot of capacity to give artificial life support. And last year the economy did not collapse, though the perennial prophets of doom and gloom said it would.
I began this year predicting the pressures for economic collapse would build, not diminish as the recovery-people were proclaiming. In spring I said the inevitable fall of this false economy would become apparent enough in the fall that I’d bet my blog on it. I would quit writing about the economy altogether if fall did not turn into a serious decline and, most likely, a crash worse than we saw in 2008 (but really just a continuation of what we saw in 2008).
My purpose in this article is only to show that other players in the market, who are far greater than I am in the success of their bets, are now apparently seeing the same developing crisis. Different people may come to that conclusion from different collections of observations, of course. That’s because when something is really building up to happen, many different perspectives will point toward that happening as a likelihood.
Other articles on The Great Recession Blog that have laid out the fundamentals for a stock market crash in 2014
What are all these investors betting on? I’ll bet they’re betting on the same storm that is brewing up against the global economy that I have laid out in previous articles. If you want to follow that earlier discussion, here are the articles:
For deeper reading on the likelihood of a stock market crash in 2014:
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