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Why do Michael Berry and Warren Buffett start selling stocks, what do they know?

Michael Burry and Warren Buffett

The S&P 500 is up nearly 17% year-to-date, and the Nasdaq composite index is up more than 30%. Americans continue to spend money, unemployment is low, the Federal Reserve may soon put its painful interest rate hike on hold as inflation is steadily, albeit slowly, declining.

But documents from the Securities and Exchange Commission released Monday showed that Warren Buffett's Berkshire Hathaway (BRKA) sold nearly $8 billion more shares than it bought in the second quarter of 2023. That's not much by his standards, but a significant step up when the market is up.

Michael Barry, the "big short" investor famous for correctly predicting the massive housing market crash of 2008, also made a giant bet on the Wall Street crash last quarter. Berry's fund, Scion Asset Management, bought $866 million puts (the right to sell an asset at a certain price) from an S&P 500-tracking fund and $739 million puts from a Nasdaq 100-tracking fund.

Most fund managers seem to be less bearish on stocks than in the recent past. On Tuesday, Bank of America released its August global fund managers survey and found that money managers have been the least pessimistic about the markets since February 2022. Their cash level also dropped from 5.3% to 4.8%, which means they are investing that money, not holding on to it.

So what do Buffett and Berry know that the rest of us don't?

Here are four things that can scare smart investors. 

1. China: The health of China's economy has become a major concern for US investors. Traders fear that weakness in the world's second-largest economy could weigh on the global outlook. China's consumer spending, factory production and fixed investment slowed further in July compared to last year, according to the National Bureau of Statistics. China also recently halted the release of monthly youth unemployment data after the figure repeatedly hit record highs.

Meanwhile, tensions between the US and China have escalated as the world's two largest economies clash over issues ranging from trade policy and technology to Russia's invasion of Ukraine.

2. Russia and Ukraine: Global inflation is finally coming down, but escalating geopolitical tensions threaten to drive up food and oil prices around the world. Russia's invasion of Ukraine continues to raise concerns about rising commodity prices, global economic instability and security uncertainty.

Jamie Dimon, CEO of JPMorgan Chase (JPM), has repeatedly cited the ongoing war as his biggest problem. Most recently, he told CNBC that the world is seeing "serious" levels of "nuclear proliferation and nuclear blackmail." According to him, this level of geopolitical chaos has not been seen since the Second World War. "The world is not so safe."

3. Slowdown in the US: Unemployment is low and inflation is steadily declining. But the US economy is still showing signs of a slowdown. Shoppers have squeezed their wallets in the face of higher prices and borrowing costs, focusing on paying for essentials like groceries rather than discretionary purchases like clothes or home repairs. There are indications that some retailers are saying that demand is waning, which could ultimately undermine their profits.

4. Banking risk: Contagion fears still exist around the regional banking crisis in March: Berry's fund is also divesting its shares in a number of regional banks - it sold its 150,000 First Republic Bank (FRC) shares as well as stakes in Huntington. bank, PacWest (PACW) and Western Alliance (WAL).

Big banks could also find themselves in a quandary: bank stocks tumbled on Monday after reports that Fitch Ratings warned of an additional downgrade of the US banking industry, which could weigh on the ratings of several major US lenders.

Citizens' expenses 

You just can't keep the American consumer for long - at least when it comes to shopping.

Retail sales rose sharply in July, up 0.7%, as consumers opened their wallets more at sporting goods and clothing stores, spent more online, and accumulated larger bills at restaurants and bars, according to Commerce Department data released Tuesday.

Even adjusted for inflation, retail sales rose 0.6%, “suggesting that while consumers are becoming more cautious about their spending amid higher prices and interest rates, they are not cutting spending,” the chief economist said. EY Gregory Dako.

Total credit card spending per household rose 0.1% in July year-over-year, according to the latest data from Bank of America. Card spending per family increased by 0.7% compared to the previous month.

Consumer spending makes up about 70% of the US economy, so July's spike in sales points to broader economic growth overall. This means that the Fed is less concerned about a recession and more concerned about keeping inflation under control by raising interest rates.

Looking for a way to restore

The agony caused by the deadliest U.S. wildfire in a century is just beginning in Lahaina, Hawaii, where hell has all but wiped out the city, writes my colleague Katherine Thorbeke in a devastating tale of what has been lost and what could happen next for residents. .

As they begin clearing the rubble, they fear that developers will now try to swoop in and buy up the land where people's homes were destroyed, possibly rebuilding Lahaina into a Las Vegas Strip-style tourist base.

Fears of land grabs by outsiders trying to cash in on the tragedy and push even more locals out of Maui are real, Katherine says. Community groups have begun sharing resources, encouraging people to report instances of speculators circling their property looking for a deal.

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