What Billionaires Say And Do About The Stock Market Rally

by: Larry Trefz

As the U.S. economy continues to sputter along at near stall-speed with 0.1% GDP growth and stubbornly high unemployment, the U.S. stock markets have roared higher in an increasingly spectacular multi-year bull run.

Within the last week, the Dow Industrial Average has reached new all-time highs. While the Dow's price weighted performance is not as technically significant as a value weighted index, such as the S&P 500, it does carry psychological impact with many retail investors.

Chart forDow Jones Industrial Average (^DJI)

In an effort to better understand the current market conditions I have assembled recent comments and information from heavyweight market participants on this extended bull market run.

Warren Buffett: While calling Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) performance in the recently released 2012 annual report, "subpar," Warren went on to say that he sees "good value" in stocks. His number one holding is Wells Fargo (NYSE:WFC). Warren has received lots of press coverage over his acquisition of Heinz (HNZ) in recent weeks.

"Anything I bought at $80 I don't like as well at $100. But if you're asking me if stocks are cheaper than other forms of investment, in my view the answer is yes. We're buying stocks now. But not because we expect them to go up. We're buying them because we think we're getting good value for them."

He said stocks are not "as cheap as they were four years ago" but "you get more for your money" compared to other investments. He added, "The dumbest investment, in my view, is a long-term government bond." --CNBC Interview

Stan Druckenmiller: One of the best performing hedge fund managers of all time, Stan warns of a crisis coming that is potentially much worse than 2008, due to $211 trillion of unfunded liabilities resulting from ballooning Social Security, Medicare and Medicaid programs.

"While everybody is focusing on the here and now, there's a much, much bigger storm that's about to hit," he said. "I am not against seniors. What I am against is current seniors stealing from future seniors."

George Soros: While legendary investor George has been vocal about Germany's role in the on-going European crisis and has made over $1 billion by shorting the yen in recent months, we have not heard much comment from him on the recent bull run in U.S. stocks.

His recent stock buys include: Morgan Stanley (NYSE:MS), Citrix (NASDAQ:CTXS), Anadarko Petroleum (NYSE:APC) and Ford (NYSE:F). He also added to his position in Apple (NASDAQ:AAPL).

Soros sold half his position in the gold (NYSEARCA:GLD) ETF. He also reduced his positions in Facebook (NASDAQ:FB), AIG (NYSE:AIG) and Amazon (NASDAQ:AMZN).

David Tepper: January 22, 2013, the manager of hedge fund Appaloosa Management, which had returns of 30% in 2012, while most other funds underperformed the market, said:

...he's "going to come out of the closet" as being bullish in 2013.

The reason, he explained, is there are no major negatives and basically nothing to really be bearish about.

"This country is on the verge of an explosion of greatness," he said, "An explosion of greatness."

He said the "main thing right now is to be long equities." He said that if you're long equities, you're going to make money this year. --Business Insider

Leon Cooperman: On March 6, 2013, in a CNBC interview, former Goldman Sachs investment manager, Cooperman said:

"I see all this excitement...The last time I saw excitement like this Apple was at $700, Facebook was $38," Cooperman said in a "Squawk Box" interview. "But I say to myself...every bull market ends in overvaluation and every bear market ends in undervaluation. So the market is still probably okay."

"Equities are the best house in the financial asset neighborhood," he continued. "[But] we don't know yet whether it's a good neighborhood or a bad neighborhood."

"Think about the alternatives in financial assets...You can put your money in cash, that's zero and [Federal Reserve Chairman Ben Bernanke] says it's going to stay zero for another year or two," Cooperman said. "You can put it in U.S. government bonds...[but] buying U.S. government bonds today is basically like walking in front of a steamroller and picking up a dime." --CNBC Interview

John Paulson: Famous for his fund's large stake in gold, Paulson has taken a beating as gold prices have dropped in recent months. Speaking to an audience in NYC on January 23, 2013, Paulson said that he is bullish on the U.S. economy. He said that he believes the best investment for an individual is a house.

"This is probably the best time in our lifetime to consider buying a house," he said.

He also stated that he was bullish on the stock market and the U.S. energy sector, whose growth could translate to gains for related industries, such as chemicals and petrochemicals.

Paulson was less bullish on credit, where he stated that the long-term returns are likely to be far smaller than in stocks. Still, Paulson said that the rate of expansion in the use of credit, including cards, auto loans, and mortgages, would likely increase in 2013.

Conclusion: Clearly, opinions vary among billionaire market participants, much as they do among those with fewer zeros behind their positions. However, the broader sentiment appears to remain generally bullish but very cautious on this long-in-the-tooth stock rally. Since the markets comprises human participants, the rally will likely continue until the majority of sentiment involved in it takes a turn for the worse.

The overall cautiously bullish tone of the participants above strikes me as one that could change quickly with the direction of the markets. In other words, their bullish tone, much like the market itself, seems long-in-the-tooth, which could make it subject to change fairly easily.

When the roll-over in stocks does happen I would expect a correction of over 10% given the length of the rally and lack of a significant correction in recent months. My strategy would be to take profits as the rally continues and begin to look for opportunities to short the market when it rolls over.

ETFs that can be used to trade the U.S. Stock Market Indexes include: (NYSEARCA:SPY), (NYSEARCA:SDS), (NYSEARCA:DIA), (NYSEARCA:DXD), (NYSEARCA:IWN), (NYSEARCA:TWM), (NASDAQ:QQQ), (NYSEARCA:PSQ).

Disclosure: I am short SPY, IWM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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