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Recession imminent: Hedge funds dump stocks and take short positions at record pace

Recession imminent: Hedge funds dump stocks and take short positions at record pace

Figures published on April 9 by the banking giant Goldman Sachs (NYSE: GS) hint at trouble on the horizon as U.S. hedge funds have been selling stocks and replacing them with short positions at rates not seen since January.

While the data is grim in its own right, more recent reports cast an even darker shade upon the hedge fund activities as it was uncovered that the Bureau of Labor Statistics (BLS) has been communicating behind the scenes with major Wall Street institutions.

BLS has, allegedly, been maintaining a mailing list for ‘super users’ – institutions that include the likes of Citadel, JPMorgan (NYSE: JPM), and BlackRock (NYSE: BLK) – and providing crucial information on upcoming CPI prints with a particular focus on housing and used cars.

Insider trading, or a sign of a crash to come?

The recent hedge fund activity, particularly in the context of the ‘super user’ mailing list, raises multiple worrying questions.

On the one hand, the chance that the selling and taking of short positions might have been simply opportunistic acting upon sensitive insider information entered the realm of possibility. 

On the other hand, despite coming in hotter than was forecast, the relatively high CPI wasn’t entirely surprising given there is no shortage of experts and analysts that have been warning of a looming inflation crisis.

Gordon Johnson, the Founder and CEO of GJL Research is, perhaps, the most vocal among them as he has repeatedly called the FED’s tools useless and blamed Jerome Powell and Janet Yellen for knowingly facilitating the ‘most predictable forthcoming inflation crisis ever.’

Elsewhere, Robert Kiyosaki, the prominent investor and the author of the best-selling personal finance bookRich Dad Poor Dad,’ has also been warning about the fragility of the dollar and U.S. equity markets, instead calling for a flight to the safety of commodities like gold and silver, and the world’s premier cryptocurrency, Bitcoin (BTC).

Are financial giants losing faith in U.S. economy?

Finally, there is a distinct danger that the offloading of stocks is the result of a more forward-looking analysis. 

There have, in recent weeks, been increasing signs that some of the nation’s biggest institutions are losing confidence in the stock market and, indeed, the start of April brought a notable downturn for the shares of many companies.

Some of the more recent examples come in the form of JPMorgan’s warnings that stocks may crack at any moment. Even more recently, Goldman Sachs shared a view that it may be the time to abandon the darlings of the day – big tech stocks – and seek greener pastures in the energy sector and among Japanese companies.

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