The 'Smart Money' Is Selling... Here's What to Watch

Editor's note: It isn't always a sign of a top when the "smart money" is selling... But as our colleague Dan Ferris warned last Friday in the Stansberry Digest, big market movers can give us clues about which sectors are overheated. Today and tomorrow, we're going to share his piece as a two-part series in DailyWealth – starting with where he believes the "fireworks" could start...

The selling continues...

First, Warren Buffett's Berkshire Hathaway (BRK-B) sold roughly 60% of its Apple (AAPL) stock since the end of last year... Then Buffett's top insurance guy, Ajit Jain, sold more than half of his Berkshire Hathaway stock last month. Then, we've seen Berkshire Hathaway selling large amounts of Bank of America (BAC) stock.

Now, the next big move has come from Dell Technologies' (DELL) founder, chair, and CEO... Michael Dell.

According to Bloomberg, Dell has reduced his position in the company from 33.4 million shares in March to 18.3 million shares – a 45% cut.

He sold $2.3 billion worth of stock last month alone, after a 55% run-up in the share price due to artificial-intelligence ("AI") speculation.

And this CEO isn't just selling his own company's stock...

The Michael & Susan Dell Foundation reduced its position in semiconductor firm Broadcom (AVGO) from 11.9 million shares at the beginning of the year to less than 4 million shares in June.

It's almost like the world's biggest investors are gearing up for a market meltdown.

All of this reminds me of a line from Ian Fleming's James Bond novel Goldfinger. After capturing Bond, the titular villain, Auric Goldfinger, utters the iconic quote...

Mr. Bond, they have a saying in Chicago: "Once is happenstance. Twice is coincidence. The third time it's enemy action."

This is the fourth big case we've seen this year of mega investors and insiders selling. We're past happenstance or coincidence. It's a pattern.

And if these insiders selling stocks for billions of dollars really is a case of "enemy action," we're about to see fireworks in the market...

Now, insiders tend to buy for only one reason (they're bullish)... but they sell for any number of reasons. It could be anything from financing a new vacation home to putting their kids through college.

So I'm not suggesting that these insiders are all selling for the same reason... or that it's a sign that the bull market is over.

After all, it's not like anyone rings a bell at the top. But it's worth thinking about what "the bell" would sound like...

Given that Dell and others benefit directly from the AI mania, the bell at the top would likely have a distinct AI-like ring. Check out the following bell-like quote from AI firm OpenAI CEO Sam Altman, from a piece he published in September...

This may turn out to be the most consequential fact about all of history so far. It is possible that we will have superintelligence in a few thousand days (!); it may take longer, but I'm confident we'll get there.

Altman is suggesting that computers will outperform human beings in a meaningful way somewhere between eight and 11 years from now. Fortune magazine puts it between five and a half years and 14 years.

Strange. Investors are paying through the nose for AI-related stocks... yet the most optimistic guy in the industry says it could take more than a decade for the technology to make a big difference in our lives.

That brings me to another point...

Altman talks about AI outperforming humans like it's the greatest thing that could ever happen to us. From the same essay...

I believe the future is going to be so bright that no one can do it justice by trying to write about it now; a defining characteristic of the Intelligence Age will be massive prosperity.

Meanwhile, several other smart folks have talked about AI "superintelligence" like it's the worst thing that could ever happen to humanity. For example, in a 2017 speech, the late physicist Stephen Hawking warned: "AI could be the worst event in the history of our civilization."

Hawking and Altman both think AI will completely transform human life. They just disagree on whether that's a good thing.

But there might be another option... That is, what if AI isn't such a big deal 10 years from now?

In a recent Bloomberg interview, Massachusetts Institute of Technology economist Daron Acemoglu estimates that just 5% of jobs will be replaced or heavily aided by AI over the next decade. He thinks a lot of the money being invested in AI right now will be wasted.

Acemoglu shared three visions of how AI could play out economically and financially.

The first vision is the most optimistic. In it, AI hype "slowly cools" and investments leading to "modest" uses prove at least somewhat fruitful.

Acemoglu calls the second vision "AI spring followed by AI winter." As Jeran Wittenstein at Bloomberg describes it...

The frenzy builds for another year or so, leading to a tech stock crash that leaves investors, executives and students disillusioned with the technology.

In the third vision, Acemoglu sees AI technology going unchecked and eventually creating "negative outcomes for the whole economy." As the same Bloomberg article explains...

The mania goes unchecked for years, leading companies to cut scores of jobs and pump hundreds of billions of dollars into AI "without understanding what they're going to do with it," only to be left scrambling to try to rehire workers when the technology doesn't pan out.

Acemoglu believes some combination of the second and third scenarios is most likely, given global executives' fear of missing out.

Tomorrow, I'll explain what that possibility means, and why it's not hard to see it playing out already. Remember, the market tends to inflict the worst pain on the greatest number of people...

Good investing,

Dan Ferris

Editor's note: Dan says the tech sector has been on an unsustainable run... And with the cracks already starting to show, he believes the biggest correction is just around the corner. But when the money rushes out of tech stocks, it could set up a major buying opportunity elsewhere... See where Dan believes the smart money will flow next right here.