Warren Buffett Predicts a Shock to the Economy When QE Ends

at the Fortune Most Powerful Women Summit in Laguna Niguel, CA.When Warren Buffett talks, people listen and at Berkshire Hathaway’s annual shareholder meeting that took place on May 4, 2013, it was no different. 35,000 people filled an arena in Omaha, Nebraska to hear CEO, Warren Buffett and his partner, Charlie Munger speak.

Among the most notable of Buffett’s comments was his commentary on the Fed’s Quantitative Easing program. He re-iterated his support of the program and even hailed President George W. Bush for taking quick action when the economy appeared to be at risk of systemic implosion but also expressed concern that selling the massive cache of bonds could cause an economic shock.

“QE is like watching a good movie, because I don’t know how it will end,” says Buffett. “Anyone who owns stocks will re-evaluate his hand when it happens and that will happen very quickly.”

Buffett believes that the act of unwinding QE will be “very inflationary” and when it takes hold, “it’s likely to be the shot heard round the world.”

How to Take Action

Warren Buffett’s comments serve as a reminder that some amount of Wall Street’s gains are a result of the Fed stimulus plan. How much, nobody knows and what happens to the markets once the plan begins to officially unwind is unknown. What we do know is that to some degree, the Fed is likely to hint at the winding down of the program allowing the news to price into the markets.  That could come as early as the latter half of 2013.

Don’t be an all-in long investor. Keep some cash in your account in case of a market shot that comes as a result of Fed action. Also be nimble. Have trading stops in place and be ready to pull short term trades.