Buffett Mows Down "Green Shoots" but Likes Stocks

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"We're not seeing [the green shoots]. Whether it's retailing, manufacturing, wherever."
-- Warren Buffett, June 24, 2009

At the beginning of May, I suggested that the market was pinning too much hope on the "green shoots," with investors interpreting any positive economic data as a sign that economic recovery is imminent (the S&P 500 is virtually unchanged from that date).

Buffett knows the economy
Warren Buffett is another skeptic -- and he's much better informed than I am. As the CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), Buffett receives data from about 70 different businesses -- on a daily basis, in many cases.

As the following table shows: 1) Berkshire companies cover a broad swath of the economy, 2) they're often leaders in their sector, and 3) some of them are highly sensitive to changes in economic activity and/or the housing sector:

Company	Activity	Annual Revenues
MidAmerican Energy Holdings	Global leader in the production of energy from natural gas, hydroelectric, etc.	$12.7 billion
Shaw Industries	Full-service flooring company and the world's largest carpet manufacturer	> $5 billion
Johns Manville	Manufactures and sells building products; holds leadership positions in all of its key markets	> $2 billion
Iscar Metalworking Companies	One of the world's largest manufacturers of metalworking tools	> $1 billion
GEICO Insurance	Third-largest private passenger auto insurer in the U.S.	N/A
Benjamin Moore	Leading premium paint manufacturer	N/A
MiTek	World's leading supplier of engineered products and services to the building components industry	N/A

Source: Company websites, Financial press.

Economic reality vs. market reality
In March 2008, Buffett said that the U.S. was in a recession. That call was nine months ahead of the NBER's (the official arbiter of the business cycle) announcement that a recession had begun (a year earlier in December 2007). This is Buffett's current opinion:

Everything that I see about the economy is that we've had no bounce … In the [Berkshire Hathaway] annual report, I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true.

Meanwhile, the S&P 500 has risen 37% since its March 9 low. Within the index, almost 1 in 10 non-financial stocks have more than doubled during that period, including United States Steel (NYSE: X), Ford (NYSE: F), Wynn Resorts (Nasdaq: WYNN), JCPenney (NYSE: JCP), and Motorola (NYSE: MOT). Odds are that the market has gotten ahead of itself and is susceptible to a correction in the short-term.

"… [the stock market] is attractive …"
However, for those who can adopt the proper timeframe to invest in the stock market (seven to 10 years, at a minimum), the news isn't all gloom-and-doom. Stocks aren't a bad proposition at this time, as Buffett points out:

I think [the stock market] is attractive over the next ten years compared to alternatives … I think it's almost certain over a ten-year period that equities will do better than fixed-dollar investments.

That second statement is as close to unequivocal as you can expect in investing. Who will listen to the Oracle of Omaha?

Confused by this market? Ilan Moscovitz weighs in on 3 Stocks on Buffett's Wish List.

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