Is the notion of a "double-dip" recession purely a figment of pundits' imagination? Speaking in Montana yesterday, Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) CEO Warren Buffett took it to the bears, stating:
I am a huge bull on this country. We will not have a double-dip recession at all. I see our businesses coming back almost across the board... I've seen sentiment turn sour in the last three months or so, generally in the media; I don't see that in our businesses. I see we're employing more people than a month ago, two months ago.
This is the third in a series of economic pronouncements Buffett has made during this crisis, and so far, his record has been good:
March 3, 2008: "By any common sense definition we are in a recession. Business is slowing down. We have retail stores in candy, home furnishings and jewelry; across the board, I'm seeing a significant slowdown." Nine months later, the NBER -- the official arbiter of recessions in the U.S. -- confirmed that the economy had entered into recession in December 2007.
Mid-September 2009: "I think the odds are very much against getting significantly worse. [The economy] has sort of plateaued at the bottom right now." The third quarter of 2009 was the first quarter of positive GDP growth, following four quarters of contraction.
Bullish? Yes, but...
With that said, I'd separate Buffett's woolly "I'm a huge bull" statement from the rest of his comments, which are genuinely useful. I'm a huge bull on this country, but the question is: Over what timeframe? We may well skirt a double-dip recession, but that won't wipe away the notable weakness of this "recovery," nor the subpar growth we can expect for several years.
The U.S. is not alone
Furthermore, the U.S. does not operate in a vacuum. We are currently witnessing renewed signs of strain in the European financial system; a major flare-up in Europe's sovereign debt/ banking crisis could certainly trigger a global slump.
"Defensive" remains the watchword
There are plenty of reasons to be a long-term bull on the United States (as well as reasons for real concern). In the immediate future, I think investors would do well to maintain a defensive posture by favoring high-quality companies, particularly those that pay a healthy dividend. In fact, these are the very sort of stocks that Buffett likes to own in Berkshire Hathaway's portfolio, including Coca-Cola (NYSE: KO ) (dividend yield: 3%), Procter & Gamble (NYSE: PG ) (3.2%), ExxonMobil (NYSE: XOM ) (2.9%) and Johnson & Johnson (NYSE: JNJ ) (3.6%).
In this market, dividends will be a major component of future stock returns -- and right now, dividend stocks are cheaper than ever.
Berkshire Hathaway and Coca-Cola are Motley Fool Inside Value recommendations. Berkshire Hathaway is a Motley Fool Stock Advisor pick. Johnson & Johnson, Coca-Cola, and Procter & Gamble are Motley Fool Income Investor choices. The Fool owns shares of and has written covered calls on Procter & Gamble. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Berkshire Hathaway, Coca-Cola, and ExxonMobil. Try any of our Foolish newsletter services free for30 days.
Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.