Buffett Doesn't Double-Dip

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.


Read/Post Comments (12) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 14, 2010, at 7:38 PM, henryking54 wrote:

    I checked the CFA Institute website and Mr. Dumortier is not listed as being a CFA charterholder. Be careful of people who claim to be a CFA charterholder but who actually aren't.

    If Mr. Dumortier does not take down the CFA designation from his byline, I will be forced to report him to the CFA Institute.

    Below is the ethics rule he is currently violating:

    VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE

    B. Reference to CFA Institute, the CFA Designation, and the CFA Program.

    CFA Institute membership

    Requirements to be granted the right to use the CFA or Chartered Financial Analyst designation:

    1. Passed all three levels of the CFA program;

    2. Received the charters;

    3. Makes an ongoing commitment to abide by the requirements of CFA Institute's Professional Conduct Program (including filing an annual professional conduct statement);

    4. Due-paying (every year) charterholders in good standing.

    If a member fails to meet either 3 or 4, he or she cannot claim him or herself as a member.

    All CFA Institute members and CFA candidates must abide by the Code and Standards. Violations may result in disciplinary sanctions by CFA Institute. Sanctions can include revocation of membership, candidacy in the CFA Program, and the right to use the CFA designation.

  • Report this Comment On September 14, 2010, at 9:34 PM, mdurrant wrote:

    henryking54, I'm not saying you're wrong but unless you're a CFA institute member yourself, you don't have access to the complete directory of charterholders. If Alex has opted out of the public directory you won't find him on the public search.

  • Report this Comment On September 15, 2010, at 1:14 AM, BillyTG wrote:

    henryking54, good job if you're right. Fakes need to be called out. However, let me ask you this question: If Mr. Dumortier is not a CFA, is he obligated to abide by the CFA Institute's rules? When his dues were current he could call himself a CFA, and when his dues went non-current, it could be argue that he was no longer part of the CFA Institute and therefore not subject to its rules. He might be a total liar and unscrupulous, but can anyone really do anything about it, other than to try to publicly humiliate him?

    As for Warren B, if we analyze his statement, we are left with little value. He might not believe there will be a double dip recession, but Peter Schiff believes the same thing. Peter Schiff says we are in ONE LONG DEPRESSION. Maybe Buffett thinks we are in a single long recession/depression. Also, just because Dairy Queen is selling more Blizzards does not mean the economy has turned around or that we'll be even close to recovered in the near term. Anyone who thinks the dollar or the US economy is inherently strong is on hallucinogens.

  • Report this Comment On September 15, 2010, at 8:25 AM, dfrizzle03 wrote:

    BillyTG, i know where your going with that, but you have to read what henryking54 wrote again.

    Requirements to be granted the right to use the CFA or Chartered Financial Analyst designation:

    1. Passed all three levels of the CFA program;

    2. Received the charters;

    3. Makes an ongoing commitment to abide by the requirements of CFA Institute's Professional Conduct Program (including filing an annual professional conduct statement);

    4. Due-paying (every year) charterholders in good standing.

    If a member fails to meet either 3 or 4, he or she cannot claim him or herself as a member.

    in order to have the right to have the designation CFA, you must follow the rules set aside by the institution that grants those rights. the designation is trademarked, so anyone who wants to put that behind their name when publicizing anything must abide by the institutions rules. otherwise its characterized as copyright infringement and subject to federal law. and trust me, the institutes that issue the designations CFA, CFP, CPA, etc. will do whatever possible to protect their trademarks.

  • Report this Comment On September 15, 2010, at 8:58 AM, henryking54 wrote:

    It's funny, three hours after I exposed Dumortier as violating the CFA Insitute's ethics rules, he paid his dues and is now listed. It's sad that it takes a threat from me for him to pay his $275 annual dues!

  • Report this Comment On September 15, 2010, at 9:10 AM, henryking54 wrote:

    Furthermore, even though Dumortier has now paid his dues, this does not erase his previous ethics violations that have already occurred.

    The fact remains that Dumortier fraudulently held himself out to be a CFA charterholder for a period of time that he was not in good standing with the CFA Institute.

    In other words, Dumortier could still face disciplinary action.

  • Report this Comment On September 15, 2010, at 9:17 AM, dcrednek wrote:

    Can we get back to commenting on his article, rather than the status of the author's credentials?

    As for the article.....I look at Buffett's comment with a bit of a different lens. As many who follow BH know, Buffett seeks companies with high operating margins, high returns on equity, moderate to low debt/total capital ratios, and a long-term competitive advantage that is evidenced by consistent and predictable earnings & cash flow. Now in this particular economic climate I would presume that these companies would fare better than highly leveraged, low margin enterprises. Therefore, I believe Buffett's comments that his companies (that is, companies that comprise BH) are growing and gaining market share relative to their more poorly-positioned competitors.

    But BH thrives in good conditions and bad, so it is unfair to assess the overall outlook of the economy by its performance alone. In all though, Dumortier's observations are on-point: WB isn't saying that the US economy is about to shed its current funk. WB is saying that he believes the US economy will grow and thrive again at some point (yet to be determined) in the future; and that has been his philosophy for decades. He's never professed to be a market timer, but rather a sit-and-wait sort of guy. I think Dumortier is also correct in stating that the US economy may very well move sideways for several years in a best-case scenario.

    What are the chances of a double-dip? Better than nil, that's for sure. The federal government, the largest consumer in the US economy, will largely determine whether or not that possibility comes to fruition.

  • Report this Comment On September 15, 2010, at 10:14 AM, Jbay76 wrote:

    Actually, this is a very important point that should not be glossed over. We join the Fool to get sound investment advice, and as we all know, investing involves a degree of faith in the numbers we analyze. Cooked books lead to bad investments. So, here it is found that Alex was being fraudulent with his background, and in doing so misleading us. How is it that MF or Alex has not addressed this issue publicly since it has occurred. Shame on Alex and MF for treating us like fools!

  • Report this Comment On September 15, 2010, at 12:15 PM, TMFAleph1 wrote:

    I was hoping to avoid responding on this topic, as I don't like to gratify trolls, but the underlying question is legitimate.

    I did allow my membership to the CFA institute to lapse in error and I was alerted to that fact by the CFA Institute a little over a week ago. I was in the process of moving from Washington D.C. to Los Angeles so I didn't get around to paying my dues then. Thanks to henryking's friendly reminder, I paid my dues yesterday and re-activated my membership.

    Note that when I submitted this article, I did not include the CFA designation in my byline. However, I should have explicitly warned my editor not to include it, as it ended up being added as a matter of routine.

    I trust this clears up the matter and we can all move on to more important issues.

    Alex Dumortier, CFA

  • Report this Comment On September 16, 2010, at 11:41 PM, henryking54 wrote:

    If you don't really care about breathing, Los Angeles is a great place. The metro area that stretches from Long Beach to Riverside has the worst ozone pollution in the country, according to the American Lung Association's State of the Air report for 2010. Along with being tops in ozone pollution, L.A. is ranked third in year-round particle pollution, and fourth in short-term particle pollution.

    Ozone is the byproduct of pollutants released by cars, chemical plants, refineries, and other sources. It exists naturally in the upper atmosphere of the Earth, but when emitted at ground level, it's considered a harmful outdoor pollutant. Inhaling ozone can cause wheezing, coughing, chest pain, throat irritation, congestion, and can make people more susceptible to respiratory illnesses such as bronchitis and pneumonia, according to the U.S. Environmental Protection Agency. Think about that next time you drive in Los Angeles, which also lays claim the worst traffic in the country.

    http://www.walletpop.com/blog/2010/08/05/10-worst-places-to-...

  • Report this Comment On September 23, 2010, at 1:14 PM, BillyTG wrote:

    Shocking news: Buffett says we are "STILL IN A RECESSION."

    http://www.reuters.com/article/idUSTRE68M2TZ20100923

    This is exactly what I said, that his statement of not having a double-dip recession might just mean he believes we are in ONE extended recession/depression.

    Leave it to Motley Fool writers to take one of Buffett's sentences and blow it up into meanings never intended.

    Mr. Dumortier, I don't care if you are a CFA or not, whether it is current or not. What I care is that you stop writing nonsense. Motley fool used to be about being smart and ignoring the BS. Somehow MF became part of the problem and spews garbage daily. What happened?

  • Report this Comment On October 08, 2010, at 1:24 AM, TMFAleph1 wrote:

    @BillyTG

    How am I taking one of Buffett's sentences and "blowing it up into meanings never intended"?

    Can you give me an example of some of the "nonsense" I have written?

    Alex D

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