"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
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
"… [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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