When you run a business as large and diversified as Berkshire Hathaway (NYSE: BRK-B)(NYSE: BRK-A), you naturally keep an eye on the broad economy. In March 2008, Warren Buffett said the economy was in recession -- nine months before the National Bureau of Economic Research confirmed it. At the beginning of June, Buffett's favorite indicator of economic activity declined sharply -- hardly a good omen for the V-shaped recovery, a beast that remains elusive, despite numerous claimed sightings.

Watching the trains go by
The indicator in question is freight car loadings, which reflect the amount of goods transported over the railway system. According to David Rosenberg, chief economist at asset manager Gluskin Sheff, the latest data for the week of June 5 shows a rate of decline over the past 13 weeks that would work out to 25% on an annual basis. This is particularly troubling, since, as Rosenberg notes, " This metric is closely linked to the only [two] areas of the economy that have been major contributors to the recovery: Exports and inventories."

Growth is slowing
In other words, this is bad news for more than just railroads such as Berkshire's own Burlington Northern. It could be a signal that the pace of the recovery is slowing considerably.

With European nations collectively choosing to walk down the path of fiscal austerity in response to their sovereign debt crisis, and the parallel rise of the dollar, I think the risk of double-dip recession in the U.S. has increased markedly over the last six weeks. A similarly cautious tone prevailed at the GAIM conference in Monaco on Tuesday -- one of the leading gatherings of the hedge fund industry. Many fund managers are reducing their risk after a challenging month of May.

High-quality, defensive theme
In that context, I will repeat my suggestion that investors favor high-quality businesses in defensive sectors. Not only are they more resilient to a volatile economic picture, but they're also selling at a discount to the broader market. The following table contains four examples of such companies:

Company

Price/ Earnings (2010 EPS)

Dividend Yield

Kraft Foods (NYSE: KFT)

14.6

3.9%

Pfizer (NYSE: PFE)

7.1

4.6%

United Technologies (NYSE: UTX)

14.7

2.5%

Wal-Mart Stores (NYSE: WMT)

12.7

2.3%

S&P 500

16.5

2.0%

Source: Capital IQ, a division of Standard & Poor's, Standard & Poor's Indices, and State Street Global Advisors.

A double-dip recession is far from inevitable, but it would be a mistake to dismiss the idea out of hand. Job creation, which is critical to a durable recovery, remains extremely weak. As such, investors are well advised to continue playing a tight game.

Investors should expect disappointing returns from U.S. stocks over the next several years. The good news is that there are alternatives for your money. Tim Hanson explains how to make more in 2010.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Berkshire Hathaway, Pfizer, and Wal-Mart Stores are Motley Fool Inside Value recommendations. Berkshire Hathaway is a Motley Fool Stock Advisor selection. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.