Buffett Rules Out Double-Dip U.S. Recession

[Charlie]

http://www.bloomberg.com/news/2010-09-13/buffett-rules-out-double-dip-u-s-recession-says-berkshire-units-growing.html

[Parsad]

I would have to agree.  There is nothing in the short-term that would make be believe we could experience a double-dip right now.  There is enough stimulus and tax credit packages at work around the world; monetary policy is still very loose; interest rates are low; China & India are humming; manufacturing, inventories and transportation are picking up.  Retail is slow but picking up, consumption is improving slowly, house prices are stabilizing.  Unemployment is still high and it will take time to come down. 

 

I think the deflationary period has subsided and we may start to see some inflation in the next year or so.  What will happen five years from now when interest rates start to rise, I don't know...things could get very tough...but I think the economy is slowly, but surely picking up in the short-term.  Cheers!

[treasurehunt]

"We will not have a double-dip recession at all." -- Buffett

 

Wow! That is a very emphatic statement. Buffett is at odds with a lot of well-respected investors and economists on the possibility of a double-dip. It will be fascinating to watch how the next year or two unfolds. Of course I'll be rooting for Buffett, especially since I am long stocks to the tune of about 90% of my portfolio. :-)

[omagh]

“I’ve seen sentiment turn sour in the last three months or so, generally in the media,” Buffett said. “I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”

 

Employment is a lagging indicator and has been persistently slower to recover in the last 2 recessions which have seen significant losses for investor and household balance sheets during the tech meltdown (2001) and the credit crisis (2008).  Previous recessions going back to the 1950's have seen a much faster snapback in the employment rate after peak unemployment in a recession.  It's good to see larger companies starting to hire and putting dollars into household balance sheets.  We are reaching a turning point that will become more visible to the wider economy.

 

My cash levels have been dropping in the last few weeks as opportunities presented themselves, moving from 30% down to 10%.

 

-O

[Guest ValueCarl]

He never gives up the opportunity to pump bankers, especially the ones that he owns though, does he? It sounds like he wants business people to act like "oversexed" college males as if they were in a "whorehouse" jumping on their bankers' love.

 

This is a PUMP along with an attempt to "STIMULATE!"  ;) 

 

<Buffett, who spoke via video connection to an assembly in Butte, Montana, said U.S. banks were ready to boost lending and encouraged entrepreneurs to seek financing for their business ideas. Berkshire is the biggest shareholder of Wells Fargo & Co., the top U.S. home lender.

 

‘Night and Day’

 

“It’s night and day from a year, year and a half ago,” Buffett said. “I know Wells Fargo, they would love to have $50 billion more of loans now. Go in and talk to the banker.”>

[Guest ValueCarl]

While his trusty Boy Wonder, leads the way.

 

Microsoft Reportedly Plans Debt Offer For Divs, Buybacks

 

 

By Eric Savitz

 

Microsoft (MSFT) is planning to sell debt to pay for dividends and stock repurchases, according to Bloomberg, which cites “a person familiar with the matter.” The story says Microsoft would raise as much as possible without affecting its debt rating - perhaps $5 billion or more.

 

MSFT has a Aaa rating from Moody’s and a AAA rating from S&P.

 

MSFT today has spiked $1.40, or 5.9%, to $25.25.

[Zorrofan]

Interesting that Buffett is so "bullish" while others like Prem & Seth Klarman are more cautious. I wonder if WEB is doing a bit of cheerleading to try and stimulate consumers to spend, create a more optomistic attitude and counter some of the gloomier media reports?

 

cheers

Zorro

[Guest Bronco]

That MSFT proposal smells like a POS to me.

 

I am the first one to say that raising debt right now makes sense, but only if you can allocate the capital wisely. 

 

Why not just raise the dividend by increasing the payout %? 

 

One of the best businesses in the last 20+ years with some of the worst allocation of capital along the way.  Should be a great case study.

 

[Zorrofan]

Here for example is the latest ECRI WLI results...

 

the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the 14th consecutive week, coming in at -10.1, a fractional improvement over last week's -10.2, which was a downward revision from -10.1. So this index has essentially hovered around -10.1 for the past five weeks. The latest weekly number is based on data through September 3

 

Interesting to contrast this with WEB's comments....

 

cheers

Zorro

[Parsad]

No, I think the difference is that Prem and Seth have taken a longer-term macro-view based on their own circumstances...not unlike Prem's CDS bet in the past.  Seth runs a fund...his clients can pull their cash.  Prem uses more leverage than Berkshire, and doesn't have any non-insurance operating subs to diversify his stream of income.  

 

While Buffett is also subject to mark to market accounting, more of Berkshire's assets and income is derived from outside of the investment portfolio.  Buffett just goes chugging along like he always has, macro be damned.  There's a certain license taken and laissez-faire demeanor maintained, when your company spits out cash like an ATM and your shareholders worship at your feet.  Remember, Buffett said he doesn't see a double-dip, but he's not saying there won't be problems five or ten years from now.  Cheers!

[shalab]

That MSFT proposal smells like a POS to me.

 

I am the first one to say that raising debt right now makes sense, but only if you can allocate the capital wisely.

 

Buying back is a good idea - it also increases the percentage ownership of the current management. ( ~12% by Gates/Ballmer ). They can also increase dividends if they buy back adequate number of shares without really increasing payout.

[Guest Bronco]

Shalab - I am always in the minority in these debates, but I always believe that if you can't invest capital in good investments, give it back to me.

 

Someday, and I don't know when, MSFT will be outdated and worthless.  Maybe all applications will be run off the web.  Who knows?

 

In any case, that higher stake I own in MSFT (due to reduction in shares) will mean nothing to me.

 

I would rather have the cash and reinvest in growing and/or more sustainable businesses.

[goldfinger]

Interesting that Buffett is so "bullish" while others like Prem & Seth Klarman are more cautious. I wonder if WEB is doing a bit of cheerleading to try and stimulate consumers to spend, create a more optomistic attitude and counter some of the gloomier media reports?

 

Buffett has been calling this crisis an economic war from the beginning. One of the best examples is the Pearl Harbor terminology during the financial meltdown. He is the CEO of one of the most admired companies in the world and many people listen to what he says; in essence he is like a general in this war. A war cannot be won without morale. I would agree with you here that he is cheerleading too. And yes given the strength and profitability of Berkshire, he can afford to invest and wait without any fear for a long long time.

 

Here for example is the latest ECRI WLI results...

 

the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the 14th consecutive week, coming in at -10.1, a fractional improvement over last week's -10.2, which was a downward revision from -10.1. So this index has essentially hovered around -10.1 for the past five weeks. The latest weekly number is based on data through September 3

 

I know I am following it too: it has never happened in the last 70 years that the ECRI is that negative for so long without recessionary issues later down the road. Of course this is a statistical tool and therefore it will be wrong at some point but still, this one has been pretty accurate up to now and many other indicators are sending the same message.

 

I would like to be more optimistic but it was tough to be last week-end:

- houses for sale are literally mushrooming in my area (Bay Area).

- people I know that own car sales businesses told me they have had absolutely no sales at all in the previous weeks (used cars too). They have never seen that before. It might be a local problem but???

 

Moreover I would tend to believe that the stimuli have introduced some irregularities in certain lagging indicators that may correct over the next few weeks. Hussman talks about this in different ways in his last comments. The jury is still out, but if Buffett says it...

[Parsad]

Buffett has been calling this crisis an economic war from the beginning. One of the best examples is the Pearl Harbor terminology during the financial meltdown. He is the CEO of one of the most admired companies in the world and many people listen to what he says; in essence he is like a general in this war. A war cannot be won without morale. I would agree with you here that he is cheerleading too. And yes given the strength and profitability of Berkshire, he can afford to invest and wait without any fear for a long long time.

 

I have to disagree with the cheerleading reference.  I'm not sure how much more emphatic he can be...he said that there will not be a double-dip recession at all...that Berkshire's businesses are showing improvement across the board.  Immelt said the exact same thing.  About two months ago, I started to say the same stuff...about buying quality large-cap stocks that were relatively cheap...that things were improving...about buying WMT & JNJ, RRGB, LUK, etc...that when the turn comes it comes hard.  Yet, the permabears were out in full force talking about another depression!  Alot of investors are anchored...alot of investors have missed this second correction and turn.  Cheers!

[shalab]

Alot of investors are anchored...alot of investors have missed this second correction and turn.

 

Agree with this 100%.

[valuecfa]

I don't know if he was misquoted or not, as is often the case. However, Buffett has no idea if the market will double dip or not. Nobody does. He has often in the past stated himself that he never has any idea what the market will do in the next month or 12 months. This is a very presumptuous statement to say now, regardless of how the Berkshire subs, etc. are doing.

 

Recall that Buffett wrote his famous NYT op-ed titled, "Buy American, I Am" back in October 2008. And we all know what happened next...One of the greatest market free falls all the way through March 09. The market fell through the floor,  all the way to the infamous 666 on the S&P. Now to be fair, the market is currently higher than when he made his previous call, yet it fell precipitously shortly after he wrote the op-ed.

 

While Buffett is the best, he can't predict where the market will be over the next few months, be it 20% higher or lower.

[txlaw]

I don't know if he was misquoted or not, as is often the case. However, Buffett has no idea if the market will double dip or not. Nobody does. He has often in the past stated himself that he never has any idea what the market will do in the next month or 12 months. This is a very presumptuous statement to say now, regardless of how the Berkshire subs, etc. are doing.

 

Recall that Buffett wrote his famous NYT op-ed titled, "Buy American, I Am" back in October 2008. And we all know what happened next...One of the greatest market free falls all the way through March 09. The market fell through the floor,  all the way to the infamous 666 on the S&P. Now to be fair, the market is currently higher than when he made his previous call, yet it fell precipitously shortly after he wrote the op-ed.

 

While Buffett is the best, he can't predict where the market will be over the next few months, be it 20% higher or lower.

 

Let's not forget that there is a difference between saying that the market is undervalued, saying that the economy will not go into a double-dip, and predicting where the market will be in the short term.

 

Buffet was dead right when he said to buy in October 2008.  He wasn't timing the market, though.  He was saying that based on what he was seeing, the entire market was undervalued, a call he rarely makes.

 

I hope he is right about the economy. 

[valuecfa]

I don't know if he was misquoted or not, as is often the case. However, Buffett has no idea if the market will double dip or not. Nobody does. He has often in the past stated himself that he never has any idea what the market will do in the next month or 12 months. This is a very presumptuous statement to say now, regardless of how the Berkshire subs, etc. are doing.

 

Recall that Buffett wrote his famous NYT op-ed titled, "Buy American, I Am" back in October 2008. And we all know what happened next...One of the greatest market free falls all the way through March 09. The market fell through the floor,  all the way to the infamous 666 on the S&P. Now to be fair, the market is currently higher than when he made his previous call, yet it fell precipitously shortly after he wrote the op-ed.

 

While Buffett is the best, he can't predict where the market will be over the next few months, be it 20% higher or lower.

 

Let's not forget that there is a difference between saying that the market is undervalued, saying that the economy will not go into a double-dip, and predicting where the market will be in the short term.

 

Buffet was dead right when he said to buy in October 2008.  He wasn't timing the market, though.  He was saying that based on what he was seeing, the entire market was undervalued, a call he rarely makes.

 

I hope he is right about the economy.  

 

It is just as presumptuous to suggest the economy will not correct in the near term, as it is to suggest the market will not correct. No one can predict this, though one can make an educated guess, and i'd say Buffett has earned his reputation on educated guesses, based on sound principles.

 

It is one thing to say that he is not currently seeing a double dip in the economy, it is far another to suggest that we won't have one.

 

If the market falls 20% (not saying it will) for a period of time, then the economy will contract for a period to reflect that, in job layoffs, corporate hesitancy, and consumer restraint to spend. The market does follow the economy to a certain degree, however the economy also follows the market to a certain degree. I think it is highly unlikely we will ever see the 666 market lows again in our lifetime, or see the economy contract as far as it did in the recent past, but i don't necessarily think that we can't see unemployment jump a few more percent, or see GDP contract further, or see housing prices fall a bit further, or see a whiff of deflation over the short term. Of course to say that i know any of these things will happen is foolish. Over the long term it is a safe bet (IMO) to be bullish on America and the US markets, but to suggest that i know (or anyone else knows for that matter) that the market will do this or the economy will do that over the next short period of time is silly.

 

If one is inferring that Buffett is suggesting the economy (or market) won't dip again from this point, then i disagree on that not being possible. If one is inferring that the economy (or market) won't dip to the same extent in the near future, i would agree, though I wouldn't entirely rule out the possibility. If one infers from this that the economy is very likely to be in much better shape in several years, then i would agree.

 

I always have to roll my eyes when someone suggests that they know for fact that something will or will not happen in the near future. Which is why i am surprised to hear Buffett appear so definitive (since he usually chooses his words fairly carefully), unless his intention is to simply imply the economy will improve from its current standing over the long term, which is what i think he is probably saying.

 

 

 

 

[omagh]

That was a fat pitch followed by much fatter pitches.  Many of us on this board made fantastic returns on purchases during this period.  We didn't commit all of our reserves in one day, but by March 2009, most of mine were committed and I was wishing that I had more in my business and personal accounts.

 

I pay a fair amount of attention to the few public comments that Buffett makes.  His rational comments are like a value investor's beacon while things like ECRI indicators are noise.  Sorry Zorro, but I don't think that I've ever heard Buffett or Klarman talk about the ECRI indicator.

 

-O

Recall that Buffett wrote his famous NYT op-ed titled, "Buy American, I Am" back in October 2008. And we all know what happened next...One of the greatest market free falls all the way through March 09. The market fell through the floor,  all the way to the infamous 666 on the S&P. Now to be fair, the market is currently higher than when he made his previous call, yet it fell precipitously shortly after he wrote the op-ed.

[Guest ValueCarl]

If investors are anchored, irrespective of whether or not they have missed any "turns," they have good reason for remaining steadfast in their beliefs considering all the criminal manipulations and machinations which continue unfettered at home and abroad, most importantly, at the central banking levels tied directly to their politics.

 

What percentage of the world's insurance business, in addition to operating subs does this man from Omaha control X the globe to speak like a Messiah on behalf of ALL businesses?

 

Anecdotally, throughout Southern California including Palm Springs this weekend, I see pain and slowdowns! Immelt is right about the "service sector" but one doesn't turn thirty years or more of REGRESSION away from manufacturing around overnight!

 

I keep thinking about the Union Pacific freight cars passing through the desert during some of my travel time which appeared barren across almost 50 percent of the cars.

 

I think The ORACLE put on his SIX INCH PUMP spike heels today, adding much size to a man who isn't short. imo

 

     

[txlaw]

It is just as presumptuous to suggest the economy will not correct in the near term, as it is to suggest the market will not correct. No one can predict this, though one can make an educated guess, and i'd say Buffett has earned his reputation on educated guesses, based on sound principles.

 

It is one thing to say that he is not currently seeing a double dip in the economy, it is far another to suggest that we won't have one.

 

If the market falls 20% (not saying it will) for a period of time, then the economy will contract for a period to reflect that, in job layoffs, corporate hesitancy, and consumer restraint to spend. The market does follow the economy to a certain degree, however the economy also follows the market to a certain degree. I think it is highly unlikely we will ever see the 666 market lows again in our lifetime, or see the economy contract as far as it did in the recent past, but i don't necessarily think that we can't see unemployment jump a few more percent, or see GDP contract further, or see housing prices fall a bit further, or see a whiff of deflation over the short term. Of course to say that i know any of these things will happen is foolish. Over the long term it is a safe bet (IMO) to be bullish on America and the US markets, but to suggest that i know (or anyone else knows for that matter) that the market will do this or the economy will do that over the next short period of time is silly.

 

If one is inferring that Buffett is suggesting the economy (or market) won't dip again from this point, then i disagree on that not being possible. If one is inferring that the economy (or market) won't dip to the same extent in the near future, i would agree, though I wouldn't entirely rule out the possibility. If one infers from this that the economy is very likely to be in much better shape in several years, then i would agree.

 

I always have to roll my eyes when someone suggests that they know for fact that something will or will not happen in the near future. Which is why i am surprised to hear Buffett appear so definitive (since he usually chooses his words fairly carefully), unless his intention is to simply imply the economy will improve from its current standing over the long term, which is what i think he is probably saying.

 

 

Well, what if Buffett had said that he believes there is a very low probability there will be a "double dip" recession?  

 

You're opposed to the way he framed his beliefs about the economic outlook because it suggests certainty.  But we all know Buffett would not be so foolish to believe that there is 0% probability there could be two successive quarters of negative growth.  

 

My interpretation of his statement is different.  First, I take it to mean that he thinks there is a very low probability there will be a double dip recession.  Second, I gather that he used emphatic language in order to convey his beliefs in a way that shows that he is not hedging his bets, and in order to bolster confidence, as he is seen as a credible figure among both businessmen and lay people.  Those two objectives are not mutually exclusive.

 

I'm heartened by Buffett's statement not because he is a great investor and because we all admire him on this board, but because he controls businesses that should give him great insight into what's actually happening on the ground.  

 

He owns an electricity company, which allows him to see what industrial activity is like, as usage can go up and down quite a bit when industrial activity changes materially.  

 

He owns one of the largest full-service residential real estate brokerage firms in the US, which gives him insight into what the housing market is going through.  In fact, he owns a number of businesses with prospects that are directly tied to the housing market.

 

He owns McClane, one of the largest grocer/foodservice distributors in the US, which gives him an outlook on whether people are cutting down or increasing their consumption of essential consumables.

 

He owns one of the largest toolmaking companies in the world, which gives him some insight into whether factories are tooling up for new production.  

 

He owns a railroad, which gives him a pulse on the raw materials, inputs, and supplies that are being shipped around the country.  The macroeconomic outlook is very much reflected in these railroad shipments.

 

It's madness to ignore someone who has that much real economic data at his disposal but be more than willing to rely on a statistical indicator like the ECRI or on speculation by pundits, bloggers, and board posters!

 

Finally, it is true that the market can affect the economy -- which I think is the same thing as saying that aggregated expressions of confidence (or lack thereof) can have an effect on how people behave -- and vice versa.  But to connect market fluctuations directly and substantially to economic activity doesn't seem right to me.  We shouldn't be using the market to predict what the economy is going to do but should be using direct economic data that is available to try to get a real sense of what's happening.

 

Bottom line: maybe he's right, maybe he's wrong, but we shouldn't discount Buffett's opinion, as it has much more value than most commentary that is put out there.

[Guest ValueCarl]

You have provided fine examples of the breadth, depth and scope of Buffett's operating empire even while excluding insurance ops which advances his knowledge base towards sales, payrolls and more.

 

Without a doubt his opinion shouldn't be ignored, but watching him use it the way he has been allocating it the past few years, at the same time understanding who loses more if he's wrong, gives one a great deal of reason to be cautious at a minimum and always suspect!

 

Let me give you an example of what Buffett said eight years ago, before FLIPPING OUT of his position just one year later. Talking his book was an understatement for this remnant debacle from which one of his board members maintains influence over.

 

Did he say, "great confidence"? You're DAMN RIGHT! Was he trading on insider information? It's impossible to see how not!  >:(

 

Warren Buffett has loyalty to one image, and one image only. It's the currency image which multiplies and/or converts into the most US dollars which falls into his pocket. Most here are fine with that, so I digress except for the various degrees which ethics and morals are explored. imo

 

 

 

http://www.level3.com/index.cfm?pageID=491&PR=385

 

 

          <Warren Buffett, chairman of Berkshire Hathaway, issued the following comment on his company's investment in Level 3: "Liquid resources and strong financial backing are scarce and valuable assets in today's telecommunications world. Level 3 has both. Coupled with the management of Walter Scott and Jim Crowe, in whom I have great confidence, Level 3 is well equipped to seize important opportunities that are likely to develop in the communications industry.">

[scorpioncapital]

"Which is why i am surprised to hear Buffett appear so definitive "

 

Actually it's very simple - the National Bureau of Economic Research has not called the recession of 2008 over yet, therefore Buffet can be certain there will be no double-dip because you can't have a double dip if the original recession is not over. Semantics? No - a perfect prediction!

[manualofideas]

Let me give you an example of what Buffett said eight years ago, before FLIPPING OUT of his position just one year later. Talking his book was an understatement for this remnant debacle from which one of his board members maintains influence over.

Did he say, "great confidence"? You're DAMN RIGHT! Was he trading on insider information? It's impossible to see how not!  >:(

 

ValueCarl, please fill us in on what you are talking about, because I have no idea, especially when you mention Buffett and insider trading in the same sentence.  Thanks!

[twacowfca]

Let me give you an example of what Buffett said eight years ago, before FLIPPING OUT of his position just one year later. Talking his book was an understatement for this remnant debacle from which one of his board members maintains influence over.

Did he say, "great confidence"? You're DAMN RIGHT! Was he trading on insider information? It's impossible to see how not!  >:(

 

ValueCarl, please fill us in on what you are talking about, because I have no idea, especially when you mention Buffett and insider trading in the same sentence.  Thanks!

 

 

Lot's of luck.  :)