According to Jeannine Aversa and Christopher S. Rugaber, AP Economics Writers, “Despite persistent layoffs, the economy seems to be faring better than it was at the start of the year.”
Begging their pardon, but I’m not sure exactly what they’re talking about, since consumer spending is still well below par and unemployment is closing in on double digits. For that matter, Warren Buffet doesn’t quite follow them either.
On Wednesday, he did a live interview with CNBC and made a few comments that had the business world buzzing. Then again, that isn’t anything new, since when Buffet speaks, investors listen.
The legendary “Oracle of Omaha” had the following to say:
- “I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we’ve had no bounce.”
- “In terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while.”
- “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.”
And as for those “green shoots” that Federal Reserve Chief Ben Bernanke saw and the “glimmers of hope” that President Obama found? Well, Buffett was very careful about not criticizing the current administration, but he did say that if those positive signs exist, he isn’t seeing them.
“Whether it’s retailing, manufacturing, wherever,” he dismissed the idea. “We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.”
Understanding The Times
Now before I continue, don’t misunderstand what I’m going to say next, because I believe that Warren Buffet’s opinion is extremely valuable. But he, like everybody else out there, is still human. Which is why he said to get into stocks well before the market hit its apparent bottom in March.
So let’s look at the facts as well as the expert opinion. Yes, stocks are up today, but we all know how very irrational the markets can be and have been for months now.
- GDP was down 5.5% in March, as compared to January. (Incidentally, this was reported in the afore mentioned Aversa and Rugaber’s article.)
- Initial claims for jobless benefits increased to 627,000, an added 15,000 from the previous report.
- The number of people continuing to receive unemployment insurance rose by 29,000 to 6.74 million.
But, says Arthur Hogan, chief market analyst at Jeffries & Co., unemployment usually goes up even after the economy has started to improve. So it doesn’t matter that analysts expect unemployment to increase from 9.4% to 9.6% by the end of this month, or that our own president - who assured us that passing the stimulus bill earlier this year would save us from seeing worse - said on Tuesday that he believes unemployment would push into the double digits this year. And it doesn’t matter because…
- Lennar Corporation (NYSE: LEN) reported that orders for new homes jumped 63% during the 2nd quarter.
- Bed Bath & Beyond (Nasdaq: BBBY) reported that its fiscal profit for the first quarter rose 14%.
I am very happy about Lennar Corporation’s results, and I agree that they do sound positive. But as for Bed Bath & Beyond, that 14% rise shouldn’t account for any market movement other than within its own stock. Late last year, the chain’s biggest competitor - Linens N Things - went out of business, so of course it should have seen a significant increase in sales. If anything, maybe it should have seen even more of a jump.
Clearly, investors will grab at anything they can, which means that they will also bail out easily if the going gets too tough, which there are no guarantees that it won’t at this point.
Our investment director, Karim Rahemtulla wrote about volatility making a comeback for yesterday’s Xcelerated Profits Report weekly update, and these facts should keep that volatility strong as hopes war with despair, with the actual truth somewhere in the middle.
Thursday, June 25, 2009 - by Jeannette Di Louie, Assistant Editor, Mt. Vernon Research.
