Why is Warren Buffet optimistic?

October 7, 2010

I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board”   ….

Warren Buffett, September 13, 2010

Part of my job is to help my clients look beyond the headlines and at some of the things happening in our economy.  Bad and worrisome headlines sell news and take the majority of space.  So this post will provide some information on what business managers and owners are saying.  First let’s look at the short term summary of stock market performance in 2010 to date:

Stock markets in 2010 saw a strong first quarter, a pullback in the second quarter and a recovery in the third quarter.  All major stock markets are modestly positive year to date.

Here’s how markets have performed in the last quarter and so far this year:

  Canada US Europe Emerging Mkts World Mkts
July 3.9% 6.9% 5.8% 6.2% 5.8%
Aug -1.0% -4.4% -7.4% -1.4% -3.3%
Sept 3.7% 9.1% 5.3% 7.7% 7.0%
July to Sept 9.4% 11.5% 9.1% 12.9% 9.4%
2010 to date 5.6% 4.0% 2.3% 8.2% 2.0%

 

       Source: MSCI index. All returns are in local currency

One of the keys to success is for investors to maintain emotional equilibrium, preventing the highs from being too high and the lows from being too low.

Many of my clients eave expressed their pessimism about the American and global economies … driven by daunting headlines about slow economic growth, depressed housing prices, high unemployment and deficit problems in the U.S. and Europe,  not to mention political challenges in Washington.  This pessimism is amplified by the media coverage given to voices of gloom such as Nouriel Roubini and David Rosenberg.

It’s easy to miss some of the good news beyond the headlines: like the information that came out of the Big Sky Conference that took place in mid September.  It provided some offsetting perspectives by leading business managers on the mid and long term positives for the United States and globally.

Read more: http://advisoranalyst.com/advisor/2010/09/28/why-warren-buffett-is-optimistic-a-quarterly-letter-to-send-clients/#ixzz10vT8Nw00

Speaking to 2000 business and political leaders at “The Big Sky Conference” in Montana, here are comments from Warren Buffett, Steve Balmer of Microsoft and GE’s Jeff Immelt.

Warren Buffett:

“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board … … it’s night and day from a year ago.”

“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.”

“The things that worked for the country through a century of two world wars, a depression and more – all while increasing the standard of living – will work again.”

Steve Ballmer, Microsoft:

“There soon will be more technological advancement and invention than there was during the Internet era and that will help drive business growth.”

“I am very enthusiastic what the future holds for our industry and what our industry will mean for growth in other industries.”

“We will see new technologies that move beyond the Internet to tie together computers, phones, televisions and data centers to create amazing new products. And the pace of innovation will increase as technology makes workers more productive.”

Jeff Immelt, GE:

“Angry political rhetoric is not helpful and headlines are too focused on finding negative indicators.”

“Business at GE is improving. Signs across the world show growth improving as evidenced by a rise in GE’s orders.”

“GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.”

Looking forward

These positive views are supported by recent research from McKinsey & Company, today’s leading strategy consulting firm and the first place many Fortune 500 CEOs look to advice.

McKinsey surveyed 2000 executives around the world in early September.

  • Almost 60% said their country’s economy is in recovery.
  • Most expect profits to rise from last year.

And nearly 40% expect to hire employees by the end of 2010.

As is typical of every economy over 10 decades of recorded market history, there will be challenges ahead, both for global economies and for stock markets.  Economies and markets will do what they always do – move in cycles.  And given fragile market psychology, it’s entirely possible that we’ll see a market correction in the next twelve months.  Volatility is here to stay and must be accepted by all investors.

However, when I look at a broad range of credible points of view for the next year or so, and not from just those who shout the loudest or take the most extreme positions … especially views reflected in the comments from Warren Buffett, Steve Ballmer and Jeff Immelt and by the McKinsey research, I believe today’s pessimism is overdone and I remain positive on the long-term outlook for the global economy.

This is why I continue to recommend that all my clients have their full target allocation to equities.

My thanks for the opportunity to work with you. As always, should you have any questions on this note or any other matter, my team and I are always happy to take your calls.

Richard WR Yasinski CFP

P.S.  Should you be interested, here are two articles on the Montana conference:

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

http://news.yahoo.com/s/ap/20100913/ap_on_bi_ge/us_economy_leaders

Read more: http://advisoranalyst.com/advisor/2010/09/28/why-warren-buffett-is-optimistic-a-quarterly-letter-to-send-clients/2/#ixzz10vTII6Mj

Personal learnings from a bath room renovation

I’m renovating two bathrooms that are long overdue for an update.  I really do enjoy doing a lot of the work myself – it’s a good distraction from my real job.  I have learned a few things about renovations over the years that I thought would be worth sharing:

1 – There is always a more expensive toilette – and it is better.

2 – There is always a more expensive tile – and its not really better.

3 – Nothing beats natural stone (qwartz, granite or marble) for a counter.

4 – Everyone says a bath tub is important to have in a bathroom but nobody actually takes a bath.

5 – Customizing anything is twice the time and money of anything ‘off the shelf.’

6 – Your son and daughter won’t help as much as they say they will.

7- It always takes 2-3 times as long, and as much, as you plan.