Market Rebound and Buffett the Bear

warren buffett bearAs expected, we saw the belated rebound rally occur today, which was sparked by not only more profit taking, but also by some favorable earnings reports. Bed, Bath and Beyond reported a rather strong earnings report, which shot their stock up near 10% today. Also, home builders got some love from buyers, as Lennar reported less "cancellations", however, their earnings report still remained rather dismal. It is important on the earnings reports to pay attention to their NET income and not just their revenues. Retailers are still having record slash to prices for their goods, that many of them are selling much more of their inventory, however, their margins have shrunk dramatically.

The 172 point rally for the Dow was sorely needed after several consecutive days of down trading for the index. Like I've said in prior posts, I still believe the momentum remains on the downside, but we can of course expect sporadic up days like today. In fact, I found it a good opportunity to pick up some more SRS and FAZ shares today, as I continue to feel that there will be weakness in the financial and commercial real estate sector.

Yesterday, Warren Buffett was interviewed on CNBC, and definitely had more discouraging things to say than encouraging, regarding the economy. Being a CEO himself, as well as having one of the most prestige stock symbols on the exchange with Berkshire Hathaway, sometimes Buffett is forced to play into politics. However, he did not hold back much yesterday, when he explained his concerns about this troubled economy.

When being questioned about the state of the economy and if we've seen some growth, Buffett gave this response:

Well, it's been pretty flat. 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. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But 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.
No bounce, he said. Buffett's biggest resource are his vast array of companies he manages and is privileged to know the state of their balance sheets. Such knowledge definitely gives the old man a bit of an advantage to be able to see the early seeds of a turn around.

In response to being asked whether he's personally seen these so called "green shoots", he said:
(Laughs.) I looked. I wasn't seeing anything. I had a cataract operation on my left eye about a month ago and I thought maybe now I'll be able to see green shoots. We're not seeing them. Whether it's retailing, manufacturing, wherever. 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.
In times past, Buffett has always tried to paint as optimistic of a picture as he could, with also stating true facts. However, much throughout his interview, he continues to stress his belief that it will be a very long road back to economic health. Sure, he does feel that some sectors have already endured the worst and that the economy will get back on track, but he feels that the road is long, and probably not ending this year.

Much is still to come in our economic crisis, in my mind. This is why I continue to hedge myself on the short side, especially as more opportunities arise. I discuss some concerns I have in the residential real estate market in tonight's premium podcast (subscribe here) as well as some more S&P data that is showing new trends. My Zecco.com account has performed quite well this past week and I will be looking forward to some more green. Happy Trading.

3 comments:

  1. Anonymous Says:

    Everyone and their grannies know that the market is overbought and due for a pullback. But don't think it will happen now or soon. The market always act opposite. When you least expect it to pullback, maybe it will turn around. Hope i'm still alive to see it happen!

  2. Anonymous Says:

    If everyone and their grannie knows a pullback is coming where will the money come from to but more bloated stocks? The game is over. New lows are coming.

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