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Government's Biofuel Timetable Could Spell +15,900% Growth
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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What One Wall Street Visionary is Doing in
this
Once-in-a-Lifetime Market |
Published:
October 20, 2008
We had
some breaking news come out last week. No, I'm not referring to the sharp
drop in new home construction, the rally taking place in
European markets, or even Google's (Nasdaq: GOOG) surprisingly
robust third quarter earnings report.
I'm talking about Warren Buffett's ringing endorsement for U.S.
stocks.
As I have quoted repeatedly over the years, one of Buffett's
most enduring philosophies is to be greedy when others are
fearful -- and there is no shortage of fear in the market right
now. So it shouldn't come as much of a surprise to hear that the
"Oracle of Omaha" has turned decidedly bullish at a time when Wall
Street is clogged with myopic investors running for the exits.
In an op-ed piece for The New York Times, Buffett came out
strongly in support of stocks, saying "if prices keep looking
attractive, my non-Berkshire net worth will soon be 100% in
United States equities." Even for a candid man never known to
mince words, this is a pretty bold comment.
And keep in mind, Buffett has a keen sense of where the world's
best value opportunities lie -- not long ago, he pocketed
billions by betting against the dollar and piling into foreign
markets like China and South Korea. So it's highly reassuring to
see this optimistic view regarding the future earnings potential
of American companies. These comments back up the heavy
investments that Buffett has made with Berkshire Hathaway's
(NYSE: BRK-B) cash stockpile in recent weeks.
Now, I'm not suggesting you should take out a second
mortgage on your home and begin buying every stock in sight. However, there is little doubt that many of the country's
strongest companies are trading at depressed prices that in no
way reflect their true value. Blue-chip stocks like McDonald's
(NYSE: MCD) may be struggling at the moment, but do you really
think the Golden Arches won't be around in the next 5 or 10
years?
Some people thought the sky was falling in October 1987 too, but
we recovered quickly from that downturn. Personally, I'm wishing
I had dumped a lot more money in the market back then (when the
Dow traded below 2,000) -- and 20 years from now we might all
look back and say the same thing about today's Dow price of
around 9,000.
Of course, every situation is different, and the economy is more
than likely headed for (or already in) a recession. Clearly,
that could weigh both on corporate earnings and stock prices for
a while.
On the bright side, I think we have already wrung out most of
the sellers. Last month, investors cashed in more than $40
billion in hedge fund holdings, forcing those managers to sell
into a down market to raise cash. Remarkably, a key index of the
top 50 stocks held by hedge funds tumbled -19% last month, more
than double the drop in the S&P 500. Incidentally, one of the
most favored names among hedge funds was Freeport McMoRan (NYSE:
FCX), which now
trades at an insanely low 4.5 times earnings because of this forced
selling.
But most managers said they have now liquidated enough positions
and raised enough cash to meet current and future redemptions. And while retail mutual fund redemptions are also playing a
role, I believe they too will wind down after the tax harvesting
season. All of this should help ease the selling pressure in the
months ahead.
As I've said before, the market is a forward-looking
mechanism that is always peering into the future and pricing in
what lies ahead. Therefore, stocks tend to recover long before
there are visible signs of sustained economic improvement -- so
don't wait too long to act. As Buffett so colorfully quipped,
"If you wait for robins, spring will be over."
On last Monday's rally alone, more than $1.2 trillion in wealth was
created. Granted, that was a record-breaking day, but I'm
betting there's more where that came from.
Buffett's comments join a chorus of seasoned money managers who
are all starting to sing the same song -- and it's music to the
ears of a value investor.
There are highly profitable companies with sustainable
competitive advantages trading at just 1 or 2 times earnings. Of
course, there's nothing saying the market can't slide even
further. But my money says we're much closer to a bottom than a
top, and investors who can see through the present and look to
the future will make big money. Certainly Warren Buffett thinks
so, and his intuitions are almost never wrong.
Meanwhile, I plan to step up my buying and remain active in
the weeks ahead. Long-term investors might also want to consider
some bargain hunting of their own. However, just because there's
a sale doesn't mean you should pick up the first thing off the
rack; due diligence and careful stock selection remain as
important as ever.
Good investing!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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