Warren Buffett believes in stocks, although the economy shows no signs of life
Jul 24th 2009 12:30PM
Updated Dec 4th 2009 6:45PM
Warren Buffett appeared on CNBC this morning, and noted that the economy isn't showing any signs of life yet. He conceded that business is still flat, but that doesn't mean that he is bearish on stocks. In fact, Buffett predicted that the market would turn around before the economy.
Buffett noted that waiting to buy stocks until the economy improves could mean that investors miss the largest stock gains. He still asserts that stocks will outperform cash investments in the long term.
The Oracle of Omaha agreed that there are "real inflationary possibilities," thanks to the stimulus package, but believes that this is a necessary side effect to helping the economy improve. And he believes that the nation should focus on improving the economy, making this the primary focus.
We can assume, then, that Buffett sees the move above 9,000 for the Dow as a buy signal. Of course, Buffett also thinks that the dollar and treasuries will lag behind the broader economy. What does this mean for stocks moving forward? Buffett believes they will continue to rise, so watch for a bit of a push in volume as investors -- many of whom hang on his every word -- take Buffett's advice.
Who will reap the benefits of such an economic situation? Those with enough money to make substantial investments in growth companies, that's who. In order for the Dow to sustain its move above 9,000, upper echelon investors will need to spend their money. Will this happen? It will be dicey, we are in the midst of earnings season, which can bring wild fluctuations in the Dow (much like the one we saw yesterday). Will the venerable index find support at the 9,000 level? It will be interesting to see.
It is important to note that the Dow is peaking near its early-year levels, closing at $9,061.28 yesterday. On January 6, the Dow hit a high of $9,088.06. What if the Dow backs away from this level? Is it a major rejection? Does rejection in this region signal an impending downtrend? Perhaps.
One thing is certain, investing and succeeding in this environment will take vigilance and courage. Timing will also be important, and we could be at a major crossroads -- pay attention to today's action to get a hint of what is in store. A pullback and close below 9,000 could allow this level to entrench itself as resistance. Should the Dow slump and find support at the 9,000 level, it could signal that Dow will be able to use this region as a bouncing board. The Dow's trading action in the next few sessions could be critical.