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Buffett sees uneven recovery
Mar 2, 2011

"Billionaire Warren Buffett said the U.S. economy is "coming back" and does not need more stimulus.

He said improvement in the business environment is likely in future months to be reflected by a decline in the U.S. unemployment rate, probably to the low 7 percent range by the November 2012 elections.

Buffett maintained his "enormous respect" for the efforts of Federal Reserve Chairman Ben Bernanke to move the economy forward.

Housing remains a problem, and Buffett said it might take a year to have "sopped up the excess supply" of homes.

He also fretted over a U.S. budget deficit equal to roughly 10 percent of gross domestic product, projecting "lots of inflation down the road" unless tough choices are made.

Buffett said these could include higher taxes, or requiring politicians to go back on promises they made to voters."

PeakTrader said...

Buffett has $38 billion in cash and looking for acquisitions.

Perhaps, he should look at homebuilders (KBH has a market cap of $1 billion), given the housing turnaround in a year.

Something like C or AMGN may be too big, and over 90% of small cap biotechs have no quality, may be too small, and may not be his field of expertise.

Also, to reach the low 7 percent range in the unemployment rate by the November 2012 elections, real GDP will need to expand strongly over the next year and a half.

It takes 5% real growth for a full year to bring down the unemployment rate one percentage point.

However, that may not include hundreds of thousands or millions of discouraged workers re-entering the labor force.

Labor Force Participation at 26 Year Low
February 04, 2011

"Today at 64.2%, the labor force participation rate is now at a 26 year low.

This the lowest since 1984 and is the primary reason the unemployment rate has dropped to 9.0%.

Those not in the labor force has increased from 83.9 million to 86.2 million (a drop of 2.2 million in just one year).

There is no broad base recovery underway despite the best efforts to report otherwise."

Also, I may add, unemployment remains deep in the hole, with 15 million unemployed and 125,000 to 150,000 people a month entering the workforce from population growth.

However, the U-shaped recovery will accelerate when a virtuous cycle of consumption-employment takes hold (where consumption generates employment and employment generates consumption).

Also, U.S. actual output remains far below potential output:

The Legacy of the Great Recession
March 1, 2011

In the fourth quarter of 2010, the demand for goods and services (actual GDP) was about $822 billion (5 percent) less than what the economy was capable of supplying (potential GDP).

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