Tuesday May 08, 2012
by Ron Rowland, editor All Star Investor
Wise investors zero in on conflicting data points. Warren Buffett, the wisest investor of all, provided plenty to consider at the Berkshire Hathaway annual meeting.
Only a day earlier, a Bureau of Labor Statistics jobs report helped push the S&P 500 to its worst week of the year so far. Only 115,000 new jobs were added for the month.
Analysts had expected much more. The number of people leaving the labor force continued to rise. Economic recovery seems not quite as certain as it did a few weeks ago.
Mr. Buffett, of course, is famous for ignoring short-term information as he looks for long-term profits.
Lately he has found them in banks, specifically major ownership positions in Wells Fargo (WFC) and Bank of America (BAC).
Not surprisingly, then, he said Saturday "The U.S. banking system is in fine shape." Of course it is; if Buffett thought otherwise, he wouldn't be in the stocks.
So according to Buffett, the banking system is in fine shape. Meanwhile, the U.S. economy lost 8.8 million jobs between January 2008 and February 2010. Only 42% of those have been recovered as of last month. Yet the banks are profit-generating machines. How can this be?
The Sage of Omaha answered that question, too. U.S. banks have "liquidity coming out of their ears."
Buffett knows exactly how useful all that new cash emitted by the Federal Reserve is for bankers. How helpful it is for unemployed people - and the broader economy - is another question.
Warren Buffett built his record by grabbing opportunities. We know where he sees them right now.
Learn more about this financial newsletter at Ron Rowland's All Star Investor.