Stocks Gap Up and Hold, Buffett Sees No Double Dip

Monday, September 13, 2010

Berkshire HathawayStocks gap up 1%, trade sideways to close where they opened

All the fun in the market today was accomplished before the open with stocks gapping up 1%. The market spent the trading session in consolidation mode trading up, then down, then back up into the close for a relatively uneventful day. Doctor Copper jumped over 2% confirming the move in equity markets. Treasuries saw some support to halt the decline but there doesn't look to be a substantial reversal yet.

Microsoft (MSFT) investors were excited at the end of the day with a report that the company plans to sell debt to pay dividends or buy back shares. With $37 billion in cash it seems strange MSFT would see the need to raise debt but I suppose they find the extraordinarily low cost of debt to attractive to ignore. MSFT closed up over 5% on the day.

I sold my second half of Amazon (AMZN) today from my original buys two weeks ago. The 16% move from my buy at $125 in just two weeks was too much not to take the trade off. While AMZN is an exciting company with a large presence is the rapidly-expanding cloud space, I have a hard time seeing the logic of a 40x forward PE. Without the fundamental logic, I have to play the stock as nothing more than a momentum play so I'm happy to jump off the bandwagon after grabbing a nice chunk in the market's latest move. When contrasted with Apple (AAPL) trading at 15x forward earnings, the relative valuation appears expensive and I'd prefer working my way into a larger AAPL position. Though, I realize the "expensive" valuation has long been the case in AMZN's history.

Buffett sees no double-dip

Warren Buffett said the prospects of a double-dip recession are off the table based on what he's seeing in Berkshire Hathaway's (BRK.A) numerous businesses. "I am a huge bull on this country. We will not have a double-dip recession at all. I see our businesses coming back almost across the board." (Bloomberg)

Few have their hands on the pulse of so many varied companies across the United States as Buffett does. I certainly give his opinions much greater weight than economists and academics espousing their claims of major economic weakness. Buffett said further "I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago." I have my bets placed in line with Buffett. I see the sentiment shifting in equity markets and the economic dialogue improving in just the last two weeks.

Brandon R. Rowley
"Chance favors the prepared mind."

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