According to Buffett, America is already in a recession
Over the past six or eight months we have heard more and more chatter about the dreaded "R" word. The dreaded "R" word being recession, and depending on who you listen to, you have either been laughing at the possibility of America sliding into a recession, or you have been preparing for the inevitable.
Well, now, trusted billionaire Warren Buffett has come out and stated that America is already "essentially" in a recession. Buffett is basing his stance on numbers he has seen from his retail business that show a significant slow down in spending. While he has stated that we have basically already entered into recessionary times, he stopped short of predicting just how bad things would get.
While we may not be technically in a recession period, according to Buffett, we are in the middle of a commonsense recession. Not only does he see retail spending on the decline, but also pointed to the fact that an untold millions of Americans have had the misfortune of watching their homes shrink in value, a scenario that has yet to reverse.
So what is the source of the recession confusion? Well, technically speaking, in order to qualify as a recession, America must have back to back quarters of negative GDP growth. This definition does not hold true at the current time. Last week, we were given economic figured for the fourth quarter of last year, which showed that for the 3 months ending December 31, the economy grew at a measly 0.6% rate. Not a pretty picture, but definitely breaks the technical definition of a "true recession".
What are the rest of the "market experts" out there thinking about the current situation? In a recent poll, around 45% of economists polled by National Association for Business Economics are operating under the impression that the economy will definitely fall into a recession during this calendar year.
Adding more concern to economic growth has been the recent surging of oil prices, which surpassed previous inflation adjusted highs today. Oil prices and the economy are in a vicious cycle right now. Oil has been rising as inflation concerns have led many to believe that America is going to have to continue to cut rates to fight off a recession, which would lower the value of the dollar and push oil higher. At the same time, the higher oil goes, the more of a drain on the economy it will become, which led U.S President Bush to plea for OPEC to lift its output earlier this year... a plea that OPEC did not grant the American President.
Have we passed the point of no return? It seems like all the signals are pointing to a full blown recession later this year, but will we get to the point of a truly technical recession? Or will we just continue to "walk the line" between pulling ourselves out of these hard times and just dropping off the edge?
Only time will tell. What are the thoughts of our BloggingStocks readers? Do you agree with Buffett that we have already started a recession, or do you think Buffett is just over-reacting? And if you think we are still not in a recession, do you see one coming before the end of the year?
Let us hear your thoughts on this!
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer. source-
