Whitney Tilson, who has an exceptional long-term track record but has struggled of late, says several economic indicators — including Warren Buffett — are leading him to believe that the U.S. economy will avoid major crises in the next few years. And, he says stocks are as attractive as they’ve been since the 2009 bottom.
“We are closely monitoring developments and have been increasing our short exposure selectively,” Tilson and Glenn Tongue write in a recent letter to investors, “but we remain substantially net long because, unlike 2008, when we were convinced that the bursting of the housing bubble was going to lead to a major shock to the system, today we think that the most likely scenario is that the U.S. economy will muddle along for the next few years — hitting air pockets like the one we’re in now on occasion, no doubt, but avoiding any major crises. Under this scenario, the market will likely be choppy and range-bound, not steeply declining, in which case we expect our portfolio to do well.”
Tilson and Tongue also reference a recent conversation they had with Warren Buffett, in which they asked Buffett if he is still bullish on the economy over the next two or three years. Buffett’s reply: “Sure, and over the next six months for that matter. We have 70-plus businesses and about five of them are related to residential home construction and they are flat on their rears, as they have been for more than three years. But the other 60-plus are doing very well, as is the rest of American business….We are seeing good business across the board except for residential home construction.”
Other facts support Buffett’s conclusion, Tilson and Tongue say.”To be sure, the U.S. economy is soft, unemployment remains stubbornly high, and consumer confidence, spending, and the housing market are quite weak, but corporate profits and profit margins are at all-time highs and corporate balance sheets are extremely strong, so it’s a mixed picture,” they write. “Overall, however, the U.S. economy is hanging in there — for now.”
Tilson and Tongue also say the market is hasn’t been this attractive since its 2009 bottom. They think “every significant position in our fund could easily double in the next 2-3 years, with the possible exception of three of our safest big-cap stocks, Berkshire Hathaway, Microsoft and AB InBev, which ‘only’ have 50-80% upside.”