Best Bets in a Falling US Market

Which stock are you going to buy in these bad times, if you happened to stay in the United States? Probably, nothing. But isn't that being foolish, being scared of the dips in the markets. Dips are good because they cleanse the system. The only problem, this time around, is that we don't know which sectors are well insulated. Automobiles are in the lurch and financial services, along with insurance and real estate, are to be avoided. That doesn't leave us much room. Pharma stocks are uncertain right now but they wouldn't be a bad bet in the long run.

Today, I would like to speak about a company that has never failed to amaze me. I am sure all of you have heard about it. We are talking about the great Warren Buffett's company, Berkshire Hathaway and about its Class A stock, which is awfully expensive to buy.

You can track the stock here at the AOL Finance website. The current market price is $120,400, so, if you had the money, you could make a purchase. The stock has taken a beating because of the broader market trends and I find it a pretty defensive stock in these market conditions.

(This post does not purport to give advice in the stock markets and constitutes the personal views of the author.)

Only Good News in Stock Market Gloom

The only good news in the present stock market gloom is the fall in oil prices. Oil is selling a bit under $100 per barrel. It has really taken a hit from its highs of $140 odd per barrel. If we had a spike in oil price, even if it were a speculative one, or if we had any other oil related crisis the world over, it would send the financial markets in a real tailspin.

There is real fear on Wall Street. And most companies believe that they might be the next after the fall of Lehmann Brothers. So, the United States government, along with its friends in the OPEC, should ensure stability, or even better a fall, in oil prices for the next week or two till the present crisis subsides. One also hopes that Wall Street does not come up with further gloomy news.

Collapse in Stock Markets

There is a major fall in the stock markets. Wall Stress has been badly bruised. Another one of the venerable financial firms has collapsed. Lehman Brothers is no more and it had been there for the last 158 years. And add to this, another bit, Merrill Lynch has decided to sell itself to Bank of America. And AIG, American International Group, which offered Tata-AIG insurance in India, is trying to keep afloat.

This wave of collapses some after an earlier wave, where we had Bear Stearns being sold off for a pittance. And Citi taking in a big write-down. We also had Fannie and Freddie in deep waters.

The Indian markets are ruling about 4.5% down at the moment. Interestingly, there is nothing which is so serious with India that it should be fall. So, this is actually sentimental. Yes, when the US sneezes, the world catches a cough.

It is undoubtedly shocking and very terrifying for anyone who is into the financial markets right now. But there isn't much room for real panic for the people in the Indian stock markets. In fact, I would suggest my NRI friends and other foreign nationals to seek avenues for investment in the Indian markets.

There is good and real qualitative money to be made from the Indian markets at this juncture. The only important thing to keep in mind is to adopt an intelligent approach.

Notes on the US Economic Scene

One of my friends who made a comment to my earlier post asked me if I could write something on the economic issues related to the US election. I don't know if I am the competent person to do so. But there are some ideas in one's mind.

The situation is certainly bad in the United States. I don't know what would have an impact on the elections and what would not--it would be best to leave that to the politicians, Barack Obama and John McCain, who are fighting the presidential election. The verdict on the American economy clearly states that growth is likely to be very sluggish.

Warren Buffett was quoted by the International Herald Tribune on May 5, 2008, stating that the US economy was already in a depression and you can read the story here. This was at a news conference that he addressed a day after 31,000 shareholders attended the annual meeting of his company Berkshire Hathaway.

On May 28, 2008, he gave a detailed interview to the German newspaper, Der Spiegel, where he said a similar thing about a recession in the United States.

I am not stating that one should simply believe what the sage of Omaha, Warren Buffett, says as gospel truth without looking at it ourselves. But I fear he may be uncannily correct in his analysis.

The Federal Reserve has been trying for months to contain the subprime crisis and it has constantly reduced interest rates from a high of 5.5%. And the Fed Chief, Ben Bernanke, has seen the US$ fall against the yen and the euro and the fall of the dollar has exacerbated the oil situation. Oil seems caught in a speculative bubble and a number of people have begun to feel the pinch of rising gasoline prices in the US. And Bernanke hinted yesterday that further rate cuts might not be effected and there is a fear that interest rates might be hiked. There is a growing risk of inflation in the US economy on top of job losses, failing mortgage payments and high gasoline prices.

And it seems that another blow was delivered by the latest job data that was released and led to the crash at Wall Street. It is quite possible, as US government officials state, that the job data is misleading. Still, one should not lose sight of the fact that a large number of people in the United States today are only employed temporarily, which means that they are unemployed for over six months in a year. The economists might not agree for a variety of reasons, the chief among them is that 2008 is an election year and another important reason is that such admissions could wreak havoc on the global financial systems.

The subprime is a big mess by itself. And if you look at the Bear Stearns deal, it was such a major shock. I still believe that any rise in oil prices or any escalation of geopolitical tensions or any substantial fall in the dollar would only worsen things from an economic perspective.

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