Leave stocks to Buffett (for now)

I believe there are reasons to start thinking about getting constructive (perhaps next year), though not necessarily swinging into action. However, I will probably be short once again before I start getting long for real.

If I were more sanguine about economic prospects, two stocks I would consider buying would be Johnson & Johnson (JNJ, news, msgs) and 3M (MMM, news, msgs). These are two of the best companies in America and seem to be in relatively good shape. Also, each sports a dividend of about 3%. Given the quality of both companies, their multiples (the stocks trade at 11 and 14 times earnings, respectively) are reasonable. They are not too expensive but not necessarily bargains.

This doesn't mean they can't get cheaper. They can. But folks might want to keep their eyes on them for future reference.

Japan's example should be a complacency killer

But for now, there's a point I'd like to make, as a warning for America: Japan pursued easy-money policies and had a combined real-estate and stock bubble that burst in 1989. Attempts by the government to fight off the consequences gave Japan 20 years of essentially a nondescript economy. Low interest rates there led to folks availing themselves of low-yielding yen-denominated loans to use for partying elsewhere. (Some part of the worldwide carnage that's under way is a function of the law of unintended consequences regarding Japan's low-interest-rate policy.)

• Video: Buy US stocks now, Buffett says

Folks who think what happened in Japan can't happen here should think twice, because what happened in Japan can happen here -- in spades -- especially when one considers that the Japanese save and Japan runs a trade surplus. We do neither. Even though historically we've tended to clean up our problems a lot faster, that is not our current policy; capitalism has been abandoned for socialism when it comes to financial matters.

Finally, in the men-of-letters department, last Tuesday saw the Fed announce a third money market bailout facility, the MMIFF. This one is a $600 billion SIV, which is meant to complement the CPFF and AMLF. Soon, perhaps, they will create a federal acronym facility -- the FAF -- whose job will be to keep us on top of all the alphabet-soup bailout facilities.

---

• MMIFF: money market investor funding facility

• SIV: structured investment vehicle

• CPFF: commercial paper funding facility

• AMFL: asset-backed commercial paper money market mutual fund liquidity facility

At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.

< previous |  1 | 2 |