Warren Buffett,  currently the third wealthiest person in the world, has ruled out a double-dip recession in the United States and said businesses owned by his Berkshire Hathaway were actually growing, as reported by Bloomberg News.

“I am a huge bull on this country,” Mr. Buffett, Berkshire’s chief executive officer, said Monday in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”

The U.S. economy is expected to see its slow down to 2.5% next year from a projected 2.7% gain this year, according to the median forecast of economists surveyed by Bloomberg News, due mostly to stubbornly high unemployment (close to 10%) that is expected to stunt the economy’s growth because consumers are likely to keep a tight grip on their purse strings. Consumer spending typically fuels about 70% of the U.S.’s economic output.

But the stock market seems to agree with Buffett and the S&P 500 is close to breaking out of a recent trading range if it can sustain its upside momentum.

Mr. Buffett’s is known for his savvy in finding undervalued companies and stocks and his predictions have paid off for investors in the past. In the depths of the recession, for instance, he wrote an opinion piece in the New York Times on October 2008, urging investors to buy American stocks, a bet that turned out to be a winning one as equities eventually climbed higher from their dismal lows.

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” he wrote in the Times. “And most certainly, fear is now widespread, gripping even seasoned investors.”

By Benjamin Tal
CIBC WORLD MARKETS

The probability of a double dip in the US appears to be the main focus these days. And you cannot blame the market for getting a bit nervous given the latest array of disappointing numbers coming from the US economy.
But the real story is not whether there will be a double dip or not. After all, even if we avoid a double-dip recession, economic growth in the US will, in all likelihood, be so slow that it will feel like a double dip.

The more important question is what kind of an economy is emerging following the recession and the brief recovery? In this context many talk about a new normal. That is, a new economy that will see a much weaker growth trajectory in the coming five years or so, a weaker consumer due to deleveraging, a much larger role played by the government, low interest rates, and low inflation.

But this kind of assessment assumes that the US economy does not adjust to the new reality in any significant way. This assumption, I think, will be proven wrong. Key here is the role that emerging markets will be playing in changing the nature of the US economy.

A necessary condition to any previous US and, in fact, global recovery was a rebound in housing and consumer spending. These two sectors were always the pioneers of the recovery. Today this, of course, is not the case. The housing market is probably entering double-dip territory, and the consumer is busy deleveraging and saving, with the saving rates reaching well over 6%.

What’s different this time around is the fact that housing and consumer spending are not the only necessary and sufficient conditions for a sustainable US recovery. Just look at the contribution of exports and investment to recent US performance and you find that for the first time on record, the contribution of these two sectors to overall GDP growth during a recovery was larger than the combined contribution of housing and consumption.

Is this sustainable? The shorts answer is yes. While in previous recessions and recoveries, emerging markets were too small to impact the US economy; that is not the case this time around. Emerging markets now account for almost 25% of global GDP and are close to 80% of the size of the US economy. That’s large enough to impact the trajectory of US exports. In fact, no less than 55% of US exports go to emerging markets, and with emerging markets likely to continue to outpace developed economies, this share will continue to rise.

Increased exports lead to increased investment by corporations. And the question is to what extent corporate America is ready to take advantage of the increased demand for its  products. And if you look at the recent improvement in productivity in US manufacturing, the increased investment in capital intensive industries and the elevated cash position enjoyed by corporate America, the likelihood is that we will see an even stronger push into emerging markets given limited opportunities at home.

Given this dynamic, it is not unthinkable that the new economy will see a much smaller share of housing and consumption and a much larger share of exports and investment. So maybe we should be talking about a new growth mix as opposed to a new normal.

Back during the Cold War, the United States military feared that they could come under nuclear attack by the Soviets at any time. At that time there was no way to stop incoming missiles, and the fear of retaliation was seen as the best possible deterrent. American missiles were thus designed to wipe out vast portions of the enemy’s country, and of course, the same kind of logic was being applied on the other side. What all this madness ultimately meant was that any attack (even if successful) would also mean a guaranteed great deal of destruction on the attacker’s territory.

One of the consequences of this transcontinental fear was that the United States government spent vast sums of money building intercontinental ballistic missiles and surface-to-air missiles that were kept in hundreds of hardened underground launch facilities scattered all around the country.

A typical missile silo cost more than US$3 million to construct in 1960. Taking into account that $7.32 in the year 2010 has the same “purchase power” as $1 in the year 1960, that puts the current price at well over $21 million. But as newer and smaller mobile missiles were put into service, all those costly structures became obsolete almost as soon as they were built. Within a few years the military decommissioned and abandoned most of the missile silos, and then sold the properties for whatever they could get. Many of the sites simply lay unused and deteriorating for years.

During the last decade or so, there’s been a surge of interest in rehabilitating the sites, which are in general, surprisingly inexpensive. Prices range from under $100,000 to tens of millions of dollars for a luxurious estate complete with a private runway. Those are real bargains, considering how much it would cost to build something comparable today.

For additional information on rehabilitated missile silos, see:

• The Atom’s Family (Atlas E missile silo; Eskridge, Kansas; owners Ed and Dianna Peden)
• 20th Century Castles, a real estate company specializing in selling missile silo properties.
• Abandoned missile silos become safe homes (Atlas E missile silo; Kimball, Nebraska; owners Don and Charlene Zwonitzer; for sale at the time this article was written)
• Converting a Ballistic Missile Base into a Home (Atlas E missile silo; Austin, Texas; owner P.A. (Tony) Crossley
• Silohome (Atlas F missile silo, complete with paved ruway; New York’s Adirondack State Park; for sale at the time this article was written)
• Bachelor in a Missile Bunker (Atlas F missile silo; Oplin, Texas; owner Bruce Townsley)
• Family Scuba Center (Atlas F missile silo now used as a scuba diving facility; Midland, Texas)
• Your $1.25 million dream house? Home sweet silo (Nike missile base; 3 silos; Dillsboro, Indiana; owner Harold Whisman)
• Atlas Missile Site Coordinates, a massive page listing every conceivable detail about Atlas missiles and missile bases