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Ortel: Buffett's Optimism Is Fool's Gold

Stocks in this article: BRK.A BRK.B

Editor's note: Charles Ortel is managing director of Newport Value Partners LLC, which provides independent investment research to professional investors.

NEW YORK ( TheStreet) -- On the third anniversary of the "Flash Crash," America's most famous and cheerful optimist -- the sage of Omaha -- remains steadfast in his belief that the best days for the investing class lie ahead.

Fresh from a tour de force performance at the Berkshire Hathaway Annual Meeting, Buffett is cheerleader-in-chief for the "don't bet against America" theme.

Are there any reliable economic facts that support an opposing view?

With great respect, I believe Buffett has actually been enabling the sale of "fool's gold" to the retail investing public since his epic New York Times op-ed titled "Buy American. I Am" was published on Oct. 16, 2008.

To refresh our recollection, the Dow Jones Industrial Average closed at 8,577.91 on Oct. 15, 2008 (the day before his powerful public message) and eventually fell to 6,547.05 on March 9, 2009. Yes, this famed index is now flirting with record highs but it is denominated in nominal terms and consists of a revolving door of components, some of which left peremptorily in the financial crisis.

In my view, economic and market activity since 1999 is markedly different than it was during the last great rally that ran from August 1982 through December 1999. Investors who refuse to study the important differences between conditions now and conditions then are flying blind over hazardous territory. Worse, these stalwart investors will not be compensated fairly for taking the mammoth risks they face.

The Demographic Miracle That Is Not Returning Anytime Soon

The intrinsic growth America experienced from 1982 through 1999 was unprecedented in modern economic history.

Advertising experts explain that persons aged 25 to 54 constitute "the prime purchasing demographic." People in this age group generally are more active buying goods and services and engaging in other activities that can stimulate economic growth. From 1982 through 1999, the total population grew at an average annual rate of 1.1%, but the prime purchasing demographic accounted for 73.4% of annual population growth.

TABLE 1: Share of Annual Average Population Growth in the United States Accounted for by Persons Aged 25 to 54

In contrast, from 2000 through 2010 (the latest year for which consistent figures are available), total population grew at 0.9% on average each year and the prime purchasing demographic accounted for only 15.6 % of annual population growth. Growth in intrinsic (unfinanced) end-use demand was likely much lower per capita from 2000 to 2010 than it was from 1982 to 1999.

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