May 2, 2008 | posted by Michael Baxter in Markets |

As the new mood of optimism deepens, the Dow went within a whisker of its start-of-year price last night, while the biggest single reason yet for optimism emerged from the US, as Warren Buffett struck.

Last night the Dow closed at 13010 points, the highest level since the 3rd January.

Latest official figures revealed that the US managed to avoid recession in the first quarter after all, with annualised growth coming in at 0.6 per cent.  And with all those measures we spoke about above – Dubya’s tax give-away and Bernanke’s money drop, markets have concluded the worst is over and that maybe the US will avoid recession after all.

There are reasons why they might be wrong – that is a story for another day, but the world’s richest man at least seems to think now is the time to buy.

Remember, the Dow peaked at over 14,000 points last year, so if a recovery is beginning – the shares have got plenty of room for growth.

According to Bloomberg, Buffett is set to go on a buying splurge –with $40 billion earmarked.

Buffett enjoys an advantage others lack – he has got lots cash he can draw upon.       As the Bank of England said earlier in the week, in its financial stability report, it is possible that risk is suddenly being priced too high.

In fact, the faithful are descending on Omaha at the moment, because it is that time of the year when the world’s most popular AGM will begin.

Each year, Mr Buffett ascends his mount, and gives a sermon to the eager ears of shareholders in his Berkshire Hathaway.

He appears to know his stuff.  When he bought the company in 1965, shares were trading at $1278 a share, now they are worth over $133,000.  And the great man is buying again – reason for hope.

But before you get too carried away, bear in mind Capital Economics is still predictinig a contraction in GDP for the current quarter.    Right now, there are clearly opportunities for the savvy buyers – and Mr Buffett is as savvy as they can get – but don’t fall into the trap of thinking it’s a one way street – upwards from now on.  Uncertainty has not gone away.