A Hangover from Dow 13,000?

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Is the stock market disconnected from the economy?

I don't agree with that. I think that the stock market hears the noise of economic trouble like the drone of a distant dump truck and will recognize the impending problem when the dump truck is immediately in front of them and blocking their path.

There are real problems facing the economy that Alan Greenspan remarked about in late February, when he said there was a 30% chance of recession. Investors hear the noise but seem to be able to ignore it for now.

This all highlights an environment wherein it's crucial to understand the financial workings of your investments, the health and stability of balance sheets, and the aptitude of corporate management.

Are you buying any stocks these days?

I'm always in buying mode. I can't find all that I'm excited to buy. I like everything I own. I'm forced to exhibit the patience of Job with a portfolio of stocks that are seeing wonderful earnings increases, whose management is executing exceptionally well, and whose share price is crawling.

Can you talk about a few stocks you like?

I should disclose that I hold them and I may buy more or sell them tomorrow. These are not recommendations to buy or sell.

I continue to really like General Electric (GE). The stock is trading at 15.75 times earnings, which is below the average for the S&P. I believe they will continue to grow earnings in the 11% area, and they have a 3.3% dividend. Jeff Immelt has sold off the nonperforming divisions. He is an outstanding manager who is not getting anywhere near enough credit for what I think is real managerial excellence. And he's executing very well.

Johnson & Johnson (JNJ) is trading at 16 times earnings. It's growing earnings around 10% a year with a 2.5% dividend yield. They just bought a bunch of brand names from Pfizer like Visine, Listerine, Rolaids, and Sudafed. They have a medical-device business that's strong. They're a well-diversified, well-run company, doing a good job with their business plan, and their stock price really hasn't moved.

SRA International (SRX) is an IT contractor to the government. These guys aren't just geeks; they're geeks with top-level security clearance. That's a big deal because post-9/11 it takes a lot to get top security clearance. Homeland Security, the CIA, FBI, and NSA need systems for security. And the people with clearance to work on these systems [are] growing at a much slower rate than the need. So it's supply-demand, and prices are going up.

I think SRA is a very strong operator. The stock has come off its lows and looks cheap. It's around $24.68 today, down from $33 a year ago. With Congress imposing budget restraints on military activities, there is concern about government contractors getting paid in a timely manner. I think these concerns have created an opportunity.

What worries you the most?

I think the consumer will get stung by the real estate market as it continues to devolve. I think that the consumer is already getting stung by higher energy prices. The U.S. savings rate is negative.

With $1 trillion in ARMs [adjustable-rate mortgages] adjusting this year, and people spending more to heat and cool their homes and to drive and on groceries, these people are going to get pinched. The consumer is two-thirds of the economy, and it's tough to see the economy going ahead with two-thirds of it stalled. I think that the housing correction will extend and move lower than people think. This kind of trend always goes longer and deeper than anyone expects.