Buffett: Recession Will Continue For At Least Several More Months

OMAHA, Neb. — Billionaire investor Warren Buffett said Friday the economy continues to be in a recession, by his definition, and will continue to be for at least several more months.

During a live appearance on CNBC, Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy.

Earlier this year he said a financial crisis reveals which players have been "swimming naked," because the tide goes out. That picture has worsened along with the crisis.

"We found out that Wall Street has been kind of a nudist beach," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha.

Buffett said activity at businesses Berkshire owns, especially ones related to housing construction such as Shaw carpet and Acme Brick, continued to slow during the summer.

He's confident the nation will be doing better five years from now, Buffett said, but the economy could be worse five months from now.

Buffett said the economy is in a recession because most Americans aren't doing as well today as before. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.

Regarding the nation's credit crunch, Buffett said he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but that doesn't mean that all the shareholder equity in those companies can't be wiped out.

Story continues below

advertisement

"They're looking for help, obviously. And the scale of help is such that I don't think it can come from the private sector," Buffett said.

So the Oracle of Omaha predicted that the federal government eventually will have to step in to help because the troubles of Fannie Mae and Freddie Mac seem to be growing and feeding on themselves.

Together the companies hold about half of U.S. mortgage debt and are the largest source of funding for home mortgages. But they are seeing too many defaults. Losses between April and June for the two companies totaled $3.1 billion, and investors fear they will continue to grow.

Buffett said it's likely more banks will fail, especially in areas where there was a real estate bubble and the bank got heavily involved in the housing market.

"What we'll see is failures where the bankers were dumb in what they did," Buffett said.

But Buffett said the Federal Deposit Insurance Corp.'s guarantee on accounts up to $100,000 should prevent bank failures driven by panic.

Buffett said the nation's current economic struggles create investment opportunities, and his phone is ringing more lately than it was three months ago. But Buffett said many of those calls have come from desperate people and didn't represent good investment opportunities.

As the stock market problems continue, Buffett is looking for ways to use Berkshire's roughly $31 billion in cash.

"The cheaper they get, the harder I'll look," he said, referring to shares.

He said Berkshire added to some of its holdings because share prices fell enough to be attractive. The company had been buying shares of either Wells Fargo & Co. or American Express Co. in recent months, he said, but wouldn't specify which.

On Friday, American Express shares gained $1.78, or 4.8 percent, to close at $38.79, while Wells Fargo gained 92 cents, or 3.2 percent, to $29.36.

Buffett also said Friday he sold nearly two-thirds of Berkshire's 35.6 million shares of Anheuser-Busch Cos. stock because he hadn't been sure Belgian brewer InBev SA's takeover bid of $65 a share would succeed. Anheuser agreed to the $52 billion bid in July.

"In retrospect, I was wrong to partially sell the holdings," Buffett said, disclosing that he sold the stock for about $61 or $62 a share. At the end of June Berkshire still held 13.8 million shares of Anheuser.

Buffett said the trip he and friend Bill Gates took earlier this week to Canada to look at Alberta's oil sands shouldn't be interpreted as a sign that he or Berkshire will invest in mining companies.

Buffett said what he learned on the trip may be useful a couple years down the road, but he has no current plans to invest in oil sands mining.

On the political front, Buffett encouraged Americans not to expect perfection from candidates. He said the presidential race features two good candidates this year, but he favors Democrat Barack Obama even though he doesn't agree with all of his proposals.

"The only way to get somebody who agrees with you 100 percent is to run yourself, and I have no interest in that," Buffett said.

Berkshire subsidiaries include insurance, clothing, furniture, candy companies, restaurants, natural gas and corporate jet firms. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

___

On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

Comments

[Agentlady007]

Let's not forget he also invests heavily in the Euro dollar.

[WIpatriot]

Oh, how ass-toot, Warren. Really.

[themodernleader]

All you neo-liberals who condone--admire or envy--concentrated wealth in a few hands don't grasp what a calumny it has had upon the country. Our political system and its players have been corrupted with bribes. Our historically ordinary leaders were defeated or purchased by foreign and domestic economic power.
Now our leaders are the Buffets and T. Boone Pickens who weave stories that benefit their own wealth and class at the expense of the citizentry.
Their unregulated power has brought us to wreck and ruin. They did this. Our democratic leadership was forced out or paid off. Now the only Congressman is a millionaire or billionaire. There are no ordinary citizens in leadership positions. Plutocracy rules the roost. And both parties vote for the few who own their votes.
At least, in Russia, Putin exproppriated the wealth of one oil baron for the redistribution to the ordinary people. FDR placed steep graduated income, corporate and inheritance taxes which permitted the emergence of the most powerful middle class int the history of civilization. It was the Age of the Common Man and was done within the constraints of our extraordinary Constitution.
Now our self-governance has come undone as we follow leaders of promises that are too good to be true. (Pray show me the errors of my deranged, deluded ideas.)

[OldKnute]

Neo-Liberal?????

>>Knute lifts his dress and looks,,, Humm?

Uh Oh,, somebody has been reading Wikipedia again,,,,

>>Knute,,,, pulls out his 3 foot wide eraser and scrubs his forehead, vigorously.

Adam Smith,, Yes, GUILTY, Hume, a little, Jefferson,, Yep,,, Franklin, all the way,,, Pain,, Uh huh, nods,, John Locke,, YEP! Descartes, yep, Hegel OH YES. Aristotle, NO! ,,, weeeell wait,, except on Ethics. Plato, only in a dark cave. Socrates, Yes, Yes, Yes.

Deist,, NO! Too many mysteries, too many miracles, I see Angels, Hehehehe,,, Inerrant Texts, nope,,, manipulations to be sure,,,, but the heart is their to be found,,, IF,,, you study carefully. Newton,, YES,, YES,, YES. Einstein,, Ummm?? Yes,, but the speed of light is neither constant nor a barrier. Order to the Universe,, OH MOST DEFINITELY.

Hum? Look,, the only thing I had to do with the overthrow of Salvador Allende was as an advisor, I was under orders. If you have a complaint, take it up with Nixon, the CIA or Richard Helms.

Worries about Neo-Liberalism, SEE 1947 to 1972.

Globalization??? HELL NO!

Managed,,,,, Internal Economic Liberty and Cooperation, HELL YES.

Self-Evident Rational Morality,, Yep, Yep, Yep.

All the best

Knute Neo-LIB

[OldKnute]

Well,,, for me,, the study of Economics was rather simple. I just equate it to a Living Thing.

I call it Eco-Logics.

In this you have Nutrient,,,, Money. Credit,, Fertilizer. Banks,, the reservoir. Production,, Mining, Farming, Manufacturing.

Predators, Sharks,,,, money changers, speculators.

And all the rest of us,, the FISH,,, Large and Small. When the Fish are all dieing off,, the Sharks are next. BUT the worst part is,, these Sharks have legs,, they just move to the next pond.

Eco-Logics. You can’t favor one group over the other, the interrelationships are just too great for complex formulas to manage, it is more a balancing act. BUT,, if you sit real quiet beside the pond for a few years, you begin to see the Good and the Bad.

My opinion, stay in Stocks that produce something, not just SUCK from others.

All the best

Knute Neo-LIB

[Chavez08]

Why do Americans love Capitalism so much? It benefits only 2% of the population and makes dirt-poor slaves out of the rest.

[strangerinthenight]

Life is getting tough, I grant you that. 'still, I don't agree with your premise. 'am hardly among the gazzilioners, just middle class - single, 27, college grad with an annual income of $ 94,257.08; mortgage etc. I have a good job, and equally good credit - better than my parents. It was tough for them with 5 children to college, 4 boys:1 girl - 2 boys Cornell grads, me from Univ of PA, 1 Boston U grad, and the youngest, a junior @ Lehigh U. Mom and Dad are traditional Republicans, so were my grandparents, and theirs before them. Just so that you know - I got my job through my own merit. I wanted that to be clear.

I manage somewhat better, but could definitely could use tax breaks. With mortgage, student loan, car note (hybrid Toyota), home improvement expenses, credit cards, food, 401 contribution, I am surviving - hardly extravagant. In fact, I can only afford a modest savings. Shaking my head.

And yes - every night before my direct deposit paycheck, I carefully make a budget. A tight one - I might add. Difficult task.

I suspect the middle class is hurting a lot, but there is still a wide MC distribution. Most Americans lack the basic knowledge of personal finance - it's pathetic . For that - mortgage sharks had a hey day approving loans without regards to people's ability to pay and credit worthiness. Sad, that's all I can say.

I will vote for

[strangerinthenight]

I will vote for a democrat this year - A RADICAL CHANGE !

[OldKnute]

OK,, you are in good shape.

Sell everything,, but keep the hybrid. Pay off all loans and buy some horrible, rocky, unwanted land.

There, put up greenhouses. Polly-Carbonate, enclosures with passive solar heat. Use Worms to gain your base of liquid nutrients and go into, Organic Food Production. Feed the worms to goats to keep the weeds down between the Greenhouses.

Use drip irrigation and DIY hydroponics out of assembled plumbing parts from Home Depot.

Be safe.

All the best

Knute Neo-LIB

PS welcome aboard. Former Regurg-A-can myself. 34 years.

[marylandtravelinman]

Because they are fool enough to think they will hit it rich someday.

[Chavez08]

When the establishment refers to a "recession", it means the wealthy are finally being hurt by their own consolidation of wealth. I say bring on the "recession" and make it burn like a M_____ F_____!

[OldKnute]

Well,, I think you are about to get your wish.

BUT,, sometimes we have to get things totally WRONG to see how we should do them RIGHT.

Just a learning curve,,, sort of thing.

Hold on tight,,,, gona get REAL bumpy,, BUT this is America.

The Neo-Cons think people are worthless slugs, canon fodder, something to me done away with and held in check.
WRONG,, and they are about to get a HUGE lesson in the value, ingenuity, courage, innovation and fortitude of the American Spirit.

WE are going to BUILD!

NOT Destroy.

All the best

Knute Neo-LIB

[Chavez08]

Totally agree.

But I have to tell ya - Neoliberal is already taken and I don't think you'd want to use it:

"This term also refers to a political movement in which prominent members of the American left (such as Michael Kinsley, Robert Kaus, Mickey Kaus, and Randall Rothenberg) embraced some conservative positions such as anti-unionism, free market economics, and welfare reform.[1] This term should not be confused with new liberalism­."

http://en.wikipedia.org/wiki/Neoliberalism

[iambusto]

first question:
should people below a credit score of 700 be ever allowed to be issued a home loan?

why not start with the basics. Tell the govt. to forbid issuing home loans to people who do not have a sufficiently high enough credit score.

that will take care of bad lending upto a huge extent. i wonder how many citizens would actually support that.

[OldKnute]

Wait,, I have an Idea.

Lets make the break point 666.

Oh wait,, it already is 666.

GEEE!

All the best

Knute Neo-LIB

[EinChicago]

That puts an inorindate amount of power in the hands of the NCRA. Which is scaruy, as they all have ridiculously out dated databases, none have got relational database to work yet and theyre all only around 60% accurate. Plus, the formulation for credit scores are garbitrary between each NCRA and guarded as a trade secret.


Credit scores are probably the single most useless factor in that type of decision and have little actual predictive value. They're basically a red herring product that were made up to replace lost revenue when the NCRA's were told they couldn't sell credit data for direct marketing purposes any more.

Income is pretty much the only reliable indicator. If a person earns only $40,000 per year, they can't afford that $600K house no matter how good their credit score.

[OldKnute]

Ok LOOK,,,, I am old fashioned so bear with me.

I am a HUGE advocate of P&E ratios as a simple tool for evaluating Stock Values.

BUT I am very alarmed at what I see in the housing sector using similar tool.

Or modified.

Income Potential
----------­---------- over.
Gross Capitalization.




I was always comfortable investing in Real State on a base mean evaluation of 5 to 6 year, gross re-capitalization. In other words, the property, minus vacancy factors (Local and historical) should equal the selling price in 5 to 6 years. I might consider a Re-Cap of 10 years, if NEW, high quality and standards of construction. i.e. (Low maintenanc­e.) For ease I usually factored just 10 months a year. (Allowances for and Repairs)

What alarmed me is the average price for a current home, is approaching $350,000.

Using this formula,, even on a 10 year Re-Cap, this would require a monthly rental income of 3,500 a month to reach my minimum buy-in requirement. If you use a basic factor of 4 to 1 ratio of affordability to occupant income, you are now having to find a tenant that makes $14,000 a month, or an annual gross income of $168,000.a­gi 5 year Re-Cap $336,000 agi.

WHAT?????

But the average income, family of 4 is $62,000agi?

Uhhh? Home Pricings are way out of whack?

WAY Inflated. Umm? 250 to 400%

Somebody,,, ME THINKS,,, bin cooking the BOOKS.

All the best

Knute Neo-LIB

[deminmo]

I have a lot of respect for Mr. Buffet. He seems to be a wealthy
guy who also gets the idea that that doesn't make him some type
of God, so I will agree with him. I wonder if he might be looking at
an economy that suffers only minor shocks in the next few years. What
about a major shock? What if we are plunged into a world war, and oil
goes up to $500 a barrel? What if we have more major employers move
out to cheaper labor countries? Capitalism works with disasters on a
very different level.

[chelliza]

In other words, what happens if McCain wins.

[dadw5boys]

You drew the diagram that showed a Consumer based economy could ever lead anywhere but to a DEBT service economy ?

Who ever is was forgot the basic principle of paying interest !

Eventually the interest you owe is beyond your ability to pay !

So the banker, investors and Government end up owning everything.

Economist are kind to ANAL IST if you ask me.

[OldKnute]

Well loose credit in 1928, pushed up the Wall Street bubble.

Money Changers all over the place. The Banks and the Feds tried to stop the Speculators with tighter restriction and regulation.

Credit got so tight, the Pope couldn’t get a loan. They tried to blame it on consumers being afraid, low savings rate, or over spending, living a Caviar lifestyle on a Bear budget, buying new fangled things like radios, cars, fancy hats, sending their kids off to expensive schools in the East.

Then Kabluie!!!

Black Tuesday.

Yep! Them were the days.

All the best

Knute Nei-LIB

[DuganS1]

Credit was actually tight in 1928 and 1929. The Federal Reserve increased interest rates to relatively high levels during that period despite no increase in inflation. The high cost of credit was actually a primary cost of the economic slowdown in late 1929.

[MyTake]

What a guy, this Buffet is!

I still can't get over his statement that he pays less percentage in federal income tax than his secretary in his office does. He poured a ton of money into the that lousy Gates Foundation which zero's out his federal income tax.

Don't Americans remember when Nelson Rockefeller, back in the 60's, had to produce a federal tax return while running for a federal office and it was found that one of the richest men in America paid a grand total of $650 in federal income tax for the year of that return!

I have never heard this guy ever, ever mention the word ENVIRONMENT. Yet he will invest in corporations that pollute the hell out of the environment just to make a buck.

Everyone should be forced to retire at 65 and we wouldn't have to put up with this clown.

[zizyphus]

You would think with all his billions, he could pay his secretary more money. He is a notorious tightwad.

[indyrep]

Thanks MyTake. Currently 2/3 of major American Corporations pay little or no federal income tax. 2/3!!!
Most of these have moved profits to offshore holdings, just like that great patriot Dick Cheney did when he ran Halliburton (he also sold materials to Iran thru an offshore company in the Caymans).
The Republican / NeoCon / Wall Street cabal is destroying our economy as we write, while telling the masses that "the fundamentals are sound". This is otherwise known as "let them eat cake"

[GayGrandpa]

...as an artist it is easy to tell you when we are in a depression­...WE ARE IN ONE RIGHT NOW, I AM!

I have been struggling so long...spo­nsoring my art by working for the disabled and those recovering from surgery or hospice care that I can barely read all of this about a recession and whether it will be months or years...to me it is all DEPRESSING­...as an artist it is easy to tell you when we are in a depression­...in the late eighties and in the late nineties it was easy to sell a painting per week but so far this century I am lucky to sell 3 paintings per year! We, and definitely me, are in something.­..that is anything but easy! It's damn depressing! I am in a depression­...you can call it what you want but most of my money goes for rent! This definitely is a DEPRESSION! And sadly I see no relief anytime soon...

and I can tell you how many houses I own, NONE...how many do I expect to own anytime soon, NONE!

[zizyphus]

All the artists here where I live are in the same boat.

[Swerinjer]

It should be against the law to have more than a million dollars in the bank. Nobody needs to be a millionaire, and people are suffering because of poverty. It's immoral. The government will seize the vast majority of Warren Buffet's wealth and put it all into social programs, and he would be the same as everyone else.

[heal57]

That's not the way to look at things. Don't punish Buffet because of his wealth. He's probably quite generous. Your problem [and mine] is with the banks, credit cards companie, the giant oil companies, the major drug companies, and our corrupt government.
We all aspire to be very economically independent. You don't want the government to seize anybody's wealth, because sooner or later it will be yours, no matter how little you really have.
Moderate capitalism with a safety net and industry regulation should be our goal. Another goal is to teach people not to go into debt!!

[deanfv]

Isnt that Obama's plan?

[meanguy]

sounds like it

[joebaggadonuts]

No, it's not. Why do I feel I even have to say that? So many lies, so little time to attend to calling them all out.

[DuganS1]

A million dollars is not a lot of money in most urban areas. There are something like 7 million "millionaires" in this country now (and if you include the entire household size, like spouse and children, you have about 15-20 million). The majority of those 7 million are business owners. They are the backbone and the innovators of this country.

[All57States]

Well you certainly in the right party for that kind of thinking. I'll go out on a limb here and guess you have never studied any form of economics.

[meanguy]

i;m guessing swerinjer hasn't studied much of anything else, either...

[themodernleader]

Dgscol. Your observations are quite on target. If a man from Mars were to look at our economic, financial situation, he woud come away totally non plused at the silence of our controlled news outlets, especially television and radio. And he would not understand how a country in such peril coming from both the outside and inside could not see the danger.
However, our citizens are not so ignorant. You strike a conversation with any ten people and 8 of them will tell you that this country is "finished", " going down the drain"', "broke", and other such negative terminology. And they recognize that the news is being manipulated by a controlled media. Most Americans have come to recognize that our media is negligent in sharing and omitting the information of consequence. They also recognize that our elected leaders at the national level are not supporting policy that benefits the nation. That our govenance system is for the few at the expense of the many.

[Robert59]

I admire Buffett, but this time he's wrong. The housing crisis hasn't peaked and won't for another year. Remember the UBS chart Bonddad shared with us showing the next wave of defaults (smaller in number, but much larger in dollars) hits the latter half of 2009. It will take those houses 6 to 12 months to end up on the auction block. Meanwhile, we still have a glut of unsold houses that is growing.

But it gets worse. The glut of houses isn't being whittled down because people are now moving into apartments (apartment construction is booming).

Banks can only play the shell game for so long. Eventually they will have to come up with the money to pay for those bad loans or else go broke.

Unless something miraculous occurs why are we to believe unemployment won't continue to rise? Ditto for inflation. Even at 110 dollars a barrrel oil is 5 times more expensive than it was in 2003.

[UnbiasView]

"The housing crisis hasn't peaked and won't for another year."

That depends on where you live my friend, it has already started to turn around in many places.

[DuganS1]

That's true. The vast majority of the trouble is in a half dozen or so metro areas (Miami, some in Cali, Vegas, Phoenix). I live in the DC area and the problem won't last long here as the economy remains very strong and will continue to grow because ....the govt always grows and will definately grow under an Obama Presidency.

[deanfv]

Give it time Unbias... once mortgage money is only available to the very best borrowers for a 8.5% interest rate, 20% down, 30% Debt to Income and that's income that you verify with 2 years of W-2s.... your prices in Santa Monica, NYC, SF bay... are coming down. There is so much shadow inventory out there that is not on the market yet, it will take years. The shadow inventory are homes that banks have repossesed in foreclosure and are holding off the market 'til it turns around. Fat chance Mr. banker.

[Robert59]

You'll have to show me the data leading you to that conclusion. Home sales went up in July, but 40 percent of the homes sold were bank owned foreclosures. Inventory is still growing.

Even places like Charlotte are seeing a decline.

[EinChicago]

"Bonddad shared with us"

There's your problem. Putting any credibility in thoise half-baked charts Bonddad keeps cooking up and oversimplfying before completely misinterpretting them.

[Robert59]

Half baked? I can interpret them as easily as he. The most damning is the one showing the next wave of resets (2010 to 2011). The dollar amount is larger than what we've just seen.

Rather than point out flaws in the data or what he's misinterpreted you opt to attack the man thinking that makes the data less salient.

Go ahead and keep smoking the Bush/McCain/Wall Street crack.