Buffett says economy’s troubles will continue
Billionaire investor sees weak economy continuing for
several months
updated 11:43 a.m. ET Aug. 22, 2008
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 king 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.
“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.
Buffett: Government will help Fannie,
Freddie
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 caused 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.
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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.
Buffett and another billionaire investor, Pete Peterson,
appeared at a special screening of a new documentary on the nation’s debts
Thursday in Omaha. The two Nebraska natives were part of a panel discussion
after the premiere of “I.O.U.S.A.” The film was shown in 358 theaters
nationwide.
The film’s message is that an economic disaster will
befall the nation if the federal government’s $53 trillion in debt continue to
grow.
Buffett said he doesn’t think the situation is as dire as
the film portrays.
“I
admire the fact they tackled the subject,” Buffett said. “I don’t agree with
many of the conclusions in the movie.”
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.
About Anheuser-Busch: 'I was
wrong'
Buffett 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.
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