He sees slowdown across the board; withdraws offer to guarantee bonds
NEW YORK – BILLIONAIRE investor Warren Buffett said the United States economy is in a recession and that stocks are ‘not cheap’ despite recent declines.
He also said he is no longer offering to guarantee US$800 billion (S$1.12 trillion) of municipal bonds backed by MBIA, Ambac Financial Group and FGIC, three bond insurers that ran into trouble from backing riskier debt.
Speaking on CNBC television on Monday, Mr Buffett said the economy is heading south even though gross domestic product (GDP) has not yet fallen for two straight quarters, a definition that many economists use to identify a recession.
He also said the slowing economy and the housing slump are hurting his insurance and investment company Berkshire Hathaway, whose 76 operating units sell things such as bricks, real estate brokerage services and underwear.
‘By any common sense definition, we are in a recession,’ Mr Buffett said. ‘Business is slowing down. We have retail stores in candy, home furnishings and jewellery. Across the board, I’m seeing a significant slowdown.’
Last week, the Commerce Department said America’s GDP rose at an annual rate of just 0.6 per cent in the fourth quarter.
Mr Buffett, 77, is one of the world’s richest people and is regarded by many as America’s greatest investor. Forbes magazine last September estimated his net worth at US$52 billion.
He said economic conditions have not deteriorated to the levels of 1973 and 1974, when there was a deep recession also marked by rising oil prices and falling stocks.
On Feb 12, Mr Buffett offered to reinsure US$800 billion of relatively safe municipal bonds, which are typically used to finance things such as hospitals, roads and schools. But he offered to back the bonds only at a steep premium. His offer also excluded risky debt, including securities tied to US sub-prime mortgages.
Bond insurers rejected the offer and have been seeking new sources of capital. Some have also been considering separating their municipal bond business from riskier businesses.
Mr Buffett on Monday said his earlier offer is now ‘not on the table’, and added that ‘we tossed our hat in the ring and they tossed the hat back’.
Source: REUTERS (The Straits Times 5 Mar 08)