The stock market is up so far today on mixed readings of the tea leaves. The Conference Board’s index of leading indicators rose unexpectedly, which elicited some positive reports, but Reuters was not impressed, noting that the 0.1% rise showed weakness but not a formal recession. The Wall Street Journal attributed the rise to analyst upgrades of tech stocks and a softening of oil prices.
Warren Buffett, however, is not convinced the US economy is in the clear, discounting cheery talk that the credit crisis is soon to be over. From Bloomberg:
Billionaire Warren Buffett said the U.S. economy is less than halfway through a credit crisis that already sent home foreclosures to a record and sparked the collapse of Wall Street’s fifth-largest securities firm.
“I don’t necessarily think we’re halfway through or necessarily a quarter of the way through the effects throughout the general economy,” Buffett, 77, told reporters today in Frankfurt, Germany. “The initial effects are felt by the people who really did the silliest things, but you can have a whole bunch of domino-type effects that eventually can get to people who are doing fairly sound things.”….
The danger of multiple investment bank failures probably ended when the Federal Reserve orchestrated the takeover of Bear Stearns Cos. by JPMorgan Chase & Co., said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. Yet the damage to the economy and individuals will keep mounting, he said.
“In my judgment, there’s a good chance that most of that is not over,” said Buffett.
Note that Buffet was in the subprime-is-contained camp a year ago.
I agree with Buffet’s current assessment. But take it from a guy like David Rosenberg Chief Econ for North America @ Merril.
“Note that Buffet was in the subprime-is-contained camp a year ago.”
Could you post the link to this comment please? I’d be curious to read what was his thinking at the time.
Not the same anonymous but what the hey
I was at the Berkshire shareholder meeting last year in which Buffett was asked to comment on the implications of the real estate bubble for the economy. I believe that that is the quote that the news story above is all about. What Buffett actually said as I recall, and I was listening closely even though not taking notes, was that he didn’t think that the popping of the real estate bubble would cause a recession, *as long as unemployment rates stayed low*. That’s a big, big, qualification regarding the unemployment rate! In other words, I don’t think he really was in the camp of saying subprime is contained. Rather, he was just sort of cleverly avoiding the question, by adding the qualification that it would not matter, as long as the plunge was not big enough to move the unemployment up much. He answered it circularly, in other words…but you had to be listening closely, probably more closely than the average reporter is listening, to catch it. Hard to blame him because he’s in a position where he really has to avoid saying anything that might cause the average listener to freak out. Again, all from memory, but I was listening closely and it made a big impression on me at the time.
“Observer” is right, according to Whitney Tilson’s notes from Berkshire’s 2007 shareholder meeting: “There will be consequences for these people, but the question is whether it spreads. If unemployment and interest rates don’t go up, then it’s unlikely this factor alone triggers anything in the general economy.”
Here is a linke to Tilson’s notes: http://www.designs.valueinvestorinsight.com/bonus/pdf/Tilson_2007_BRK_Meeting_Notes.pdf