Buffett Says Economy Has ‘Hit a Plateau at Bottom’
Warren Buffett, the billionaire investor who last year called the financial crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at bottom.”
“We have not bounced but we’ve quit going down,” Buffett, the 79-year-old chief executive officer of Berkshire Hathaway Inc., said today in an interview on CNBC.
Signs the worst recession since the 1930s is over have accumulated in the past two months, with U.S. manufacturing expanding for the first time in 19 months in August and home- sales rising. The Bloomberg Professional Global Confidence Index exceeded 50 in September for a second month, meaning optimists outnumbered pessimists. Federal Reserve Chairman Ben S. Bernanke said yesterday “the recession is very likely over.”
“We’re through the worst of it in residential real estate in all probability,” Buffett said today, adding that he doesn’t expect a “double-dip” recession.
The number of contracts to buy previously owned homes rose more than forecast in July and increased for a record sixth consecutive month, while mortgage buyer Freddie Mac said the average price rose 1.7 percent in the second quarter.
The remarks from Buffett and Bernanke helped push stock and commodities prices higher, with the Standard & Poor’s 500 Index climbing 1.5 percent. Lead rose for a third day and copper prices advanced.
Stocks climbed yesterday as Buffett, known as the “Oracle of Omaha,” told a conference in California that his company was buying equities because “I am getting a lot for my money.”
Kraft Foods
Buffett built an equity portfolio valued at more than $48 billion by betting on companies including soft-drink maker Coca- Cola Co. and Kraft Foods Inc. that he believes have competitive advantages and enduring brand popularity.
Buffett told CNBC that, while he’s not opposed to Kraft’s bid for Cadbury Plc, he thinks the offer is a “pretty full” price. Last week, Cadbury rejected a takeover proposal from Kraft, valued at about $16 billion, as too low. Buffett said he has confidence in Kraft’s management. Berkshire is Kraft’s biggest shareholder free credit report instantly.
Berkshire is also the top holder in Wells Fargo & Co., the nation’s biggest home lender, and Buffett has been adding to the stake this year and saying the bank’s ability to gather deposits at low costs will boost profits as the economy recovers.
Credit Cards
“We’re gonna have unusual losses in credit cards and in commercial real estate” in the economy, Buffett said today. “But we’re a lot better off than we were a year ago. I mean for one thing, some of the toxic assets have been flushed through. There’s been capital raised.”
JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., the biggest U.S. credit-card lenders, said yesterday that defaults climbed in August as the unemployment rate jumped and the impact of tax refunds waned.
JPMorgan said yesterday that construction and development loans remained the “greatest area of concern” for its commercial bank portfolio as net charge-offs will continue to rise.
Buffett reiterated his praise for Federal Reserve Chairman Ben S. Bernanke, Treasury Department Secretary Timothy Geithner and former Treasury Secretary Henry Paulson, calling them “heroes” for their management of the economy since last year.
“You can look back and say you could have done this a little differently or that a little differently, but at the time I called it an economic Pearl Harbor and in the end we got through Pearl Harbor,” Buffett said. “And it could have turned out a lot differently.”
Profit Gain
Berkshire posted net income of $3.3 billion for the three months ended June 30, an increase of 14 percent from the prior- year period. The results, released last month, halted six straight quarters of declining profit at Berkshire that included a first-quarter loss of $1.53 billion.
Buffett’s firm gained $3,000 to $103,000 at 4: 15 p.m. in New York Stock Exchange composite trading. The shares have dropped about 18 percent in the past 12 months.