Buffett Says U.S. in Recession, Stocks Not Cheap Mon Mar 3, 2008 8:01am EST NEW YORK (Reuters) - Warren Buffett on Monday said the U.S. economy is in recession and that "stocks are not cheap." Speaking on CNBC television, Buffett also said he is no longer offering to guarantee $800 million of municipal bonds backed by MBIA Inc (MBI.N: Quote, Profile, Research), Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) and FGIC Corp, three large bond insurers. Buffett said that "from a common-sense standpoint right now, we're in a recession," though the U.S. economy has not yet recorded two straight quarters of declining gross domestic product, a traditional indicator of recession. He said, though, that the environment is "nothing like '73 or '74 yet," referring to a deep economic downturn also marked by rising oil prices and falling stocks. Buffett said investors should not rule out the possibility of a significant economic downturn. On Friday, Buffett's insurance and investment company Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) reported an 18 percent decline in fourth-quarter profit. This stemmed in part from weakness in businesses linked to housing, including units that make bricks and carpet, and that offer real estate brokerage services. Buffett said he is finding more buying opportunities in stocks, following a 16 percent decline in the Standard & Poor's 500 .SPX stock index from its recent high in October. "I find more things to look at now than I did six months or a year ago," Buffett said. But he acknowledged that conditions have changed "more dramatically" in the bond market. Berkshire last year spent $19.11 billion on stocks and $13.39 billion on bonds. http://www.reuters.com/article/bondsNews/idUSN0341321420080303
Meh, we have a great depression in Latvia too. Our prices for food now are on par or more expensive than in the UK, Germany or Belgium, but the minimal wage is four times less. And this comes in time when electricity and gas prices have gone up by about 30%.
Saw in Wall Street Journal. Must read the comments... http://blogs.wsj.com/health/2008/03...ng-world-finds-work-in-us/?mod=googlenews_wsj Sample: Let’s see, we can’t make shoes anymore (see WSJ article today) and we can’t take care of our own people. Wake up people. The last time we were a superpower was 1949. Let’s get our industrial base back. It’s more strategic than building a new B-1 Bomber. If we can’t make uniforms and boots for our soldiers here in the USA, how could we possibly win another WWII type conflict? We don’t make anything. We are going to become the slaves of the Chinese and Arabic Nations. Once they buy into our investment firms on Wall Street they will own Washington D.C. I am not a redneck - I am a six figure UCLA Econ grad and small company CEO with manufacturing in the USA, China, and Ukraine. Wake up people! Republicans for Obama! Comment by McGowan - March 3, 2008 at 12:43 pm
http://www.bloomberg.com/apps/news?pid=20601085&sid=aI8rbhM5Tsos&refer=europe Latvian Economy Faces Risk of `Abrupt Slowdown,' EU Draft Warns By Meera Louis and Aaron Eglitis Feb. 28 (Bloomberg) -- European Union Finance Ministers may warn Latvia to reduce spending and stem inflation to avoid the risk of an ``abrupt slowdown,'' according to an EU Economic and Finance Affairs Committee draft document obtained by Bloomberg News. The Latvian government is counting on slowing consumer demand to cut the rate of growth to 6.8 percent by 2010, following warnings by economists and credit rating firms that the economy may be overheating. The draft document was prepared for discussion at the EU finance ministers' meeting on March. 4. Inflation in the Baltic nation accelerated to 15.8 percent in January, the quickest in the EU. Along with a slowdown in bank lending and falling property values, the price increases threaten household spending, the draft warns. The government's ``economic scenario is attended by very high risks to macroeconomic stability, including continued overheating with a substantial risk of an abrupt slowdown at a later stage,'' according to the EU draft. The former Soviet republic's economy expanded a record 13.1 percent in the first quarter of 2006, prompting concern that the economy may be overheating. A year later, gross domestic product rose 11.2 percent, falling to 9.6 percent in the fourth quarter. Credit evaluators and banks, including Standard & Poor's and Goldman Sachs Group Inc., have said the country is at risk of an even sharper slowdown. `Hard Landing' The European Commission, the executive arm of 27-nation union, warned Latvia that its economy may face a ``hard landing'' on Feb. 13. ``Some slowdown has become visible in the housing market and in domestic consumption, but insufficient to remove the downside risks of a potential hard landing,'' the commission said. The Latvian Finance Ministry said yesterday it had convinced member states to adopt ``softer'' language in the draft that may be adopted by ministers in Brussels next week. The phrase ``hard landing'' was replaced by a ``much softer variant,'' said Daiga Reihmane, a spokeswoman for the Latvian Finance Ministry, by telephone. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net ; Aaron Eglitis in Riga at aeglitis@bloomberg.net Last Updated: February 27, 2008 18:19 EST -------------------------------------------------- Softer language? May be close your eyes and the problem will go away.....
Actually the situation is pretty desperate, and politicians make it a lot worse by even refusing to admit that anything is really wrong. The plans in place to halt inflation are only cosmetic and everyone knows that. Such government incompetence is really, really frustrating and calls for heads to roll.
Several years ago, we approached the Latvian embassy who got excited to bring investment and economic development strategies and indicated to meet with us. At the time my VP was visiting with several other embassies. When he met with this senior guy from Latvian embassy, he suddenly changed his tune and said that everything is fine in Latvia and that they do NOT need any American investment. We were surprised and confused. The only thing I can think of was that my VP was/is a handsome and big African American....
And in the mean time.... Companies Are Piling Up Cash By DIANA B. HENRIQUES The total cash held by companies in S.&P.’s industrial index exceeded $600 billion in February, up from about $203 billion in 1998.
Meh, anyway I intend to take some good from this crisis and buy lots of books and other stuff in US web shops saving on the extremely low USD value against EUR.
Things look really bad in the USA....desperation stting in.... Bernanke Urges Banks to Forgive Portion of Mortgages
LONDON - Crude oil is hitting record highs that once seemed impossible, but OPEC still believes that a production hike is not needed--the president of the oil-exporting cartel insisted on Tuesday that global demand for oil would slow down this year, in tandem with the economy. OPEC president Chakib Khelil told the press on Tuesday that he did not think OPEC would consider an increase in production at Wednesday's meeting. "Stocks are very high," he said, "and we are going to have less demand in the second part of the year." --------------------------------------- It is one of those Catch-22.... Keeping supplies tight means, prices stay high which fuels recession...
True if buying with dollars, but not in genreal. - More accurate would be: "Dollar's value is hitting record lows." Facts from a recent post of mine in another thread: For many countries, including Brazil, oil is steadly getting cheaper as the purchasing power of the dollar is falling faster than the price of oil (in dollars) is rising. - This is actually hurting Alcohol production in Brazil as its cost of production is rising as the minium wage rises. Alcohol is half the price of gasoline, with only 70% of the energy / liter - but still that is the lower cost /mile fuel and domestic sale of alcohol are growing, even relative to gasoline as old gas-only cars get replaced by a "flex fuel" cars. Because of this, and other factors, Brazil exported 14% LESS alcohol in 2007 than in 2006.) Minimum wage** in Brazil: DATE...In R$..In US$ 4/08 .....415...246 (Just announced. - Why data is in my newspaper. Takes effect in April, as always.) 4/07 .....380...190 4/06 .....350...160 4/05 .....300...119 4/04 .....260...090 4/03 .....240...072 4/02 .....200...084 4/01 .....180...083 4/00 .....151...084 **That is pay for month with 44hour work week, but does not apply to maids that live in the house. The actual cost to the employer is at least twice what the worker receives as Employer pay the Brazilian "social security" etc. ... Note that in last 5 years the amout of oil a minium wage worker in Brazil could buy as gone up more than 300%! Or alternatively: the oil he does buy costs him less than 1/3 as much now (in hours worked for it) as it did 5 years ago! Car sales are at all time high.
Billy T, How do you figure that, Billy T? In 2003, oil prices averaged around $30 per barrel. By your chart, the minimum wage for a Brazilian worker was US $72 per month in 2003. The worker could buy a little less than 2 1/2 barrels of oil for a month's wages. In 2008, the worker makes US $246 per month. At $100 per barrel, the worker still can only buy a little less than 2 1/2 barrels of oil for a month's wages. The worker hasn't really advanced at all, it is just that your inflation rate has been very high.
Your point well taken. I did not look at the price of oil. If one does (I think $30/b may have been a dip to a low point) then the minimum wage worker in Brazil has mainly escaped ALL of the more than tripling increase in the price of oil that US (and other dollar linked economies) have had to bear. Note however that in 2003 the dollar was relatively stronger vs the Real than during the prior years or those that have followed. (This was due to the election effect - Lula was thought of the extreme left and everyone who had money was buying dollars (except me - I bought R$ getting 4 for each dollar - now get less than 1.7 Real for each) Perhaps I should have said "during the last 3" instead of "during the last 5 years," oil has become much cheaper for the minium wage worker. 2003 was very unusual year Real weak and oil cheap. (Not typical of the recent years.) Thanks for noting the error of my statement. Main point/idea however remains correct. I.e. Oil is at all tome high, mainly for dollar based economies as dollar falling in purchasing power rapidly now. (Still not the deep depression triggering run to get out of dollars I forecast more than 3 years ago for the 6 year window starting this october.) Changing subjects (Summary from Bellwether Report of 4 March): Bernanke Highlights: 1/5 of 3.6 million ARMs seriously delinquent at end of 2007 8% of fixed sub-prime mortgages delinquent 6% of adjustable rate (Alt A) delinquent 1/2 foreclosures in 2007 were sub-prime 1.5 million ARMs, or 40% of outstanding, scheduled to reset; this will take the average rate from 8.0% to 9.25% for an average monthly mortgage payment for a total of $1,500.00 Donald Kohn Highlights: 50 large U.S. based bank holding companies, which hold 3.4 of all assets, lost $9.0 billion in 4Q08, experienced write-downs of $31.0 billion, saw loan losses above provisions of $14.0 billion, and watched non-performing assets for the year swell to $67.0 billion from $33.0 billion.
Our USA government has created a Buy American Act to maintain our industrial base for security reasons. The following countries are exempt from the law. That is why USA is buying billions of dollars of airplanes from France. Aruba, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Liechtenstein, Luxembourg, Netherlands, Portugal, Republic of Korea, Singapore, Spain, Sweden, Taiwan, or the United Kingdom. Now, that means more jobs to EU and less jobs for Americans.
Todays news: Economy Lost 63,000 Jobs in February By MICHAEL M. GRYNBAUM 39 minutes ago A report showing the fastest fall-off in the labor market in five years raised anticipation on Wall Street that the Federal Reserve will lower interest rates sharply later this month. UPDATE: Countrywide CEO: Credit Tightening Has Gone 'Too Far' Dollar Heads for 4th Weekly Drop Versus Euro as US Sheds Jobs
"... Goldman Sachs (NYSE: GS) -- noteworthy for being the one big investment bank that was smart enough to not get burned by securitized mortgages -- has predicted that if there's no recession, the housing market will probably fall by 15%. If there is a recession, Goldman thinks prices could fall by 30%. That's a heck of a lot more than the current 8.4% decline. ... If you owe more on your house than it's worth, deliberately pursuing foreclosure can be a rational -- if unethical -- decision. ... For years, lenders have been using legal fine print to gouge borrowers by raising the interest rates on credit cards and charging obscure fees seemingly whenever the mood struck them. Borrowers are now playing the same game, taking advantage of legal loopholes to dodge their debts. But this is happening with only with an 8.4% fall in the housing market. What happens with a 15% or 30% fall? ... First American (NYSE: FAF) calculated how many homeowners would be under water if house prices started falling. The numbers are startling. % Decline / % Mortgages "under water" 8.4% (Today) / 13.5% 15% (No Recession) / 21% 30% (Recession)/ 39% If a recession develops -- which, frankly, seems likely to me -- and the market falls 30%, then nearly two of every five mortgages will be under water. In light of those numbers, it's not so surprising that the Fed is panicking. Default could make sense financially for a huge number of people, and if there's negative equity, lenders will have lost money, even before you consider the high costs of foreclosure. {Billy T note: more important still is bank will sell house well below the already depressed market price to move it before it is vandalized. i.e.bank will typically collect much less than the full principle of mortgage due. If owner does not also file bankruptcy bank can come after him in court for the difference. - Perhaps sell his car, etc. - Not often done due to the "blood from turnip" limitations.} What's more, since lenders are generally highly leveraged, moving from a manageable 1% to 2% default rate to a 5% to 6% default rate can destroy capital adequacy ratios at an increasing rate. This will reduce the liquidity in the mortgage market, making it harder for housing sales to improve. The average foreclosure in a good market takes a little more than 10 months, according to a research paper from the Federal Reserve Bank of St. Louis. So, we've only begun ironing out the foreclosures resulting from the credit crunch that started over the summer. The impact on the economy won't just be the direct effect of the loss of lending, real estate, and construction jobs. As consumers' equity in their homes falls, it means that they can no longer borrow against that equity to buy consumer goods. ... In recent years, {borowing againt home equity} been estimated to be equal to 6% to 8% of consumers' disposable income. If the economy has slowed this much when consumers continue to have some spending power, how bad will it get if they have to stop spending completely? ..." FROM: http://www.fool.com/investing/value/2008/03/03/its-so-much-worse-than-you-think.aspx
On these upside-down mortgages, can the lenders go after other assets the borrower may own if the borrower walks away from the house?
"...The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world's largest economy is stalling. ... The jobless rate increased to 5.5 percent from 5 percent, the biggest jump since February 1986. ... falling home values,{A drop of $1.7 trillion during only 1Q08} scarcer credit and higher fuel bills, adding to the risk that the longest consumer-spending expansion on record will come to an end. ... Treasuries slid after the report, ... The dollar weakened. ...Revisions subtracted 15,000 from payroll figures previously reported for March and April. ... The unemployment rate, the highest since October 2004, reflected an expansion of the workforce, led by an influx of teen-agers, that exceeded the number of new jobs available. ... Payrolls shrank by 324,000 workers in the first five months of the year. In 2007, the economy generated 91,000 new jobs a month on average. "We've never seen a run of negative payroll numbers like this without the economy being in a recession,'' Avery Shenfeld, senior economist at CIBC World Markets in Toronto, said before the report. ``We are in a mild recession. We expect to see a few months of declines that are worse than this.'' ...General Motors Corp. has said 19,000 workers, or about 26 percent of its union workforce, accepted the latest offer to leave { Also will close 4 more plants} ... Ford Motor Co. will trim salaried-employee costs by 15 percent ... Payrolls at builders fell 34,000 after decreasing 52,000. ... Government payrolls increased by 17,000 after a gain of 12,000, indicating the total decline in private payrolls was 66,000. The number of Americans receiving jobless benefits surpassed 3.1 million in May for the first time in four years, indicating employees that are being let go are having a more difficult time finding new jobs. Consumer confidence last month sank to the lowest level in more than 15 years as the employment outlook deteriorated, according to a report from the Conference Board, a New York research group. ``Households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit and higher energy prices,'' Federal Reserve Chairman Ben S. Bernanke said in a speech this week. ... Workers' average hourly wages rose by 5 cents, or 0.3 percent, to $17.94. ... But not all is bad for all: Wal-Mart, the world's largest retailer, and Costco Wholesale Corp. yesterday said sales climbed more than analysts estimated as shoppers sought discounts to offset soaring food and fuel bills. Condensed by Billy T From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ6VzqO8N1Ag&refer=home I foresaw all this some 7 years agos as GWB began to destroy the US with tax policy that helped the already rich and hurt Joe American. So took steps to get out of dollars as much as I could. Dollar is down since then by more than 30% and the Brazilian stock maket is up by more than 30% just in 2008 alone! I told you to buy Brazilain and Indian ADRs three years ago. (The Indian ADRs have given up part of thier gain as the rupee is weak now but has not fallen as much as the dollar so still with significant gains.) Ibama, if elected president, is such a strong leader that there is a slim chance the US will not fall intro the deep depression I have long forcast will follow a run on the dollar, but I still think the damage GWB has done will many that nearly unavoidable. PS, at 10:30EDT: CNN just reported oil up about $6 yesterday (greatest one day jump in history) was already up $5 more today. - Here is why: yesterday the ECB hinted that despite slowing sales, the inflation pressure may cause it to raise interest rates soon. This will make the Euro more attractive wrt the dollar, while the FED dare not do the same in an election year. It has abandoned the fight against inflation. (Recall I told you who had no stomach for the volitility of Indian ADRs, to buy TIPs, about a year ago too.) Everyone knows that ECB action will drop the dollar even faster and that oil is priced in dollars, so it made historic $11 jump up in day and a half! Some here have been so silly as to say they are are not buying Frech wine or going to Eruope, etc. so they do not care about the dollar! I guess they do not buy gas or food either.
