Billionaire Warren Buffett, "the Oracle of Omaha," has been saying lately that for all practical purposes we are already experiencing a recession. And more than that, as he told the German magazine, Der Spiegel, this recession will likely be much worse than people expect:
The housing market. The subprime morgage debacle. The lack of financing capital. The price of oil and gas. The price of food. Inflation. And the problems and burdens on the economy continue to proliferate. When Buffet talks, I listen--but I don't think you have to be an oracle to see where all this is going.http://www.usatoday.com/money/economy/2008-04-28-buffett-recession_N.htmThis is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think.
4 comments:
I do appreciate the point about the formal definition of a recession--two down quarters and all of that. Very ordered, very consistent, sometimes even useful--but not always very reflective of the reality of the here and now. As everyone knows, I'm sure, those measures aren't available until at least a quarter or more after the fact, and then they are usually revised the next quarter. So we never really know if we've been in a recession by the Fed's formalistic (and somewhat arbitrary) metric until after we've been in one for a couple quarters or more. But, regardless, if we just look around and recognize the collective economic pain, we know.
And in the interim, the economic problems keep mounting and the economic misery in average Americans' lives keeps growing and compounding. It is not surprising, then, that under these circumstances, economic and market observers will register their opinions about whether or not we are in or heading toward a recession--regardless of party affiliation or voting record. And interestingly, historically, it has more often been the budget and fiscal conservatives who were more likely to warn of excesses or failures in the economy or markets, and therefore also the likelihood of economic or market declines.
Warren Buffet is not alone in his prognostications. There are a number of others in his camp--both Republicans and Democrats. The only difference is that his record on reading economic and market dynamics--both in his own investment record at Berkshire Hathaway and his public pronouncements--is so impressive. When it comes to seeing larger-picture, macro-economic conditions and intermediate-term market implications, he is without peer--regardless of what party is in office or who is running for office.
I have been following Warren Buffet's record for over 25 years. At so many major turns or periods of excess, he has been unafraid to speak his mind, and most often has been right. For example, in a 1998 Fortune article he warned that the stock market was overvalued and moving toward "bubble" status. All those emotionally, professionally, or actually invested in that market's irrational and continuing march upward, openly derided his views and predictions. It was said there was a "new paradigm" of valuation, that Buffet had been a great player in his day, but he had his day. He was out of touch. But the only thing he was out of touch with, or refused to operate on the basis of, was the emotional market psychology that always attends the extremes of market ups and downs.
We'll just have to wait and see if he is right again this time. But regardless, I certainly wouldn't assume he is wrong or has ulterior motives just because he is backing Democratic candidates for president.
I didn't even know Waren Buffet was a democrat until a year or so ago, when he organized fund-raisers for both Obama and Clinton. Nothing he ever did or said suggested to me that his work or public pronouncements had anything to do with his political affiliations--whatever they were. And most of those years I was a registered Republican. (Although, for six years now I've been reistered Independent and inclined to vote with the Democrats on the issues now most dear to me.)
And just one more note: many economic and market observers I respect also believe this market, by most historically valid measures, is overvalued. For example, this market has not declined to the average P/E ratio of the S&P 500 since the middle-1990's. Even the 2001-02 correction did not retreat even to the average. If the valuation principles of the last 50 years still obtain, sometime in here--sometime when the economy and many or its components are weak, sometime when the market is overvalued--the P/E ratio of the S&P 500 will probably retreat below the historic average--possibly significantly below.
Greg,
1) With all due respect, when I reach a factual inaccuracy as glaring as this one, I normally just stop reading:
“those measures [GDP] aren't available until at least a quarter or more after the fact, and then they are usually revised the next quarter”
Q1 ended 3/31/08. The “advance” GDP report was released 4/30/08, the “preliminary” GDP report was released on 5/29/08 and the “final” report will be released on 6/26/08 (less than one quarter after Q1 ended.
2) The Fed does not date recessions, the NBER does.
3) The “collective economic pain” you refer to is far more “arbitrary” than your quibble with the NBER. And, your “collective economic pain” has been fabricated by off the charts media hysteria.
4) When looking for someone with a track record as an astute investor, turn to Buffett.
When looking for an economic forecast:
A) Believe Buffett when he freely admits that he:
“never made any money out of economic forecasting”
B) Trust the professionals whose income, for “over 90 years”, has depended upon accurate, economic forecasts.
Just today, those professionals increased their forecast for Q2 GDP growth from 0.4% to 0.8% growth. And, they forecast continuing growth in every quarter of 2008 and continued GDP growth in 2009. In other words, no recession!
sbvor:
Thank you for your views. But is my "factual inaccuracy" really so glaring, or even inaccurate for that matter? Advance and preliminary GDP reports are interesting, but most people don't invest much--in any sense of the word--in those reports. The so-called "final" report is when people start to form some confidence about the quarter. And it would seem to me more quibbling than a "factual inaccuracy" that the report for QI will be four days short of a month, rather than a "full" month? And I don't know about you, but I've been around these reports long enough to know that they are often revised, and it's hard to be completely confident about them until the period of possible revision passes.
But these picky (and prickly) points are missing the forest for the trees. My only points are these:
(1) there is a lot of bad economic news and economic weakness--and most reports say they are not going away any time soon.
(2) As a result, there are a lot of people suffering, and they are daily growing in number. They really are. We see it everywhere in our lives.
(3) Warren Buffet, a credible voice with a great record of big-picture economic and market observations, reasonably believes we are having a recession-like experience, even if the formal measures don't yet confirm it.
(4) And based on all the weaknesses and burdens still building in the economy, Buffet also believes it will likely get worse--although he is always quick to point out that he is not a professional economist or market analyst. What you see is what you get, but it has usually been pretty good.
(5) Across all his years, Buffet has been embraced by Republicans and Democrats alike for his impartial, apolitical economic and market views. And after having served over the years as an officer of two Fortune-200 companies, I am unaware of any colleagues--most of whom were Republicans and economically literate--who had anything but respect for him.
And so you can understand why I am puzzled by your ad hominem disparagement of the man. For someone who is such a stickler for "just the facts, ma'am," I'm disheartened at the rather cavalier, misleading liberties you have taken in representing his comments, alleging political motivations and market manipulation and, impliedly, impugning his identity and character.
Perhaps you can understand that I might view those representations as also "unsubstantiated", or politically twisted or recast. Perhaps you can understand why I would prefer to see a more tempered, balanced approach to your representations--a more credible, more helpful approach for most people, most readers--and a fairer characterizion and treatment of Mr. Buffet.
Greg,
All my comments on Buffett were fully and objectively substantiated by the very media which deliberately seek him out to pimp for their particular economic bias. Goldberg, in his book, explains in detail exactly how that works.
Regarding Media Bias, if you are more inclined to believe an academic than a 25 year veteran of CBS, try this study from UCLA (which objectively quantified the bias).
I respect Buffet for his investment skills. But, he is objectively and quantitatively wrong when he pimps for higher taxes.
And, by allowing the Leftist media to disingenuously present him as The Oracle of The Economy when he, himself, admits that he “never made any money out of economic forecasting”, he is, objectively speaking, no better than the average air-head celebrity pontificating on foreign policy.
Wiser (and cooler) heads will trust the professionals whose income, for “over 90 years”, has depended upon accurate, economic forecasts.
But, biased as they are, the so-called “Mainstream Media” will NEVER report on THAT forecast!
Just yesterday, those professionals increased their forecast for Q2 GDP growth from 0.4% to 0.8% growth. And, they forecast continuing growth in every quarter of 2008 and continued GDP growth in 2009.
In other words, no recession in the forecast!!!
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