Buffett Says Economy Will Be ‘In Shambles’ for 2009

[axxomarketing]

What do you guys think?

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By Rick Levinson

Feb. 28 (Bloomberg) -- Billionaire Warren Buffett said the economy will be “in shambles” for the rest of this year as financial firms take losses tied to reckless loans made during the housing boom.

The Standard & Poor’s 500 Index will probably gain in three-quarters of the next 44 years, just as it did in the period since Buffett took over Berkshire Hathaway Inc. in 1965, he said today in his annual letter to the company’s shareholders.

While Buffett and business partner Charlie Munger can’t predict how stocks will perform in 2009, they’re certain “that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond,” he wrote.

Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said yesterday in Washington. Buffett said the consequences of the U.S. housing bubble are now “reverberating through every corner of our economy.”

Home purchases should involve an “honest-to-God down payment of at least 10 percent,” Buffett said. “Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective.”

Buffett endorsed efforts by the U.S. government to prevent the failure of financial firms including Bear Stearns Cos., which was sold to JPMorgan Chase & Co.

‘Immediate Action’

“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

Buffett’s letter accompanied the release of Berkshire’s fourth-quarter results, in which net income fell 96 percent to $117 million on losses from derivative bets tied to stock markets. Berkshire shares have fallen 44 percent in the past year as the value of the firm’s top stock holdings dropped and losses increased on the derivatives.

By the fourth quarter of last year, “the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country,” Buffett said. “A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.”

Bloomberg.com: Worldwide

 

[turbolapp]

While he's not saying anything new, it's the first time I've heard someone say it all together and make a clearer picture. I think he's right on the nose about what happened, the psychology of fear and the reality of the situation. I like that he said:


“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

 

[transistor]

Warren Buffett is a douche

 

[Rage9]

^^ Agreed.

 

[hannahmcintyre]

While he's not saying anything new, it's the first time I've heard someone say it all together and make a clearer picture. I think he's right on the nose about what happened, the psychology of fear and the reality of the situation. I like that he said:


“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

Definitely, I agree completely.

This is the "correcting" bit of the "self-correcting market". I had no idea that B-H dropped in value so much though. I remember the days when it was over 140k/share!

 

[TFLNetwork]

Think its time to load up?

 

[conv3rsion]

Think its time to load up?

absolutely, buying all i can get

 

[subigo]

Is it just me or does the whole thing just sound like mass hysteria? I'm starting to think that companies are using this as an excuse to cut workers pay and fire them. I know a TON of small business owners and not a single one is losing money, they are growing, my company included.

The only person I know who has been personally hit by this is my mother, who is an RN at a hospital. They are cutting her pay 25% starting in June, yet accounting says there has been no change in the hospitals income since last year...

 

[guerilla]

While he's not saying anything new, it's the first time I've heard someone say it all together and make a clearer picture. I think he's right on the nose about what happened, the psychology of fear and the reality of the situation. I like that he said:

This has not been caused by a psychology of fear. I know people want to believe that the economy is driven by confidence, but confidence is meaningless if there are no goods on the shelf.

Fear is a natural human reaction to environmental conditions, otherwise we would use the same behavior if the economy had lots or little resources.

“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

Buffet is a boom time douchebag. He made his money in an inflationary stock market, where it was always going up, and someone with a minimal amount of talent and ability could invest in those things which increased year over year without any rational reason except more people were sinking their money in.

Everyone is a genius in a bull market.

This is from last year

Global credit crisis has eased, says Warren Buffett-International Business-Business-The Times of India

Warren Buffett, chief executive officer of Berkshire Hathaway said global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns Cos.
‘The worst of the crisis in Wall Street is over,'' Buffett said on Sunday. ‘‘In terms of people with individual mortgages, there's a lot of pain left to come.''

Buffett was interviewed before the Omaha, Nebraska-based company's annual meeting, attended by about 31,000 people. Buffett said the Fed acted properly when it arranged a $2.4 billion buyout in March of New York-based Bear Stearns by JPMorgan Chase & Co.

The billionaire said he turned down the opportunity because he lacked enough capital and time to craft a solution. More failures and wider panic may have resulted if the regulators didn't halt the run on Bear Stearns, he said. ‘‘The worry was that there would be contagion; it was a very real worry,'' Buffett said.

‘‘If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.'' Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest US bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ‘‘someone responsible'' and wasn't from the Federal Reserve or the Treasury.

The call lasted about half an hour, Buffett said. ‘‘As I understand it, Bear Stearns had $65 billion due on Monday and I didn't have $65 billion,'' Buffett said.

‘‘I couldn't get my mind around that situation in the required time.'' New York-based JPMorgan was the right buyer for Bear Stearns, he added. Berkshire had about $35 billion in cash as of March 31, according to a regulatory filing on Saturday.

JPMorgan agreed in mid-March to acquire Bear Stearns after customers grew concerned about its health and pulled out their money, leaving Bear Stearns short on cash. JPMorgan raised the purchase price a week later to $10 a share from $2 to mollify Bear Stearns shareholders who said they weren't getting enough.

That was from May. Before the $9 trillion in FED sponsored Wall Street bailouts.

Like I said, Buffett is a tool. He didn't see this coming, his portfolio is getting hammered, and he's wrong on his predictions. Easy to be smart when the market is always going up...

 

[guerilla]

Is it just me or does the whole thing just sound like mass hysteria? I'm starting to think that companies are using this as an excuse to cut workers pay and fire them. I know a TON of small business owners and not a single one is losing money, they are growing, my company included.

Of course it is mass hysteria. It is being promoted by the government, which said, no wall street bailout, the global economy will crash.

What the government is going to do, is tighten the economy in an attempt to save it for the losers, and then there will be a depression. Two years from now, when the price controls come in, remember I said this.

The recession/depression could be over in a year, if the government would stop taking money from the productive, and giving it to the unproductive. If they would stop taxing people who are current on their mortgages, to pay for people who can't afford a house without it being given to them at someone else's expense.

 

[d03boy]

You are all retarded

 

[Nikko]

You are all retarded

I hear yo mama calling you.

 

[turbolapp]

, but confidence is meaningless if there are no goods on the shelf.

and goods are meaningless when there is no confidence to buy. My friends and I were discussing how even though our household incomes have not changed (actually some of ours have increased) we all have this urge to hunker down.

 

[guerilla]

I hear yo mama calling you.

[ame=http://www.youtube.com/watch?v=QyZSckIjp4c]YouTube - girl pig squeal vid ( THE REAL GIRL)[/ame]

 

[guerilla]

and goods are meaningless when there is no confidence to buy. My friends and I were discussing how even though our household incomes have not changed (actually some of ours have increased) we all have this urge to hunker down.

But that's not an irrational urge. There are no savings in the economy, and the more artificial credit pumped in, is just pushing on a string.

Your instincts are telling you, if the economy is in a downturn, you need to conserve, and build capital, not rely on credit.

It's just like people say, "deflation is bad". No it isn't. Rising prices are bad. Falling prices rewards savers, and helps the poor. Same thing with "full employment". I anxiously await the day we have 100% unemployment, as robots fetch my slippers and another brandy as I lounge on a white sandy beach all day.

The legendary economist (quack) John Maynard Keynes called these, "animal spirits". Basically, anytime his crap mathematical theories didn't work, he said, "oh that's because man is an animal and animals are irrational".

But men are different from animals. We are rational. When a squirrel puts away nuts for the winter, that's not paranoia or low confidence. That's prudence.

In a bad economy, cutting excessive consumption, and creating savings is prudent. You and your friends, are in fact, following the correct instincts.

 

[Mike619]

Is it just me or does the whole thing just sound like mass hysteria? I'm starting to think that companies are using this as an excuse to cut workers pay and fire them. I know a TON of small business owners and not a single one is losing money, they are growing, my company included.

The only person I know who has been personally hit by this is my mother, who is an RN at a hospital. They are cutting her pay 25% starting in June, yet accounting says there has been no change in the hospitals income since last year...

i dont know either, im making more money that most of the people in my city and this is during the depression where people are barely trying get the food to the table.

 

[jdomaha]

But that's not an irrational urge. There are no savings in the economy, and the more artificial credit pumped in, is just pushing on a string.

Your instincts are telling you, if the economy is in a downturn, you need to conserve, and build capital, not rely on credit.

It's just like people say, "deflation is bad". No it isn't. Rising prices are bad. Falling prices rewards savers, and helps the poor. Same thing with "full employment". I anxiously await the day we have 100% unemployment, as robots fetch my slippers and another brandy as I lounge on a white sandy beach all day.

The legendary economist (quack) John Maynard Keynes called these, "animal spirits". Basically, anytime his crap mathematical theories didn't work, he said, "oh that's because man is an animal and animals are irrational".

But men are different from animals. We are rational. When a squirrel puts away nuts for the winter, that's not paranoia or low confidence. That's prudence.

In a bad economy, cutting excessive consumption, and creating savings is prudent. You and your friends, are in fact, following the correct instincts.

All our household earnings are being spent towards paying off debt. CC debt, school debt, etc. Fortunately business has been very good this last few months and we're looking at more income than we've had ever before.

It's kind of irksome when you get the idea that other people are enjoying the benefits that going into debt gets you (pretty shiny things like motorcycles), yet not facing the negatives that come with it (not having savings).

This is, in fact, grating on me to the point where I'm wondering where "mine" is, and who is going to give it to me.

Dear jesus, I'm going to be paying out the nose for taxes this year.

 

[guerilla]

All our household earnings are being spent towards paying off debt. CC debt, school debt, etc. Fortunately business has been very good this last few months and we're looking at more income than we've had ever before.

That's awesome. And yet there are people who will say that by saving and paying off debt, you are ruining the economy.

It's kind of irksome when you get the idea that other people are enjoying the benefits that going into debt gets you (pretty shiny things like motorcycles), yet not facing the negatives that come with it (not having savings).

That's because the state treats them like victims. They deserve a motorcycle because people who can afford to pay taxes AND have a motorcycle must be ripping someone off.

Haven't you heard? Everyone has a right to a home. And a motorcycle. And an education. And health care. Only suckers work for those things.

This is, in fact, grating on me to the point where I'm wondering where "mine" is, and who is going to give it to me.

Don't step out of line slave. :music06:

 

[Wicked Ice]

Okay, the part that I don't understand is that why do they encourage/urge people to spend money to get economy running?

Is this the basis of Keynesian economy?

That's awesome. And yet there are people who will say that by saving and paying off debt, you are ruining the economy.

 

[jdomaha]

Okay, the part that I don't understand is that why do they encourage/urge people to spend money to get economy running?

Is this the basis of Keynesian economy?

If I remember right, one of the most crippling situations that an economy can face is the economic paralysis caused by fear.

Fear that you won't have a job tomorrow.

Fear that the government might raise taxes.

Fear that your investment will be worthless tomorrow.

People who are afraid that they won't have a job tomorrow are concerned about putting food on the table and paying for their kids' medical expenses. They spend less on eating out, toys, computer stuff, etc...trimming away at the non-essentials. The problem is that all those non-essentials directly relate to the employment of a ton of people. Now those people are afraid that they'll lose their job and the cycle continues until the only people who are employed are the military and government clerks.

People who have capital that are concerned that the government will raise taxes look for ways to protect that capital. They risk less, which means fewer businesses get started, other viable businesses are under-funded and can't grow and that some businesses go under. This leads to the previous paragraph where people are concerned about having a job tomorrow.

People who own investments, large and small, pull money out of what appear to be ever-riskier investments - due to fear. This flight of capital from investments causes all sorts of shit to happen that will probably result in a zombie apocalypse.

The problem is that America isn't producing anything near what we used to. We're pushing a bunch of paper around and calling it "creating wealth." That can only go on for so long, living off the wealth of previous generations...