Business | Economy
Buffett says American economy is in slump and stocks are not cheap
Billionaire investor no longer offers to guarantee $800b muni bonds
- Reuters
- Published: 00:31 March 4, 2008
New York: Billionaire investor Warren Buffett said on Monday the US economy is in recession and "stocks are not cheap."
Speaking on CNBC television, Buffett also said he is no longer offering to guarantee $800 billion of municipal bonds backed by MBIA, Ambac Financial Group and FGIC Corp, three large bond insurers.
Buffett said that "from a common-sense standpoint right now, we're in a recession," though the US economy has not yet recorded two straight quarters of declining gross domestic product, a traditional indicator of recession.
He said the environment is "nothing like '73 or '74 yet," referring to a deep economic downturn also marked by rising oil prices, higher inflation and falling stocks.
Still, he said investors should not rule out a significant economic downturn, and that Federal Reserve Chairman Ben Bernanke has a "very tough balancing act" in trying to boost economic growth without kindling inflation. Buffett said there is a fair chance that inflation may ignite in a "serious way."
On Friday, Buffett's insurance and investment company Berkshire Hathaway Inc reported an 18 per cent 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 per cent decline in the Standard & Poor's 500 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.
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