Jul 14, 2009

Buffett Comments On the Second Stimulus Package

Warren Buffett spoke today, to the fabulous Julia Boorstin of CNBC (what great hair she has!). I don’t particularly care for Buffett’s politics and his ideas on taxation. But when it comes to economics and business prospects, Buffett is without match, as his investing record shows.

I agree entirely with him about the outlook for our economy the next few years. He makes the statement: “I don’t know if the movie is 2 or 4 hours long, but I know it has a happy ending”. What a positive point of view. More of us should share that perspective.

I am piggy-backing on many of Buffett’s trades since late 2008 owning: GE, WFC, USB and GS. These are all global franchises that for the most part, came through the crash without much damage (GE is much healthier than its stock price suggests and is a raging bargain).

Regarding the housing crisis and home building, Buffett makes the point that the housing crisis precipitated our economic crisis (but he did not lay the blame properly at the feet of a laissez faire Congress that eliminated the regulatory protections needed and cheerled the mortgage industry into the ground). His medicine: don’t build any more houses; a little simplistic, but maybe tongue in cheek. We need to work off the inventory we already have. I think that is pretty obvious and goes without saying. But he said it by way of making the case that excess housing is the root of our problems and our economy won’t truly mend until housing inventories are once again in balance.

As debate grows about a possible second stimulus package for the flagging American economy, at least one legendary investor is giving the idea his guarded approval.

The “Oracle of Omaha” believes a second stimulus may be called for.”I think that a second one may well be called for,” Warren Buffett, the CEO of Berkshire Hathaway, told “Good Morning America” today. But, he added, “you hope it doesn’t get watered down in many ways.”

Buffett cautioned that a second stimulus package, like the first, won’t be “a panacea,” because stimulus packages take time to work. He criticized lawmakers’ work on the first stimulus package, which contained $787 billion in spending.

“Our first stimulus bill … was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in … as if everybody was putting in enough for their own constituents,” he said. “It doesn’t have really quite the wall that might have been anticipated there.”

Buffett also criticized the government’s public-private investment plan, through which private investors are supposed to buy so-called toxic assets off the balance sheets of ailing banks that received billions in government aid.

“I do not like the idea of any kind of a plan involving the government where Wall Street makes a lot of money. My plan provided that they would make no money whatsoever, and the American public would make the money. I just think that Wall Street owes the American people one at this point,” he said.

Nebraska native Buffett, known as the “Oracle of Omaha” for his long history of prescient stock picks, said that despite the talk of recent economic “green shoots,” he couldn’t predict when the flagging economy would bounce back.

“We are not in a freefall, but we are not in a recovery either,” Buffett said. “We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior. That change hasn’t changed.”

The U.S. unemployment rate, which currently stands at 9.5 percent, still “has a ways to go” before it peaks, he said. His own company, he said, had to lay off 500 people.

“We didn’t want to do it, and if we saw things coming back we wouldn’t do it,” he said.

Without saying any more, here is the interview:

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