OMAHA, Neb. | Billionaire investor Warren Buffett said Friday the economy continues in recession, by his definition, and will remain in recession for at least several more months.
During a live appearance on CNBC, Mr. Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy.
Earlier this year he said a financial crisis reveals which players have been “swimming naked,” because the tide goes out. That picture has worsened along with the crisis.
“We found out that Wall Street has been king of a nudist beach,” said Mr. Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha.
Mr. Buffett said activity at businesses Berkshire owns, especially ones related to housing construction such as Shaw carpet and Acme Brick, continued to slow during the summer.
He’s confident the nation will be doing better five years from now, Mr. Buffett said, but the economy could be worse five months from now.
Mr. Buffett said the economy is in a recession because most Americans aren’t doing as well today as before. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation’s gross domestic product.
Regarding the nation’s credit crunch, Mr. Buffett said he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but that doesn’t mean that all the shareholder equity in those companies can’t be wiped out.
“They’re looking for help, obviously. And the scale of help is such that I don’t think it can come from the private sector,” Mr. Buffett said.
He predicted that the federal government eventually will have to step in to help because the troubles of Fannie Mae and Freddie Mac seem to be growing and feeding on themselves.
Together the companies hold about half of U.S. mortgage debt and are the largest source of funding for home mortgages. But they are seeing too many defaults. Losses between April and June for the two companies totaled $3.1 billion, and investors fear they will continue to grow.
Mr. Buffett said it’s likely more banks will fail, especially in areas where there was a real estate bubble and the bank got heavily involved in the housing market.
“What we’ll see is failures where the bankers were dumb in what they did,” Mr. Buffett said.
But Mr. Buffett said the Federal Deposit Insurance Corp.’s guarantee on accounts up to $100,000 should prevent bank failures driven by panic.
Mr. Buffett said the nation’s current economic struggles create investment opportunities, and his phone is ringing more lately than it was three months ago. But he said many of those calls have come from desperate people and didn’t represent good investment opportunities.
As the stock market problems continue, Mr. Buffett is looking for ways to use Berkshire’s roughly $31 billion in cash.
“The cheaper they get, the harder I’ll look,” he said, referring to shares.
He said Berkshire added to some of its holdings because share prices fell enough to be attractive. The company had been buying shares of either Wells Fargo & Co. or American Express Co. in recent months, he said, but wouldn’t specify which.