Buffett Says He Sees ‘No Signs’ of Recovery in Housing, Retail
By Erik Holm and Andrew Frye
May 2 (Bloomberg) -- Billionaire investor Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., said he’s seen no indication of recovery from the real estate slump that helped cause the U.S. recession.
“There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”
Paul Volcker, one of President Barack Obama’s economic advisers, said this week that the economy was “leveling off at a low level” and doesn’t need a second fiscal stimulus package after the $787 billion plan signed by Obama in February. The U.S. economy contracted at a 6.1 percent annual rate in the first quarter, weaker than forecast, making this recession the worst since 1957-1958.
The annual meeting gives Buffett and Vice Chairman Charles Munger a platform to discuss markets, the economy and Berkshire’s businesses. Shareholders were expected to attend in record numbers this year after Berkshire reported five straight quarters of profit declines, ratings companies took away the firm’s top AAA credit grade, and Buffett confessed to an ill- timed investment in oil producerConocoPhillips.
The loss of the top credit grade in the last two months from Moody’s Investors Service and Fitch Ratings “has no economic impact” on Berkshire, Buffett said.
Wounded Pride
“It just doesn’t,” he said. “We don’t use borrowed money in any real significant sense. My pride may be wounded just a bit.”
Berkshire, with a U.S. stock portfolio of $51.9 billion, has been pressured as equity markets dropped and U.S. unemployment rose to its highest in 25 years. Berkshire shares have plunged 31 percent in the past 12 months.
More than 500 U.S. financial institutions have won approval for government bailouts with the total value exceeding $390 billion, and federal programs are buying distressed assets, backing debt and insuring customer deposits to prop up the economy and encourage banks to lend.
Buffett, in his most recent letter to shareholders in February, said he supported the U.S. government actions, while predicting bailouts will cause “unwelcome aftereffects” including inflation.
International Appeal
Known as the “Oracle of Omaha,” Buffett has grown into a cult figure among investors who admire him as much for his homespun aphorisms as for his stock-picking savvy. Visitors from 43 countries were expected to fill the arena and the overflow rooms, and students from 45 universities have been invited to watch from a ballroom in the Omaha Hilton across the street.
Buffett and Munger have used recent meetings to promote Berkshire as a buyer ofnon-U.S. businesses and distinguish their operations from what they consider the sometimes reckless behavior they see on Wall Street. Their pronouncements reach shareholders, potential customers and ratings firms.
Berkshire’s profit has fallen on deteriorating results at insurance units and liabilities from derivative bets on world stock markets. Buffett will announce first-quarter results May 8, the company said this week. Berkshire said Feb. 28 that book value, a measure of assets minus liabilities, had dropped by about $8 billion from $109.3 billion on Dec. 31.
Wells Fargo
Book value per share, a measure Buffett highlights in his yearly letter to shareholders, slipped 9.6 percent in 2008, the worst performance since Buffett took control in 1965, on the declining value of the derivatives and holdings in financial companies including Wells Fargo & Co. The Standard & Poor’s 500Index has declined about 38 percent in the past 12 months.
Shareholders at today’s meeting have a chance to browse booths at the Qwest Center where Berkshire units including See’s Candies, R.C. Willey Home Furnishings and car insurer Geico Corp. hawk their wares. The meetings in recent years have started with movies where Buffett hobnobs with celebrities including actress Susan Lucci and basketball player LeBron James. Then Buffett and Munger sit for five hours and take questions from the floor.
Shareholders haven’t been screened in past years, and some people took the opportunity to ask Buffett about baseball, abortion and Buffett’s personal relationship with Jesus Christ. Buffett, in his “Visitor’s Guide” for this year’s attendees, cited the paucity of inquires about Berkshire at the 2008 gathering as the reason for restructuring the question-and- answer session.
‘Most Worthwhile’
The new arrangement, in which half the questions are pre- screened by reporters, may ensure more discussion on planning for Buffett’s replacement as chief executive officer, Berkshire’s $37.1 billion in derivative bets tied to stock markets and ratings cuts.
“It will probably be the most worthwhile annual meeting in recent times,” said Jeff Matthews, the founder of hedge fund Ram Partners LP, in an interview before the meeting.
Matthews, who wrote in his book, “Pilgrimage to Warren Buffett’s Omaha,” about the lack of inquiries about Berkshire businesses is among investors who publicly compiled lists of potential topics of inquiry. Their questions cover the firm’s 20 percent stake in Moody’s parent company, an investment in Chinese rechargeable-battery maker BYD Co., and Berkshire’s reliance on Ajit Jain at its reinsurance operation.
The three reporters -- Carol Loomis from Fortune magazine, Andrew Ross Sorkin of the New York Times and CNBC’s Becky Quick -- took questions via e-mail and were under instruction from Buffett to ask only about Berkshire.
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