The Associated Press
Monday 03 March 2008
Buffett says US economy essentially in a recession, expects rough ride for insurers in 2008.
Omaha, Nebraska -Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet.
Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.
The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.
"I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC.
But Buffett said it's not clear how far the recession will go because that is difficult to predict.
The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.
On Thursday, the Commerce Department reported that the gross domestic product increased at a low 0.6 percent pace in the quarter that ended Dec. 31.
In the July-September quarter, the economy grew at a brisk 4.9 percent.
Gross domestic product measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.
A survey released last week by the National Association for Business Economics showed that 45 percent of economists are predicting a recession in 2008.
But Buffett said the U.S. economy will be fine in the long run.
"Over time, my children are going to live better than I do, although they don't believe it," Buffett said.
Buffett's appearance on television came on the heels of his annual letter to shareholders, which he released Friday along with Berkshire's 2007 financial report.
In the letter, Buffett predicted that the insurance industry will see lower underwriting profit margins in 2008 because premium prices are down, and the industry's luck will certainly change.
"It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008," he said. "Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by 4 percentage points or so.
"If the winds roar or the earth trembles, results could be far worse."
Buffett said Berkshire's insurance group, which includes GEICO, reinsurance giant General Re and several other firms, generated $2.2 billion net income from insurance underwriting in 2007. That's down from the previous year when it posted a $2.5 billion underwriting profit.
When Berkshire's shareholders aren't worrying about insurance profits, they're likely fretting about who will run Berkshire after Buffett is gone. The 77-year-old Buffett offered a few new clues in his annual letter and during the CNBC interview.
To replace Buffett, Berkshire plans to split his job into three parts - chief investment officer, chief executive officer and chairman.
Buffett wrote in his letter that over the past year he identified four investment managers outside Berkshire who could take over managing the company's $75 billion stock portfolio and investing its $44.3 billion cash.
Buffett said on CNBC that none of the four CIO candidates is a woman and that very few women applied for the job.
Buffett has previously said that Berkshire's board had three outstanding internal candidates for chief executive. And Buffett's son, Howard, who already serves on Berkshire's board, will become chairman after Warren Buffett's death.
Buffett also said on CNBC:
- That he doesn't agree on everything with his favorite presidential candidates, Democrats Hillary Clinton and Barack Obama, and he wouldn't want either one to succeed him as Berkshire's chief capital allocater. "I would certainly appoint either one of them to run a business, but running a business is a little different than my job."
- On why the U.S. trade deficit is a long-term problem. "Over time, it's like eating an extra 100 calories at every meal. You don't sit down at the table and get up and everybody says 'My God, you're fat.' But if you keep doing it over time, pretty soon they'll say, 'My God, he's gotten fat.'"
- On stock bargains now: "Certainly, I find more things to look at now than I did six months or a year ago. But I would say it's changed more dramatically in the fixed-income market than it has in the equity market."
- On the cause of the credit crisis: "The mistake was in lending unwisely. There were a lot of dumb lending practices."
Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, natural gas, corporate jet and candy companies. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
Dollar Slide Deepens
By Eric Burroughs
Reuters
Sunday 02 March 2008
Tokyo - The dollar's sharp slide deepened on Monday when it fell to a record low against a basket of major currencies as expectations for more aggressive Federal Reserve interest rate cuts ignited selling of the U.S. currency.
The dollar fell as low as 73.551 .DXY against a basket of six major currencies, taking it to the lowest since the dollar index was started in 1973.
The drop came as the dollar hit a three-year low against the yen at 103.06 yen, down 0.7 percent on the day, as a sell-off in Wall Street shares last Friday spurred an unwinding of carry trades. Asian markets were expected to track that fall.
Asian Stocks and Dollar Fall Sharply
By Martin Foster
The New York Times
Monday 03 March 2008
Tokyo - Asian stocks fell sharply and the U.S. dollar fell to levels not seen for three years against the Japanese yen on Monday, on speculation the Federal Reserve board may lower rates further to soften a possible recession. At the start of trading in Europe, most stocks were showing moderate losses.
The Nikkei 225 Stock Average slumped 610.84, or 4.49 percent to end trade at 12,992.18, the lowest close since Jan. 23. Japanese stocks have fallen approximately 15 percent since the start of the year. The Hang Seng Index was down about 3 percent in late trading; it has also declined 15 percent this year, while the CSI 300 Index has fallen 11 percent.
The dollar fell to 102.72 yen at one stage, the lowest level since Jan. 28, 2005, and dipped to $1.5228 against the Euro, near the $1.5239 set on Friday, which was the lowest since the common European currency's debut in January 1999.
Concerns United States consumers may no longer be able to afford exports from the region also weighed on Asian stock markets. Exports of finished products to the United States, such as televisions and video cameras, make up between 5 percent and 10 percent of the Gross Domestic Product of the countries of East and South East Asia, said Yutaka Harada, chief economist with Daiwa Institute of Research in Tokyo.
The fortunes of the Asian economies remain closely tied to those of the U.S., he added. "U.S. growth declines by 1 percent, Asian exports to the U.S. will likely fall 2 percent," Mr. Harada said. "And that may reduce economic growth in the region by about 0.3 percent."
Japanese economic growth may be reined in to 1.7 percent for 2008, from about 2 percent last year, he added.
U.S. exports account for 10 percent to 15 percent of the Chinese economy, but growth rates around 10 percent provide a bigger cushion against any cutbacks in buying by U.S. consumers, Mr. Harada said.
For every yen the dollar softens, Sony Corporation faces potential losses of 6 billion yen (approximately $57.6 million) on its U.S. exports of electronic goods, including Handycam movie cameras and Cyber-shot still cameras, said Shusuke Kanai, senior manager of corporation communications at the Tokyo based company.
The Japanese government downgraded its economic judgment for the first time in 15 months in February, saying growth may moderate as exports and output slow.
While nearing the psychologically important 100 yen level, the dollar is unlikely to fall below that level, said Koji Fukaya, analyst with Deutsche Securities Inc. in Tokyo. Investors selling the dollar are doing so as poor economic data out of the U.S makes them more averse to risk, he said.
"Though risk sensitive investors are selling the dollar, there is no real reason to buy the yen, and that should prevent a dip below 100 yen," he said. "I feel the dollar decline is very close to running its course."
On Feb. 29, the National Association of Purchasing Management-Chicago reported business activity at its lowest level in more than six years.
Most analysts expect the U.S. central bank to cut its target for Federal Fund rates further following statements made by Chairman Ben S. Bernanke to Congress last week.
The key rate stands at 3 percent, down from 5.25 percent in June 2006, and Mr. Harada sees the possibility it may end 2008 at 2.5 percent.
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