Billionaire Buffett says US has entered recession

Billionaire investor Warren Buffett said the US economy is in recession and that stocks are "not cheap" despite recent declines.

Buffett also said he is no longer offering to guarantee $800 billion of municipal bonds backed by MBIA Inc, Ambac Financial Group Inc and FGIC Corp, three bond insurers that ran into trouble from also backing riskier debt.

Speaking on CNBC television, Buffett said the economy is heading south even though gross domestic product has not yet fallen for two straight quarters, a definition many economists use to identify a recession.

Buffett also said the slowing economy and the housing slump are hurting his Berkshire Hathaway Inc insurance and investment company, whose 76 operating units sell such things as bricks, carpeting, ice cream, paint, real estate brokerage services and underwear.

"By any common sense definition, we are in a recession," Buffett said. "Business is slowing down. We have retail stores in candy, home furnishings and jewelry; across the board, I'm seeing a significant slowdown."

Last week the Commerce Department said US GDP rose at an annual rate of just 0.6 percent in the fourth quarter.

Known as the Oracle of Omaha, the 77-year-old Buffett is one of the world's richest people, regarded by many as America's greatest investor. Forbes magazine last September estimated his net worth at $52 billion.

Buffett said economic conditions have not deteriorated to levels in 1973 and 1974, a deep recession also marked by rising oil prices and falling stocks.

He said Federal Reserve Chairman Ben Bernanke faces a "very tough balancing act" in trying to boost economic growth without rekindling inflation.

Some economists worry the US economy could enter a period of "stagflation", combining recession with rising inflation and unemployment.

"In '73 and '74, we had this stagflation situation, and we really had a meltdown in equity prices," Buffett said. "We are seeing more fixed-income type forced liquidations. We are seeing more indigestion at banks with a lot of loans they don't want to have. So you're seeing a time of easy money in terms of price, but not so easy money in terms of availability."

While Buffett said he might buy more downtrodden stocks, he's also looking at bond investments that could rise.

Omaha, Nebraska-based Berkshire last year spent $19.11 billion on stocks and $13.39 billion on bonds.

Agencies

(China Daily 03/05/2008 page16)