Warren Buffett says nation is already in recession
omaha.com
BY GRACE SHIM
Though the numbers don't show it yet, sage investor and Omahan Warren Buffett is convinced that the country already is in a recession.
"I'm sure we are in a recession, probably a relatively deep and extended one, but they are part of business life, and we are prepared," said Buffett, Berkshire Hathaway's chairman, in a memo dated Sept. 26 to managers of Berkshire's subsidiaries.
Warren Buffett
Buffett's word on the economy and investing is considered gospel by thousands of investors and others who earn a living watching the markets. Each spring, Berkshire's shareholder meeting draws more than 10,000 investors from around the country to Omaha.
Buffett's memo, posted on Berkshire's Web site, addresses the tough times faced by Berkshire. The company, which is heavily in the insurance business, estimates that it will suffer $2.2 billion in insurance losses from the Sept. 11 terrorist attacks on the East Coast.
"Nevertheless, it's one Berkshire can easily bear," Buffett wrote. "This won't be our last hit, though we fervently hope disasters in the future arise from natural causes, rather than be man-made. (We also would hope they would be of lesser magnitude.)"
Buffett advises his company managers to stay the course.
"What should you be doing in running your business? Just what you always do: Widen the moat, build enduring competitive advantage, delight your customers and relentlessly fight costs," Buffett writes. "In short, you do the managing, and I'll do the worrying."
Berkshire Hathaway is an Omaha-based conglomerate made up of such companies as Geico, International Dairy Queen and Dexter Shoes, as well as large stock holdings in such firms as the Washington Post, Coca-Cola and Gillette.
As far as the numbers, the country isn't in a recession, at least not yet. A recession is two consecutive quarters of declining gross domestic product.
But Ernie Goss, a Creighton University economics professor, didn't dispute Buffett's assertions. He said that with fewer people working in Nebraska and nationwide, odds are that the country will face a recession.
The memo was comforting to one of what Buffett affectionately calls "The All-Stars," or Berkshire's managers.
"I read it as a good, encouraging note from the boss," said Jerry Henry, president and chief executive officer of Denver-based Johns Manville Corp. "I like that, and I've got to believe that's how everyone else received it."
Johns Manville, which Berkshire acquired last December, makes air-filtration and commercial roofing products.
Henry said the memo stood out in another way.
"Some people would write you a letter if they were the owner of a number of companies, particularly staring a loss in the face," he said.
Those letters usually would say, "'How about each of you coming up with a little more money? Can't you exceed your budgets? Can't you come up with more cash and help make up for the loss that we're taking here?'
"You don't see any of that in that memo," Henry said. "It's why I'm still working. I'm working for a guy like that."
Bob Batt, vice president of Nebraska Furniture Mart in Omaha, mirrored that sentiment.
"(The memo) is very straightforward," he said. "What we do is what we've always done."
As for reacting to Buffett's opinions on a recession, Batt said, "I would never go against what (Buffett) is thinking about the economy."
Henry responded, chuckling, "In the simple language, that ain't news to me." |
