Warren Buffett noted this weekend, "since late 2000 housing and autos have done quite well but the rest of the economy has been quite sluggish and it continues." With the weak economy, Buffett noted the "dramatic decline" in interest rates, saying he hadn't thought he would see such "low levels" in his lifetime, but adding "It might go even lower."
Buffett stated the current federal budget deficit made tax-cut proposals untenable. "We are going to spend $2.2 trillion this year; it's just a question of where it comes from," Buffet said. "And, frankly, I don't think enough of it comes from people like me and too much comes from people who work in our shoe factories."
Buffett suggested that current equity prices certainly aren't cheap. More importantly, he thinks returns on equity investments are likely to simply mirror the economy in the coming years maybe 6% to 7% including common dividends. Buffet's Vice-Chairman Charlie Munger said "I think there is a very good chance neither Warren nor I will live to see an opportunity like . . . 1973-74 or 1982 where equity values are mouthwatering."
Buffets investments are currently dominated by his stable of insurance companies, but energy investments are becoming the major new capital focus on Berkshire's investment plan. Berkshire already has $18 billion in energy assets and Buffett acknowledged the business "could become huge."
Buffet expects their company Executive Jet, though losing money in the first quarter, to ultimately "dominate" their industry. But commenting on the airline industry in general, "It's an incredibly tough business," "In the airlines you have a huge amount of capacity, you have what is something close to a commodity product with high fixed costs and no marginal costs," "That extra seat doesn't cost you anything so the temptation to sell that at a terrible price is overwhelming. It's a basic problem," "A great management in that business will not necessarily get a great result." |
