Monday, August 8, 2011

United States Debt Crises: Is Warren Buffett Nuts?

I have been increasingly losing my respect over the last 3 year for Warren Buffett on his stance and comments about the state of the globe and its economic prospects, especially his comments about America and their dire situation but he has made some interesting comments overnight about the state of the US economy and its ratings downgrade (see here for S & P's full report) by Standard & Poors over the weekend:

"Billionaire Warren Buffett said Standard & Poor’s erred when it lowered the U.S. credit rating and reiterated his view that the economy will avoid its second recession in three years.

The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating, Buffett, 80, said yesterday in an interview with Betty Liu at Bloomberg Television. The downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 slumping 7.2 percent to its lowest level since November.

“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” said Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. [BRK.A] [BRK.B]“Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”

Stocks plunged last week amid signs the U.S. economy is slowing and speculation that Europe will fail to contain its sovereign-debt crisis. Reports on manufacturing and consumer spending trailed economists’ forecasts. Euro-region central bank governors are planning emergency talks aimed at limiting the market fallout from the first U.S. rating downgrade in history.

The U.S. cut, announced after the close of trading in New York, was prompted by rising public debt and “greater policymaking uncertainty,” S&P said in a statement. The U.S. has the top credit rating at both Moody’s Corp [MCO:NYSE] and Fitch Ratings. Buffett said he doesn’t rely on the views of ratings firms when buying and selling securities. Berkshire is the biggest shareholder of Moody’s Corp".

He maybe right about the downgrade but who the hell should take notice of Standard & Poors anyway. They gave subprime loans prime status when they should have been rated as junk so why take them seriously now? Being the biggest shareholder in Moodys though you have to take what Buffett says about S & P with a bucket of salt.

What he is hopelessly wrong about is his statement that the United States will not go into a second recession. What the hell is Buffett talking about? A recession in the US is a 95% dead cert given the last recession was a result of Obama pumping borrowed money into the economy and will probably do so again with the same impact on the economy.

I am gobsmacked by Buffett's lack of independence and self interest in making a statement like this and would expect him to tell us what he really thinks given his previous impeccable track record and huge influence on markets.

Expect him going around the traps over the coming weeks with interview with CNBC, Fox Business and who ever else will listen.

I have almost stopped given his latest positive media assault.


US Debt Crises @ Share Investor

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The Definition of Insanity
The $700 Billion Question: How much will the taxpayer Bailout affect my Investments?
Who is attacking your portfolio?
Global credit squeeze: There is no free lunch
Of tulip bulbs and tooth fairies
Current credit crunch a blessing is disguise
Leaders must come clean over losses to restore faith
Market Meltdown: I can smell the fear from here
Free Market to Pollies: We don't want you!
Don't dare use the "D" word
Strap yourself in baby
Will the Stalactites hold?

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