Last month, Forbes declared Warren Buffett to be "the world's richest man," putting his net worth at more than $62.0 billion. Yesterday, during an interview on CNBC, he said the U.S. economy is in a recession and that it will be more severe than most people expect. "This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think (...) This will not be short and shallow."
Warren Buffett thinks we are in for some bad times. I'm afraid that I agree.
Buffett is not your typical mega-billionaire; he thinks that wealthy people should pay more taxes. In an interview with Tom Brokaw of NBC News he said that he pays 18% in federal tax, while the average federal tax paid by Berkshire employees was 33%. He has challenged the Fortune 400 CEOs to prove that they pay a higher tax rate than their secretaries and receptionists, and will donate $1 million to charity if they can. Buffett said in an e-mail exchange to Forbes, "So far only three close friends, all 400 members, have made the calculation for me (...) They all came up with results similar to mine but have no interest in being identified."
As Chairman and CEO of Berkshire Hathaway Inc, he was one of the few people who did not invest heavily in the dot-con technology bubble during the late 1990s, and he took more than a little heat from analysts for his foresight. Buffett said, "The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them." He described the business models for the dot-con companies as a new version of "the old-fashioned chain letter." Mr. Buffett was vindicated when the tech bubble burst.
In a May 2003 Washington Post Op-Ed he slammed the Senate for passing a bill that would "supply major aid to the rich in their pursuit of even greater wealth," and "further tilt the tax scales toward the rich." Buffet's suggestion for providing economic stimulus:
... don't cut the taxes of people with huge portfolios of stocks held directly. (Small investors owning stock held through 401(k)s are already tax-favored.) Instead, give reductions to those who both need and will spend the money gained. Enact a Social Security tax "holiday" or give a flat-sum rebate to people with low incomes. Putting $1,000 in the pockets of 310,000 families with urgent needs is going to provide far more stimulus to the economy than putting the same $310 million in my pockets.
When you listen to tax-cut rhetoric, remember that giving one class of taxpayer a "break" requires -- now or down the line -- that an equivalent burden be imposed on other parties. In other words, if I get a break, someone else pays. Government can't deliver a free lunch to the country as a whole. It can, however, determine who pays for lunch. And last week the Senate handed the bill to the wrong party.
According to Buffett, making dividends tax-free is promoting class welfare - for him.
Speaking at a fundraiser for Senator Hillary Clinton Buffett said, "The 400 of us (here) pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent." Mr. Buffett said that Republican efforts to eliminate the inheritance tax would widen the gap between rich and poor and that lost revenue would have to be recovered by increasing taxes for the less prosperous.
Obviously, Buffett is not like many people at the upper end of the economic scale who seem to think that God meant for them to have lots of everything, and everyone else can fend for themselves. While he has managed to accumulate a fortune, he seems to have maintained a connection to reality along with his well developed aptitude in capital allocation. I trust what he has to say about the current economic situation.
In a December 2007 interview, Buffett was asked if he thought we were heading for a recession. He said:
Well, I think it could happen, sure. I think if unemployment picks up significantly there will be some dominoes that topple from that. I don't know if unemployment will pick up significantly. I mean, frankly, I've been a little surprised that it's stayed at 4.7 percent. If we can keep people employed, we will not have the dominoes topple. If unemployment picked up a lot, I think we could be in for a recession.
The Bureau of Labor Statistics latest report says:
The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 per-cent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.
It looks like Warren Buffett was right again.
Buffett told a Toronto business audience this past February that he era of "dumb money" is over. He called the convoluted financial structures in the mortgage and credit markets over the past few years "madness" and said there was a "certain poetic justice" in the companies that created the turmoil now having to buy back their speculative bids at quite a loss. Buffett said that the declining value of the dollar is the result of U.S. budget and trade deficits; "We're still sending about $2 billion a day to the rest of the world (...) Force-feeding a couple of billion a day to the rest of the world is not conducive to a stable dollar."
In a March 3 interview, Buffett said the U.S. economy in a recession, but it wasn't clear how far it will go, "I would say, by any commonsense definition, we are in a recession." He said he said that while the current economy is not like 1973 or 1974, when inflation reached 12.1 per cent, investors should not rule out the possibility of a severe downturn.
In yesterday's news, Buffet said:
This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think. This will not be short and shallow. I think consumers are feeling gas and food prices, and not feeling they've got a lot of money for other things. In the retail businesses ... if anything, they've gotten a little worse. Of course, things connected with housing, whether it's in brick or whether it's in carpet, those businesses have shown no uptick at all. Jewelry had a bad Christmas ... and it stayed that way. I think this is going to be fairly long and fairly deep, but who knows.
Indeed. Who knows? I am afraid it is going to get worse, maybe much worse, before it gets better.