Buffett sees economy weak until 2009

NEW YORK Fri Aug 22, 2008 11:10am EDT

Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria

Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008.

Credit: Reuters/Carlos Barria

NEW YORK (Reuters) - Warren Buffett said the economy is still in a recession and unlikely to improve before 2009 but that stocks appear better valued than a year ago.

The billionaire investor also said there is a "reasonable chance" shareholders of Fannie Mae and Freddie Mac may be wiped out in any government bailout of the mortgage financiers.

Speaking on Friday on CNBC television, Buffett said some housing-related businesses in his Berkshire Hathaway Inc conglomerate are struggling as the economy works off past excess in making credit available.

"You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach," said Buffett, who in March was called the world's richest person by Forbes magazine.

He also said Federal Reserve Chairman Ben Bernanke has no "magic wand" to boost an economy facing weak growth prospects, mounting inflation and deteriorating credit. "In my judgment it won't be any better five months from now," he said.

Buffett nevertheless said U.S. stocks are broadly "more attractive" than a year ago. He also said Berkshire has completely unwound a once $21 billion bet against the U.S. dollar, helping boost the greenback in Friday morning trade.

In May, Buffett said Berkshire still had a stake in one currency, the Brazilian real.

The Omaha, Nebraska-based company bought $3.98 billion of stock in other companies in the second quarter, and Buffett said it has added in recent months to its big stake in either American Express Co or Wells Fargo & Co, but did not say which one.

Shares of both rose in early trading, as did major stock indexes.

Buffett reiterated his support for Barack Obama, the presumptive Democratic nominee, in November's U.S. presidential election, but admires Republican rival John McCain. "President Obama is going to have plenty on his plate in January," he said.

HOUSING EXPOSURE

Since 1965, Buffett has transformed Berkshire from a failing textile company into a $180 billion conglomerate.

Berkshire is best known for insurance holdings such as Geico and sells such products as ice cream and underwear.

But its 76 businesses also include housing-related units Acme bricks, Clayton manufactured homes, Shaw carpeting and the Home Services of America Inc real estate brokerage.

"What we're seeing in business, in our retail businesses, or anything having to do with housing, is even a further slowing down in June and July, both in terms of credit experience where people first got in trouble with house payments, and now credit card payments," Buffett said.

Some economists say a recession occurs when the economy contracts for two straight quarters. Buffett said it occurs when people are doing less well than before.

In morning trading on the New York Stock Exchange, Berkshire Class A shares rose $1,650 to $116,650, and its Class B shares rose $50 to $3,885. American Express shares rose $1.42 to $38.43, Wells Fargo rose 99 cents to $29.43.

The CNBC interview was tied to the national roll-out of the documentary "I.O.U.S.A.," which argues that the nation might face economic disaster if it doesn't curtail mounting debt.

Buffett is interviewed in the movie.

"THE GAME IS OVER"

Fannie and Freddie shares have plummeted as speculation grows about a government bailout of the companies, which own or guarantee almost half of U.S. mortgages. Shares of both have fallen more than 90 percent in the last year.

Buffett called them "too big to fail" and said "the game is over" for them as independent companies. "In a practical sense, as institutions, they don't have any net worth," he said.

Buffett said he has not been approached to assist in any bailout, which he said would be too big to come from the private sector. Though he said "nothing is going to happen" to investors in Fannie's and Freddie's insured mortgages or debt, but "the equity and preferred stock is another question."

Berkshire is trying to reduce the $31.16 billion of cash on its balance sheet, and Buffett said he is being approached by a growing number of "distressed" companies rather than viable takeover candidates.

Buffett said he recently tried to invest $500 million in a Chinese stock he declined to name, but was turned down.

He also said he erred in selling 61 percent of Berkshire's stake in Anheuser-Busch Cos for $61 to $62 per share, ahead of the U.S. brewer's July agreement to be taken over by Belgium's InBev NV for $70 per share.

"It was about valuation and whether I thought the deal would go through," Buffett said. "In retrospect, I was wrong to decide to partially sell."

(Additional reporting by Euan Rocha and Vivianne Rodrigues; Editing by Steve Orlofsky/Jeffrey Benkoe/Daniel Trotta)