NEW YORK (Reuters) – Warren Buffett on Monday said the U.S. economy is in recession and that "stocks are not cheap."
Speaking on CNBC television, Buffett also said he is no longeroffering to guarantee $800 billion of municipal bonds backed by MBIAInc, Ambac Financial Group Inc and FGIC Corp, three large bond insurers.
Buffett said that "from a common-sense standpoint right now, we’rein a recession," though the U.S. economy has not yet recorded twostraight quarters of declining gross domestic product, a traditionalindicator of recession.
He said, though, that the environment is "nothing like ’73 or ’74yet," referring to a deep economic downturn also marked by rising oilprices and falling stocks. Buffett said investors should not rule outthe possibility of a significant economic downturn.
On Friday, Buffett’s insurance and investment company Berkshire Hathaway Inc reported an 18 percent decline in fourth-quarter profit.
This stemmed in part from weakness in businesses linked to housing,including units that make bricks and carpet, and that offer real estatebrokerage services.
Buffett said he is finding more buying opportunities in stocks,following a 16 percent decline in the Standard & Poor’s 500 .SPXstock index from its recent high in October.
"I find more things to look at now than I did six months or a yearago," Buffett said. But he acknowledged that conditions have changed"more dramatically" in the bond market. Berkshire last year spent$19.11 billion on stocks and $13.39 billion on bonds.
Falling securities and liquidity have pummeled bond insurers, whichnormally insure relatively safe municipal bonds. But those insurers areunder pressure after they also guaranteed billions of dollars ofriskier debt, often tied to subprime mortgages.
On Feb 12, Buffett offered to reinsure $800 billion of municipalbonds, but only at a steep premium. The offer didn’t include theriskier debt. Bond insurers rejected the offer, and have been seekingnew sources of capital or possibly breaking themselves up.
Buffett on Monday said his earlier offer is "not on the table." InDecember, Buffett started its own bond insurer, Berkshire HathawayAssurance Corp.
(Reporting by Jonathan Stempel; Editing by Derek Caney and Steve Orlofsky)
? Reuters 2008 All rights reserved
