Friday, September 12, 2008

Warren Buffett's Current Market Views

Posted on, What Does Warren Buffett Think About the Market?

  • Super-billionaire Warren Buffett warns that the federal bailout of Fannie Mae and Freddie Mac could end up costing the taxpayers "hundreds of billions of dollars" if the housing market continues to slump. But Mr Buffett, the world's richest man, defended the controversial bailout as necessary nonetheless.

    "It all depends on what housing does," he told me from the sidelines of Boston's Fenway Park, where he was appearing to throw out the ceremonial first pitch on Tuesday night. "If housing falls off another 15 or 20%, they're going to lose some real money" on the bailout. (The "they" means "the government," which actually means, "you"). "It could get into the hundreds of billions," he said. But "if housing is close to bottoming, they might not lose much money at all." The federal government stepped in over the weekend to backstop the two home loan giants, putting them into conservatorship and taking over most of the equity. "
    We'd be crazy not to come a solution on this," Mr Buffett said. Otherwise there would be "$5 trillion... of troubled instruments," on the market, he said, referring to the mortgage giants' liabilities.

    Bad news for investors in the two companies. There has been some speculation about what value, if anything, remains for holders of the companies' common and preferred stock. Mr Buffett, arguably the most successful investor in history, thinks: Not much. "They are probably wiping out the common and the preferred," he said.

Older blog posting for reference: Warren Buffett Approves Bailout of Freddie And Fannie