Warren Buffett: Is US In Recession Or Not?

On 14 Sep 2010: Buffett Rules Out Double-Dip Recession Amid Growth

• Warren Buffett ruled out a second recession in the U.S. and said businesses owned by his Berkshire Hathaway Inc. are growing.
  
  “I am a huge bull on this country,” Buffett, Berkshire’s chief executive officer, said today in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.” ....

On CNBC: Warren Buffett to CNBC: "We're Still In a Recession"

• Warren Buffett tells CNBC that by his own "common sense" definition, the U.S. is "still in a recession.
  
  In a taped interview with Becky Quick airing this morning on CNBC's Squawk Box, Buffett says, "I think we're in a recession until real per capita GDP gets back to where it was before."
  
  While Buffett continues to believe the U.S. will eventually emerge from its economic downturn, "We're not gonna be out of it for awhile."

Eh?

The CNBC article continues...

• BECKY: So-- how are small businesses faring right now, if you had to-- look overall? Obviously, everyone's in a different position. But overall, how do you think they're doing?
  
  BUFFETT: I think they're doing about like the economy is. That they-- they've been through-- a terrible period... And-- and basically, the government did the right thing in-- in terms of-- of getting the economy going again. It can't do it overnight or anything of the sort. I think most small businesses have come back somewhat. But they've-- they-- they're nowhere near their peaks.
  
  BECKY: The NBER said this week that the-- recession officially ended back in June of last year.
  
  BUFFETT: Well, they define it differently. (Laughs.) But I-- I mean, I-- I define it-- I think we're in a recession until real per capita GDP gets back to where it was-- before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any-- on any common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP. We're still in a recession. And-- and we're not gonna be out of it for awhile, but we will get out of it.
  
  BECKY: We're not gonna be out of it for awhile meaning, you can see what? A quarter, two quarters, a year down the road? Just from your business is-- is telling you?
  
  BUFFETT: Our businesses are coming back-- on average, we've got 70-some businesses. But most of them-- the great majority are coming back slowly. If you take our railroad business, and our railroad business is typical of the other railroads in the company. If you take the peak period for shipments and then you go all the way down to the bottom, we're 61 percent of the way back up. That's better, I think, than most businesses are in the country. I don't think most businesses are 61 percent-- our-- our carpet business, our brick business, our insulation business, they're not back 61 percent, but they are moving back.
  
  

Is The Recession Over?

The above chart was taken from financialsense market wrap today by Michael Panzar, A Matter of Perspective.

As mentioned in the article, the pros believes that the recession is over but the Americans on the street thinks otherwise.

Well what do you believe in?

Look around us.

Is the local market contradicting us, the folks on the street too?

How?

By the way, Michael Panzar had included two other charts in his editorial.





By the way. Our market trading volume has been really poor, yes? Look at the shrinking market volume. Why the clear distinct lack of interest? Are the local punters scared to buy? What's spooking them up? Why are they lacking conviction to buy, despite all the wonderful news spread by media worldwide? Do the man and woman in the street knows better?

Dr Doom: Recession Could Last Much Longer!

More Warnings from Dr. Doom

US Recession Could Last Up to 36 Months: Roubini

• "We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.
  
  Roubini listed a litany of negative omens: Capex spending down 20-30 percent for investment grade companies, self-perpetuating deflation, all making a bad situation worse.
  
  "If you expect prices to be lower tomorrow, why would you buy today?", asked Roubini. He says it's easier to break out of am inflationary cycle than a deflationary one, and while a year of deflation "is okay," longer would be "a disaster."
  

Europe Is In Its Deepest Recession!

Posted on cnbc.

• The euro zone economy saw its deepest contraction on record in the fourth quarter of 2008, data showed on Friday, boosting pressure on the European Central Bank to cut interest rates by 50 basis points in three weeks.
  
  Gross domestic product in the 15 countries using the euro in the last three months of 2008 shrank 1.5 percent against the previous quarter for a 1.2 percent fall year-on-year, the European Union statistics office Eurostat said on Friday.
  
  "Now it's official: the euro zone economy is in its deepest recession since the end of the Second World War," said Christoph Weil, economist at Commerzbank.
  
  "The collapse of exports and a sharp fall in investments were most probably the main reasons for the slump," he said.
  
  Economists polled by Reuters had expected a 1.3 percent quarterly drop after 0.2 percent contractions in the second and third quarters, and a 1.1 percent year-on-year decline.
  
  "This Friday the 13th is living up to its name. Eurostat has just released 'scary' GDP numbers," said Martin van Vliet, economist at ING.
  
  "The best we can hope is that the fourth quarter marked the worst quarter in terms of the pace of contraction," he said.

read rest of the news here: http://www.cnbc.com/id/29176693

See also Europe's Economy Shrinks Most Since 1995 as ECB Considers Deeper Rate Cuts

• Feb. 13 (Bloomberg) -- Europe’s economy contracted the most in at least 13 years in the fourth quarter, compounding pressure on the European Central Bank to reduce interest rates to the lowest ever next month.
  
  Gross domestic product in the euro region declined 1.5 percent from the previous three months, the European Union’s statistics office in Luxembourg said today. That was more than the 1.3 percent economists expected and the most since euro-area GDP records began in 1995. From a year earlier, GDP fell 1.2 percent in the fourth quarter, the only full-year drop on record.
  
  With the first recession in the euro’s 10-year history deepening, companies from carmaker Renault SA to software-maker SAP AG are cutting jobs and scaling back production. Six ECB policy makers, including President Jean-Claude Trichet, have said the central bank may cut rates to a record low from the current 2 percent and consider other measures to stimulate growth.
  
  “The news is dire,” said Kenneth Wattret, senior economist at BNP Paribas SA in London who correctly forecast today’s data. “Compared to the early 1990s recession, which was painful, this is twice as big.”
  
  The economies of both Germany and France, the two largest in the euro region, shrank by the most in more than two decades in the latest quarter. Spain, Italy, the Netherlands and Austria also contracted in the final three months of last year, national statistics offices reported. The U.K. economy, the euro area’s biggest trading partner, shrank 1.5 percent in the quarter.
  
  ‘More Radical’
  
  For the euro region, “we see at least another three quarters of contraction, and we should brace for a huge rise in unemployment,” BNP’s Wattret said. “The ECB will cut by at least half a point next month and may have to consider something even more radical.”
  
  The euro interbank offered rate, or Euribor, for three-month loans fell to a record low on speculation the ECB will reduce its key rate next month. The rate dropped two basis points to 1.94 percent today, the European Banking Federation said.
  
  That is the lowest since the euro’s introduction in 1999 and down from a record 5.39 percent on Oct. 10. The three-month euro overnight index average rate, which shows traders’ expectations for the central bank’s key rate, was at 0.98 percent, down from 1.2 percent at the end of January and 1.73 percent on Dec. 31.
  
  ECB board members Lucas Papademos, Juergen Stark and Jose Manuel Gonzalez Paramo as well as Spanish central bank Governor Angel Fernandez Ordonez and Belgian Governor Guy Quaden said this week that the Frankfurt-based bank may cut rates next month.
  
  ‘Difficult Year’
  
  “The latest data and survey indicators point to a substantial decline in real gross domestic product in the fourth quarter,” ECB Vice President Papademos said on Feb. 11. “Stormier weather may still lie ahead,” and “a further easing of monetary policy may be appropriate” in March.
  
  The economic slump may leave European policy makers under pressure at this weekend’s meeting in Rome of finance ministers and central bankers from the Group of Seven industrial nations. U.S. Treasury Secretary Timothy Geithner plans to encourage colleagues to take “bold actions” to reverse the economic and financial crisis, according to a U.S. Treasury official, and the Bank of England has announced plans to start buying commercial paper.
  
  The contraction in Europe “is worse than the U.S.,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “Given the shock started in the U.S., that’s quite an achievement.”
  
  The U.S. economy contracted 1 percent in the fourth quarter from the prior three months, when it shrank 0.1 percent, according to the EU statistics office. From the year-earlier quarter, U.S. GDP declined 0.2 percent.
  
  Economic Slump
  
  In Europe, demand for everything from software to cars is withering. SAP, the world’s biggest maker of business-management software, said on Jan. 28 that it will slash more than 3,000 jobs and freeze salaries this year as the economic slump hurts demand. European car sales plunged 27 percent in January to the lowest level in two decades, the European Automobile Manufacturers’ Association said in Brussels today.
  
  Infineon Technologies AG Chief Executive Officer Peter Bauer said yesterday that Europe’s second-largest maker of semiconductors faces a “difficult year” filled with “many tough challenges.”
  
  The global economy will grow the least since World War II this year as more than $2 trillion of losses from the financial crisis cripple banks, the International Monetary Fund predicted Jan. 28. The euro region will contract 2 percent in 2009, the IMF forecast. Today’s data showed the euro-area economy expanded 0.7 percent last year, down from 2.7 percent in 2007.
  
  The ECB in January cut the benchmark rate to 2 percent, the lowest in the bank’s 10-year history, and kept the rate unchanged on Feb. 5. The next decision is due March 5.
  
  “The economy took a breathtaking turn for the worse at the end of last year,” said Nick Kounis, an economist at Fortis Bank NV in Amsterdam. “The figures so far add to the already strong case for the ECB to do more.”
  
  

Keppel Land Profit Pluges!

Posted yesterday: Worst Ever Recession For Singapore

Today one of the news clip caught my attention. Keppel Land, the property arm of giant Keppel group announced that its profits plunged 88 percent.

• SINGAPORE: Keppel Land Ltd, a developer controlled by the world’s largest oil-rig builder, said fourth-quarter profit dropped 88 per cent as home sales slowed in Singapore and overseas markets.
  
  Net income declined to S$68.5 million (S$1 = RM2.40), or 9 cents a share, in the three months ended December 31, from S$572.3 million, or 78.1 cents, a year earlier, the Singapore-based developer said in a statement to the stock exchange.
  
  Sales declined 47 per cent to S$197.4 million. — Bloomberg

Back in October 2008 Keppel Land had already announced rather poor earnings. The warning signs were there already.

• Keppel Land has turned in a 23.2 per cent drop in earnings for the first nine months of 2008.
  
  Net income came in at S$159 million. Revenue for the same period fell by almost 38 per cent on-year to S$645 million.
  
  Keppel Land said the global economic crisis has hurt residential sales in China, Vietnam, India and Indonesia in the third quarter of 2008.
  
  It also saw lower earnings from its property services and hotels division.
  
  For the third quarter, the company’s profit fell 43.6 per cent on-year to S$46.2 million, compared with S$81.8 million a year earlier.
  
  Sales dropped 51.4 per cent from S$382 million to S$185.8 million.

And the following screen shot of Keppel Land charts shows it all.

Worst Ever Recession For Singapore

Published on theEdgedaily.com: Singapore in worst-ever recession after 4Q slump

• 21-01-2009:- Singapore in worst-ever recession after 4Q slump
  By Kevin Lim & Neil Chatterjee
  
  SINGAPORE: Singapore's economy shrank more than expected in the fourth quarter (4Q), prompting the government to declare the nation was in its worst ever recession and fanning expectations that the central bank will let its currency weaken.
  
  The Singapore economy shrank in the fourth quarter at a seasonally adjusted, annualised pace of 16.9%, deeper than advance estimates of a 12.5% contraction, detailed government data showed on Jan 21.
  
  The government said it now expected Singapore's economy to contract between two and five percent this year, slashing its forecast further from an already downgraded outlook of a range of minus 2% to plus 1% published just three weeks ago.
  
  "The Singapore economy is going through its sharpest, deepest and most protracted recession," the Trade Ministry's second permanent secretary Ravi Menon said at a media briefing.
  
  Singapore's central bank said on Jan 21 that its monetary policy stance of zero appreciation in the Singapore dollar announced last October was intact and it had no plans to review monetary policy ahead of a scheduled policy meeting in April.
  
  But analysts said the gloomy economic forecasts and grim fourth quarter data increased the likelihood the central bank will loosen policy and let the Singapore dollar slide.
  
  "I'm bearish for the Singapore dollar. It's worse than I expected," said Irene Cheung, currency strategist at Royal Bank of Scotland in Singapore.
  
  "I expect monetary policy to remain accommodative -- they should have recentered the band earlier, but they might still do it -- the sooner the better."
  
  Singapore manages monetary policy by adjusting the value of its currency relative to those of its main trading partners in an undisclosed band. The Singapore dollar stood at 1.5037 against the US dollar by 0050 GMT, compared with 1.51 before the data.
  
  The government expects key non-oil domestic exports will shrink 9%-11% this year, while total trade, which includes entreport activities, may plunge 17%-19%.
  
  From a year ago, fourth quarter gross domestic product, or the value of all goods and services produced in Singapore, fell 3.7% following a drop of 0.2% in the third quarter.
  
  Singapore last reported three straight quarters of economic contraction in 2001 after the dotcom bubble burst in the United States, badly hurting the city-state's key electronics sector.
  
  The economy grew 1.2% for all of 2008, slowing sharply from 7.7% expansion in 2007.
  
  The government said manufacturing output in the fourth quarter shrank 10.7% from a year earlier, while services contracted 0.1%. -- Reuters
  

Massive Warning From IMF: US Could Head For Deep Recession.

Makes me chuckle for it was not long that OUR so-called local expert lambasted Warren Buffett for being a lousy economist! ( see past postings Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

IMF has now has released a report stating that US could be heading for a deeper recession!

• OTTAWA -- The U.S. is likely headed for a deep recession, the International Monetary Fund warned Thursday in a report in which it notes that the current banking crisis is the type that's most likely to lead to such a downturn, and suggesting the government's proposed bailout of the banking system is the right course of action.
  
  "Episodes of financial turmoil characterized by banking sector distress are more likely to be associated with severe and protracted downturns," the world's lender of last resort said in a chapter in its world economic outlook, released in the wake of Wednesday evening's vote by the U.S. Senate supporting the revised $700-billion US bailout but in advance of Friday's second vote on the rescue package by the U.S. House of Representatives.
  
  "Financial stress is more likely to be followed by an economic downturn when it is preceded by a rapid expansion of credit, a run-up in house prices and heavy borrowing by households and non-financial firms," it said. "The current situation of the United States bears some resemblance to previous episodes of banking-related financial stress episodes that were followed by recessions."
  
  The report, which looks at past episodes of financial stress and their implications for subsequent economic activity, ranks the current crisis "as one of the most intense for the United States and one of the most widest affecting virtually all countries in the sample."
  
  "Based on a comparison of the current episode of financial stress to previous episodes, there remains a substantial likelihood of a sharp downturn in the United States," it warned.
  
  "Not all episodes of financial stress lead to economic slowdowns or recessions," it added, noting that in fact only about half of the episodes of financial market stress were followed by economic slumps.
  
  "However, when a slowdown or recession is preceded by financial stress, and especially when the stress is concentrated in the banking sector, typically it is substantially more severe than slowdowns or recessions not preceded by financial stress," it said. "In particular, slowdowns or recessions preceded by bank-related stress tend to involve two to three times greater cumulative output losses and tend to endure two to four times as long."
  
  The odds that a banking-related crisis is followed by a slowdown or recession is associated with the extent to which house prices and outstanding credit have risen prior to the eruption of the crisis, it said. Further, while greater reliance on borrowing by non-financial corporations is associated with a sharper downturn in the aftermath of financial stress, the indebtedness of households is "crucial in determining whether the downturn will turn into a recession."
  
  However, the relatively strong positions of corporate balance sheets at the onset of the crisis and the aggressive monetary easing by the U.S. Federal Reserve may provide some cushion in the U.S., while the relatively strong balance sheets of European households offer some protection against a sharp downturn there, it added.
  
  "In the current circumstances, strong actions by policy-makers to deal with the stress and support the restoration of financial system capital seem particularly important," it concluded, adding that of special importance is the restoring the capital bases of core financial intermediaries, including broker-dealers and investment banks to help alleviate economic downturns.

Source: http://www.financialpost.com/story.html?id=856044

Is US in a Recession, Technically? Or Is The Mean Season?

Saw the following posting on BigPicture, Technically, Not a Recession

That simple picture spoke a thousand words.

Read the following piece Pinched Consumers Scramble for Cash

• After a long binge of borrowing, U.S. consumers face a credit crunch and a sagging economy. To sustain their living standards, many Americans are doing what comes naturally: scrambling to raise more cash.
  
  Sheron Brunner, 63 years old, bought a $250,000 life-insurance policy in 1997, planning to leave the proceeds to her three children. She faithfully made her $113 monthly payments. But after retiring in 2002 from her job running a homelessness-prevention program, her finances unraveled. Health problems forced her to siphon her savings. A monthly Social Security check of about $700, her only source of income, doesn't cover her medical bills and rising everyday expenses. In September, she moved to Wichita, Kan., from San Francisco to cut her cost of living.
  
  It wasn't enough, so this spring she signed what's known as a life-settlement agreement with J.G. Wentworth, a company that buys life-insurance policies and other tough-to-sell assets. The contract transfers ownership of a life-insurance policy to a third party, which then pays future premiums and collects the benefit. Ms. Brunner received about $45,000 for her $250,000 term policy.
  
  "It wasn't what I wanted," she says. But "with the economy the way it is, I needed that help now."
  
  As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company shares in as much as 50% of any future gain or loss in the property's value, typically collecting proceeds when the house is sold.
  
  Americans are resorting to these more extreme measures due to the combination of dwindling jobs, falling home prices, shaky credit markets and a sharp run-up in food and energy prices. Consumer confidence hit a 28-year low in May, according to the latest Reuters/University of Michigan survey of consumer sentiment. Consumer spending and income inched up 0.2% in April from March, but after adjusting for inflation were flat, government data show.

And to make matters worse, them credit card issuers aren't exactly nice: Drowning in debt: Deceptive credit card practices

And John Mauldin newsletter features The Mean Season.

Here are some of the key issues mentioned.

• The U.S. Economy
  
  An array of American industries is beginning to experience deep distress. Three in particular are about to experience a wave of restructurings or defaults that will drive a stake through the heart of the American economy: airlines, automobiles and retailers.
  
  The Airline Industry - Unfriendly Skies
  
  Having tried to merge in virtually every permutation available and failed, the airlines are now left with no choice but to cut capacity and pray for oil prices to fall. American Airlines, generally considered the best managed and healthiest U.S. airline, announced on May 21, 2008 that it will cut its capacity by 12 percent and reduce its workforce by a commensurate amount due to high oil prices (which account for 40 percent of its cost structure).[1] Delta and Northwest, which had the dubious distinction of filing for bankruptcy on the same day, have announced that they will merge (although in the airline industry there is a huge distance between the cup and the lip, so whether this deal is ultimately consummated remains to be seen). United and USAir have been flirting with each other but seem unlikely to mate despite titters that they may try to hook up again. The bottom line is that airlines, which are marginal businesses in the best of times, are unsustainable businesses with oil at current levels. The industry was partially nationalized after 9-11. The current oil spike should finish the job.
  
  The Automobile Industry - One Big Pothole
  
  The automobile industry continues to be weighed down by the albatrosses of outmoded products, unionized workforces, crippling legacy costs, higher raw material costs and the unavoidable conclusion that the world has passed them by. It is both startling and depressing to hear American automakers just now coming to the conclusion that they are still manufacturing too many gas-guzzling trucks and SUVs and too few hybrid and diesel passenger vehicles. Few industries have seen such profound failures of vision and leadership. Ford announced in late May that it no longer expects to be profitable in 2009 and expects to produce 120,000 to 150,000 fewer trucks and SUVs in the third quarter of 2008 than a year earlier, and 60,000 to 100,000 fewer in the fourth quarter of this year than last year. Job losses and plant closings are sure to follow unless current facilities can be converted to manufacture more fuel efficient vehicles. Ford is generally considered the healthiest of the Big Three.
  
  The Retail Industry - Dropping Before They Shop
  
  When you're about to lose your home and you can't afford to fill your car with gas at $4.00/gallon, you're probably not thinking about driving to the mall to spend more of the money you don't have. The U.S. consumer - the one-time engine of global economic growth - is struggling mightily, and retailers are feeling the pain. The year began with a string of smaller retailers throwing in the towel and filing Chapter 11, including several furniture retailers (Bombay, Levitz, Domain and Wickes), Sharper Image, Fortunoff, Harvey Electronics and the catalogue retailer Lillian Vernon. Linen 'N Things became the largest casualty in the sector in May after struggling from virtually the day that private equity giant Apollo Management L.P. took it private to sell more of what nobody wanted. Many other retailers that are still solvent are feeling the pain and making anticipatory cutbacks, including Foot Locker, which has announced that it will close 140 stores, Ann Taylor, which is shuttering 117 locations, and Zales which will eliminate 100. Another Apollo-owned retailer, Claire's Stores, has seen its bonds trade down to distressed levels (although HCM is less convinced that this is a bankruptcy candidate, probably based on the many torturous hours I spent with my daughter Alessia at the Claire's store in the Boca Raton mall).
  
  The Housing Industry - A Monument to Futility
  
  Then there is the housing industry, where the news just keeps getting worse and worse. The Office of Federal Housing Oversight reported that U.S. house prices dropped by 3.1 percent in the first quarter of 2008 compared with the first quarter of 2007. Prices for previously-owned single-family homes fell in 43 states, with California and Nevada seeing 8 percent drops. The inventory of unsold homes also continues to rise to unprecedented levels.
  
  One of the reasons for this is that mortgages are extremely hard to come by in today's market. HCM has heard anecdotal evidence of fully qualified potential buyers of high-end homes in California being unable to obtain mortgages, and we imagine this is illustrative of conditions throughout the country. Foreclosure data is almost mind-numbing. In April, foreclosure filings were up 65 percent year-over-year to a record 243,343 according to RealtyTrac. Not all of these houses will actually enter foreclosure, but many of them will. Finally, the S&P/Case-Shiller National Home Price Index shown in Graph 4 declined by 14.1 percent year-over-year in the first quarter of 2008, compared with a 8.9 percent year-over-year decline in the first quarter of 2007. Consecutive declines of this magnitude reverse increases of similar magnitude earlier in this decade, showing the dark side of the real estate bubble that loose monetary policies engendered.
  
  While the Federal Reserve has lowered interest rates and taken other steps to place a safety net under the housing market, there are scant signs of success thus far. In fact, mortgage rates have not dropped nearly as much as hoped due to deeper problems in the credit markets. The mortgage market has not responded in the traditional manner to the Federal Reserve's sharp interest rate reductions because of structural problems arising from the collapse of securitization markets and the vaporization of liquidity from the mortgage market. As a result, lenders (with a push from the government) have been working with borrowers to keep them in their houses. But the government has yet to come up with comprehensive legislation to address this problem, and the American landscape is increasingly littered with empty houses that are expensive for lenders to maintain and whose physical condition is deteriorating. It is going to take years for the housing economy to recover from its downturn, and it is clear that the sector has not hit bottom yet.
  
  Energy - Sapping the Energy Out of Everything Else
  
  In 2007, it did not require a hurricane in the Gulf of Mexico to push oil to $100/barrel. As the United States approaches another storm season, the picture is far grimmer. Oil now exceeds $130/barrel and the best last hope for a meaningful drop in price appears to be the sharp economic slowdown that high oil prices pretty much guarantee at this point. The International Energy Agency is expected to sharply reduce its forecast for future oil supplies when it completes work on a study it is doing on the industry. For several years, the IEA has predicted that supply would keep up with demand that was expected to reach 116 million barrels a day by 2030, up from around $87 million barrels today. The agency is reportedly now coming to the conclusion, which will warm the hearts of believers of the Peak Oil thesis (like HCM), that it will be difficult to squeeze more than 100 million barrels per day out of the ground over the next two decades. It appears that higher oil prices are here to stay.



(do read the article in full here )

More On Warren Buffett's Views on Recession

The question was rather straightforward.

Asked by Germany's weekly magazine, Der Spiegel, if US could still avoid a recession:

• "I believe that we are already in a recession. Perhaps not in the sense as defined by economists. But people are already feeling the effects of a recession. It will be deeper and longer than what many think."

And this is creating massive headlines.

US already in recession, says world's richest man Buffett

• Buffett, the 77-year-old chief of the Berkshire Hathaway holding company, blamed financial institutions for introducing instruments "they can no longer control" and said the "genie can no longer be put back in the bottle."

Some headlines are even more drastic, Buffett Calls For Colossal Recession

And the following article was posted on CNBC, Banks Are to Blame For Subprime Debt Crisis

• The banks exposed themselves too much, they took on too much risk .... It's their fault. There's no need to blame anyone else," he said.
  
  Buffett, dubbed the world's richest person by Forbes magazine, said he believed the situation in financial markets would not deteriorate further.
  
  "I don't think the situation will get worse in financial markets. General conditions in the business world will get worse, but it will only last a while," he said, adding he had no idea when an upturn would come.
  
  Buffett gave the interview on a recent visit to Madrid, as part of a European tour including Switzerland, Germany, Italy and Spain on the look out for new investments.
  
  He said the idea of the trip was to increase awareness amongst European businesses of his holding company Berkshire Hathaway , which holds stakes in businesses ranging from American Express American Express to Coca-Cola.
  He said he wanted business owners to think of him when they were looking to sell.
  
  "We want to buy big companies that earn at least 50 million euros ($78.6 million) before taxes, and there's more of those in Europe than in other parts of the world," he said.
  
  He would not be drawn on what companies in particular he was looking at, other than saying he was not interested in distressed businesses.
  
  The day before, Buffett was quoted in the German magazine Der Spiegel as saying the US is already in a recession and that it will be longer as well as deeper than many people expect.
  
  He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.
  
  "But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."
  
  But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.
  
  "If the world were falling apart I'd still invest in companies," he said.
  
  Buffett also renewed his criticism of derivatives trading.
  
  "It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."
  
  Buffett complained about the lack of effective controls.
  
  "That's the problem," he said. "You can't steer it, you can't regulate it anymore. You can't get the genie back in the bottle."

Well, this isn't hardly any breaking news for Buffett had already stated his recessionary reasonings. ( See Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

In this year's Berkshire Annual Meeting, Warren Buffett had already fielded questions on this issue. ( see previous posting here! )

• Q3: Sam from Fort Lee. Recession, stock market up in April. What next?
  
  WB: I could expand on that question, but I couldn’t answer it. Charlie and I haven’t the faintest idea where it goes next week, next month or next year. We are not in that business. It isn’t our game. We see 1,000s of companies priced every day. We ignore 99% of what we see. Every now and then, we find an attractive price for a business. When we buy it, we would be happy if market was closed for a few years. Wouldn’t get a price quote daily on a farm. We look at expected yield, cost of taxes. If you buy a farm, you would look at cost of fertilizers, what a farm produces relative to purchase price, price per acre, production per acre, etc.. We make judgments.

And the following article was published in early May, Buffett Says US in Recession, Banks to Face Pain

GIC: Worst Recession In 30 years!

This could be the worst recession in 30 years, so says Dr. Tony Tan, the deputy chairman of Government of Singapore Investment Corp (GIC).

Published on TODAYonline, Worst recession in 30 years: GIC

• Dr Tony Tan calls for urgent action by policymakers
  
  Christie Loh
  christie@mediacorp.com.sg
  
  Just weeks before global financial markets were first sucked into a vortex last August, Dr Tony Tan (picture) was sounding alarm bells about "dark clouds", which had already prompted the Government of Singapore Investment Corp (GIC) to cash out of some of its multi-billion-dollar investments.
  
  Yesterday, GIC's deputy chairman was back with an even more harrowing prediction. "We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last 30 years," he said.
  
  Dr Tan delivered this warning during his opening speech at the fund's inaugural staff conference yesterday, the only part of the one-day programme open to the media.
  
  GIC, which manages over US$100 billion ($135 billion) of Singapore's foreign reserves, has spared itself some of the pain.
  
  In the third quarter last year, it sold some of its equities before financial markets nose-dived. This helped provide the funds for GIC to pump a total of about US$16 billion into sub-prime-hit Citigroup and UBS over January and December, in exchange for bonds convertible into shares.
  
  Since then, Citi and UBS have unveiled more losses and writedowns, causing their share prices to fall about 7 per cent and 38 per cent respectively.
  
  But Dr Tan said yesterday that GIC believes the two "long-term" investments will bring "good returns when markets stabilise and economic conditions return to more normal levels". Until then, however, these one to two years will be "extremely nervous and volatile".
  
  He revealed yesterday that GIC had set up three group committees to oversee risks, organisational issues and investments.
  
  The group risk committee, which will be chaired by chief risk officer Sung Cheng Chih, provides oversight and guidance for the development and implementation of policies and practices for the entire group.
  
  Lack of oversight has shown up as a major weakness in the financial industry since the collapse of United States' sub-prime mortgage market, as certain banks and investment firms have only recently discovered the extent of complicated, high-risk instruments on their balance sheets.
  
  As banks continue to reduce lending activities and cause the credit supply to contract, the world economy is fraught with "considerable downside risks", said Dr Tan, adding that "a period of extreme uncertainty" is afoot.
  
  However, he said a sharp turnaround in sentiment and the markets could take place if policymakers in the US and elsewhere respond "strongly and appropriately".
  
  On the other hand, "if such actions by the authorities are not taken within the next three to four months, it will be left to the market forces of supply and demand to stabilise the US housing market before we can see the light at the end of the tunnel", said Dr Tan.
  
  "This will be a considerably more painful and long drawn process."
  
  He told some 500 staff in the audience: "The next few years may well be among the most challenging years for GIC since our establishment in 1981. We have to brace ourselves for trying and difficult times, but we are well prepared."

Link: http://www.todayonline.com/articles/249657.asp

Weekend Reading

Posted on Claire Barnes's Apollo Investment Management ( here ) :

• 'Is your pension fund a dump for toxic waste?' asks Paul Tustain, in the best single article I've seen on this most important of all financial issues.

Do click on that article. Great reading for the weekend.

Will the housing bust lead to a Recession?

So many reports on the poor state of the US Housing Market. And today, I noted this article posted on yahoo ( here ) and the biggest concern is will the US housing bust lead to a Recession?

Real Estate

Can the Economy Survive the Housing Bust?

Fortune on CNNMoney.com
By Jon Birger

Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune's Jon Birger.

Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she's hesitant to show it to investors. It plots the National Association of Home Builders' Housing Market index - a monthly measure of builder confidence - against the Standard & Poor's 500 stock market index, with a one-year lag.

It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving.

Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse that came the following year. Builder confidence rebounded in November 2001 - a year ahead of the stock market upswing that began in October 2002.

Why is Sonders worried now? Just look at the chart. Over the past year, the NAHB housing index plummeted 54 percent. Were stocks to follow suit, the S&P - 1400 in late October - would be trading below 700 this time next year.

Sonders isn't predicting anything so apocalyptic, but she doesn't hide her concern about housing and her pessimism about stocks.

"In terms of consumer spending, I don't think we've felt anywhere near the brunt of all the adjustable-rate-mortgage resets and the massive increase in defaults and foreclosures in states like California," she says. "Housing downturns happen in a fairly slow-motion way, and I really think we're just at the beginning of the impact on the market and the economy."

The latest omen: GDP grew at its slowest pace in three years in the third quarter, hurt by the housing slump.

Such bearishness flies in the face of the euphoria now rampant on Wall Street. The Dow Jones industrial average keeps hitting new highs, and the S&P is a stone's throw away from its own record (although in inflation-adjusted terms, they're still below their peaks).

Third-quarter earnings? One report seems better than the next, with key companies like Google (92 percent profit growth), IBM (54 percent), and Bank of America (41 percent) all posting stellar numbers.

"The effects of the housing correction will be entirely contained within the housing sector," says Mike Englund, chief economist of Action Economics. Corporate balance sheets are stronger than they've been in years, with U.S. companies sitting on $600 billion in cash. Interest rates are stable, and may decline. Falling energy prices are easing the burden on energy-intensive industries like chemicals and airlines.

And as PNC chief investment strategist Jeff Kleintop points out, there have been only two midterm election years since World War II when the stock market did not stage a fourth-quarter rally. The bulls' bottom line: Housing may be a risk factor, but there's too much other good news for it to be the catalyst for a recession or stock market meltdown.

That may turn out to be wishful thinking. All the economic activity generated by home sales - new mortgages, realtor fees, outlays to painters and handymen, the inevitable shopping trips to Home Depot and Best Buy - played a huge part in digging the economy out of a recession in 2001 and 2002. Given the importance of home sales on the way up, it may be shortsighted to minimize their importance on the way down.

"The historical record is extremely negative in terms of what comes next," says economist Ed Leamer, director of the UCLA Anderson Forecast. "We've had 11 sharp declines in the housing market since World War II, including this one. Eight of the last ten were followed by a recession."

For now, there's little hard evidence that the housing slowdown is dragging down the economy. Construction materials like concrete, wallboard and structural steel should be the canaries in the economic coal mine, yet their prices keep climbing.