Friday, August 22, 2008

Warren Buffett on Housing: "We had a very, very big bubble."

Warren Buffett, the world's richest man and world's greatest investor, did three hours of interviews on CNBC this morning. He covered a number of topics, including housing. A few nuggets from the CNBC summary that may be of interest to readers of this blog:
6:48 AM: Is Fannie Mae going under? Buffett says in a sense they already have because they wouldn't survive without government backing. "They priced risk wrong."

7:03 AM: Becky asks again about the economy and he repeats his view that the negative ripples will continue to spread for awhile. He sees no "early end" to the problems although they will end eventually.

7:10 AM: Asked about the oil market, Buffett says demand and supply for crude has changed significantly in the past five years. He thinks Boone Picken's energy plan is "on the right track" and warns that the world cannot keep increasing its demand for oil.

7:38 AM: [Becky] asks what grade he would give to the Federal Reserve. He says he admires anyone who takes on a very difficult job. He might not always agree with Fed Chairman Ben Bernanke but he admires that Bernanke is taking tough problems with no obvious answers.

7:40 AM: Buffett says there's a "reasonable chance" that Fannie and Freddie's equity will be wiped out. They keep existing because they're backed by the government, and the government should continue to support them, except for the equity portion. He notes that Berkshire had been a big holder of the GSEs before selling the entire stake around 2000 and 2001.

7:42 AM: Buffett says he has no bets against the U.S. dollar right now and no direct currency plays. He also notes that stocks are generally more attractive now than they were a year ago.

7:53 AM: Buffett: The Fed "has real problems on inflation." ... Wholesale prices will "have to" show up in consumer prices. Once inflation is "ignited" it gets difficult to bring it under control.

8:01 AM: Are there bargains in the stock market? Buffett says yes, there are companies that are better today than they were a year ago selling for lower prices. When he gets calls from someone who has just lost billion of dollars and wants to be replenished, he doesn't get that excited. He points out that when someone tries to sell something to you, like an investment, it probably isn't worth buying. The best ideas come from your own ideas and digging.

8:06 AM: Would Buffett buy additional shares in the financials he already owns like American Express and Wells Fargo if prices come down? Is he buying shares now? Buffett replies that he has indeed been buying shares in one of those two names lately, but won't say which one. He points out that both companies were both started by the same people.

8:17 AM: Buffett repeats his belief that a windfall profits tax on oil doesn't make any sense, despite the fact that his favored candidate, Barack Obama, has expressed support for such a tax. He notes that no one is calling for a tax on other commodities that have gone up in price like soybeans. The oil companies are an easy target.

8:38 AM: Buffett says it's possible there could be another financial firm imposion along the lines of Bear Stearns, but it would be "inappropriate" to comment on any specific companies right now because it could undermine confidence. He notes that while it is hard to find the sources, rumor-mongers should be punished.

8:44 AM: Buffett predicts housing market recovery will take some time, probably years. "A lot of blame to go around." The market won't really come back until you get to a normal inventory of unsold homes.

8:46 AM: Buffett: No interest right now in buying any homebuilder stocks. They still have plenty of problems.
A video of Buffett's comments on housing is here.


  1. I really appreciate the re-cap on this. I'm a big Buffet fan. Thanks.

  2. But hundreds of talking heads told us a thousand times that there was no bubble. Now is a great time to buy. Buy now before you get left behind. Buy more house than you can afford to save money on upsizing later. Interest only loans maximize your equity. Real estate never goes down. Real estate in this state/city/area never does down. Never. The crashes of 1927, the 1970s, 80s, and 92 didn't happen, don't apply, can't happen again, weren't that bad, marked great buying opportunities. (that last one happens to be correct, but someone is saying that all the time whatever the market cycle)

    Lance, help me out here. I'm really confused.

  3. great post - I'm a buffet fan also