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Warren Buffett to CNBC: No "Bounce" For Economy, But Residential Real Estate Has Improved

Wednesday, 16 Sep 2009 | 6:15 AM ET

Warren Buffett tells CNBC that while the economy "hasn't gotten worse" but also hasn't "gotten much better" over the past three months, he doesn't expect a 'double-dip' recession and sees significant improvement in residential real estate.

Warren Buffett
CNBC.com
Warren Buffett

In a taped interview with Becky Quick airing this morning on Squawk Box, Buffett says he looks at a number of indicators, including data from Berkshire Hathaway companies, and "we have not bounced -- but we've quit going down."

COMPLETE INTERVIEW - VIDEO & TRANSCRIPT

Unless there's some "horrible event," Buffett thinks the odds are "very much against" another significant downturn for the overall economy in the near future.

He also sees "important" signs of life for housing: "I think we're certainly—we’re through the worst of it in residential real estate in all probability. And-- and-- and the reason is we're building a lot fewer houses and we're-- and we're forming households, so that solves itself over time. Doesn't do it in a day or a week, but it solves itself. So we're further on that."

Becky also asked Buffett about Kraft Food's $16 billion bid for Cadbury, since Berkshire Hathaway is Kraft's biggest shareholder. While he says he's not opposed to the offer and has confidence in Kraft's management, he does think the bid is at a "pretty full" price, and Kraft will have to "do a lot of things right to justify this price." Cadbury has rejected the bid and called for Kraft to increase its offer.

Here's the transcript and video clip of the portion of Becky's interview airing today. Another part aired last night on CNBC. That video and transcript have already been posted on Warren Buffett Watch. The complete interview, including brief sections that did not air on TV, will be available here later this morning.

Buffett on Heroes & a Second Downturn
CNBC's Becky Quick talks to billionaire Warren Buffett about the heroes of the financial crisis and the risks of a second downturn.

BECKY: Who do you think the biggest heroes (of the financial crisis) are?

BUFFETT: Well, I think the heroes are-- are-- (Federal Reserve Chairman) Bernanke. I think (former Treasury Secretary) Paulson's a hero. I think (Treasury Secretary) Geithner’s a hero are-- I-- I-- you know, you can look back and say you could have done this a little differently or that a little differently, but at the time I called it an economic Pearl Harbor and in the end we got through Pearl Harbor. And-- and it could have turned out a lot differently.

BECKY: There are some people, including (bank analyst) Meredith Whitney, who say-- we've just kicked things down the road. That the banks-- are-- are still struggling. That we have a lot of problems that could still come up from credit cards, from other areas, from consumers getting pinched for-- needing credit. Are we through the worst of it? And--

BUFFETT: Oh, I think we're certainly—we’re through the worst of it in residential real estate in all probability. And-- and-- and the reason is we're building a lot fewer houses and we're-- and we're forming households, so that solves itself over time. Doesn't do it in a day or a week, but it solves itself. So we're further on that. We're gonna have unusual losses in credit cards and in commercial real estate, all of that. But we're a lot better off than we were a year ago. I mean for one thing on some of the-- some of the toxic assets have been flushed through. There's been capital raised. There’s -- we're immeasurably better than we were-- off than we were a year ago.

BECKY: But is there a risk of a second downturn? Will unemployment levels climb to a point where it becomes a leading indicator rather than a lagging indicator?

BUFFETT: I-- I think the odds are very much against getting significantly worse. It's sort of plateaued at the-- at the bottom right now, but if you got some horrible exogenous event, some-- some, you know, 9/11-- type event or worse-- you know, you could have something that would be dis-- really disruptive and start things all over again. But in terms of problems that we've identified and are working with, we've got more to come. But we're-- we're-- we're past the-- we're past the critical point.

BECKY: What are the most important economic indicators that you watch? Is there a series of numbers? Are there-- some statistics that you look at most closely?

BUFFETT: Well, I look at our businesses every day. But I-- I look at everything. I mean I-- I-- I look at car loadings. I look at the Fed's balance sheet. Whatever it may be. I mean I-- and-- and we have not bounced-- but we've quit going down. I'm and-- and it—the world will come back. I've never been able to tell whether it's gonna be a week or a month or-- six months. But we are on the mend. And-- and if you look at-- at housing prices and activity in the mid to lower price range, it changed dramatically from a year ago. We're seeing some stability.

BECKY: All right. Let me go at this another way. Let's pretend you're on a desert island for a month. There's only one set of numbers you can get. What would it be?

BUFFETT: Well, I would probably look at-- perhaps freight car loadings and-- perhaps-- and-- and truck tonnage moved and-- but I’d want to look at a lot of figures. (LAUGHTER)

BECKY: You are the biggest shareholder-- Berkshire Hathaway is the biggest shareholder in Kraft. Is the Kraft bid to go after Cadbury a good one?

BUFFETT: Well, it's a pretty full one. I mean-- the-- Kraft-- Kraft has got-- anytime you're in a takeover, you know, that-- the animal spirits run high and all of that. But Kraft has the disadvantage of using an undervalued stock. So if you-- if part of your currency is a stock that's worth more money than it's selling for and you're-- you're paying full negotiated value for the other guy’s property and you wouldn't sell your own property for anything like the market price, it's-- it's a-- it makes it a tough game. So it's-- it's a full price.

BECKY: Are-- that makes it sound like as if you're not in favor of this bid?

BUFFETT: No, I-- I've got a lot of confidence in (Kraft CEO) Irene Rosenfeld. She'll-- but they have to do a lot of things right to justify this price.

BECKY: What do you think about the-- the talk towards health care and where things are headed right now?

BUFFETT: Well, I think that-- unfortunately, I think that the -- what-- what-- we're really talking about reforming health insurance more than health care. So I-- the incentives that produce the 16 or so percent of GDP that's going to health care, I think unfortunately they're getting-- they're going to get changed. But-- so I think that we really-- and I'm talking as much about reforming health care as we're talking about reforming the insurance. And I think that will be an opportunity missed if we don't do more about looking at what-- what the incentives are in the present system and what they would be in an ideal system.

BECKY: And then finally, if-- if you had to-- give a gauge of where you stand on the economy again right now-- versus what you were thinking three months ago, is it the same? Is it better?

BUFFETT: It-- it hasn't gotten worse. It hasn't gotten much better either. But the very fact that time is passing, it's-- it's gotten better in residential real estate. That’s important. Certain things haven't hit much yet. Commercial real estate, for example. But we are moving through a recession. And-- and-- and I see nothing that makes me worry about the fact that it's going to be worse than I would have thought three months ago.

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