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From: The Sharekhan Research Team [mailto:marketwatch
Sent: 03 March 2008 19:37
To: The Sharekhan Research Team
Subject: Sharekhan Post-Market Report dated March 03, 2008
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Warren Buffett, Chairman, Berkshire Hathaway, said the US is indeed in a recession. "However, it is perhaps not as bad as the 1970s."
In a special interview to CNBC, billionaire Warren Buffett says that the US is indeed in a recession. But he also says that it is perhaps not as bad as it was in the 1970s.
“It is nothing like 1973-74 yet. That doesn’t mean it couldn’t be. But in 1973-74, we had this stagflation situation and really had a meltdown in equity prices. Really good companies got down to 3 and 4 times earnings. So, nothing like that has happened in this situation. But in 1973-74, at some point, it didn’t look like it had happened either. So, everyday is a new day and we are seeing more fixed income type forced liquidations. We are seeing more indigestion; banks with a lot of loans they don’t want to have. You are seeing a time of easy money in terms of price, but not so easy money in terms of availability,” said Buffett.
Excerpts from an exlusive interview with Warren Buffet:
Q: Let us move on to David from Defiance, Ohio. He asks, 'How would you define a recession?' This is something we talk an awful lot about on the show, but he says, 'I have been listening to a lot of discussions on CNBC, some of which can be very annoying because they tend to be so outrageously vocal and the experts believe two quarters of negative growth qualifies as a recession.' Is that the surest definition of it? Or do you think it's broader than just that?
A: It is the standard definition, but if you think about it, population grows at 1% a year. So you could have growth of GDP at 0.5%, but GDP per capita would be going down. The very definition you might say is a little bit flawed if it doesn’t allow for the fact that GDP per capita can go down while gross GDP is going up. Beyond that, I would say by any common sense definition we are in a recession. We haven’t had two consecutive quarters of GDP growth. But on balance, most people's net worth is heading south now for a considerable period of time. And if you owned a house, and you had an 80 per cent mortgage on it, and so you had 20 per cent equity a year ago, you might not have any equity now. And millions of people are in positions somewhat similar to that, and people that own municipal bonds feel poorer today than they did a few months ago. So business is slowing down. We have retail stores in candy and home furnishings and jewellery; across the board I'm seeing a significant slowdown.
Q: That is the first time I have heard you say you think we are actually in a recession right now.
A: Yeah, I think, when we talked earlier, I said we might be. But when I say we are in a recession, it doesn't meet the technical definition. We are not in the second quarter because we do not know what the fourth quarter of last year was. But I think that, from a commonsense standpoint, we are in a recession now.
Q: You have made some negative comments about the dollar in the past. You see where it trades right now. What do you think?
A: For five years we have talked about it. We were following policies which were, in my view, five years ago, were certain to produce a weaker dollar over time. I never know what it is going to do in a month or a year, and maybe I do not know what it is going to do in five years, but I think I know what it is going to do in five years.
And as long as we force-feed a couple of billion dollars a day to the rest of the world, they take it whether they like it or not, because we buy goods, buy two billion a day more than we sell goods to the rest of the world. The dollar is going to get weaker over time. And the government can talk about how it is in our interest to have a strong dollar, but we are not following policies that lead to that, and it is just a consequence and it will just continue to be. If you do the same thing over and over again, you are going to get the same result and we are doing the same thing now that we were doing two, three, five years ago, and the dollar will weaken on an irregular basis, in my view, for some time to come.
Q: Obviously we are consumers to the rest of the world because we have a lot of prosperity here. And I am trying to figure out how we should reverse the policies that caused us to consume so much and send all this money abroad. Do you think that free trade is a hindrance to what we are doing? Is NAFTA, has that been a negative for us? It seems like we are going to consume no matter what, and that is good for the rest of the world, and we are not going to export as much. How should we change our policy? What would make sense?
A: Actually, in the last 30-plus years, we have increased our exports from 5% of GDP to about 11.5% of GDP. We exported a trillion, six hundred billion dollars worth of goods last year, but the problem is that over the last 35 years our imports have also gone from 5% of GDP up to about 16.5% of GDP. So we have been prosperous ever since World War II and the trade deficit only has become really significant with the current account deficit in the last six or seven years.
I wrote an article for Fortune about three years ago where I suggested one solution in terms of import certificates. I believe in free trade, in fact, I would have no barriers to countries or products or anything of the sort.
But I do think the only true trade we had last year was the USD 1.6 trillion, which we imported and exported and then on top of that we imported USD 700 billion more, and that was unreciprocated trade. So that creates problems over time because we do hand these little pieces of paper over to other countries, and we keep force-feeding those countries, and after a while they are not so enthusiastic about getting the money.
Q: Let us get to one from Don in Atlanta, Georgia. 'If Ben Bernanke is a company, would you be interested in owning it?'
A: I think that Bernanke is very able, and I am not sure I would want to own any company that an economist was running, though, so he gets disqualified by profession, but not personally at all.
It's possible to be honest and principled and succeed
Nobody disputes that, during his lifetime, JRD Tata was the most respected -- and probably the most admired -- businessman in
Ratan has finally inherited JRD's title. He is clearly the most respected and admired businessman in
Think back to that phase, 10 years ago, when the Tatas struggled to reinvent themselves in the post-JRD era.
Ratan was perceived then: awkward, untalented, unworthy of the job, out of his depth and full of vindictive anger against many of the satraps of the JRD regime.
It was a time of change. New groups were springing up out of nowhere. The Infosys legend, personified by Narayan Murthy's personal simplicity and marked by the world-class skills of his high-tech partners, had just begun.
At Tata headquarters, however, the crises mounted: record losses at Tata Motors.
The criminal charges over Tata Tea's alleged links with
Allegations of foolishness in the sale of Tata Oil Mills' assets.
A plan to launch a domestic airline with
And many of us wondered if we were watching
Poor, shy, inept Ratan seemed unable to cope.
And yet, a mere decade later, here was the same Ratan being feted by the world's media as the man who reinvented, if not the wheel, then certainly the motorcar. A man who did what no global carmaker believed was possible.
Here was a new Ratan, as he joked about calling the car the 'Pachauri' (after the environmentalist who chose to attack the Nano as a pollution threat. Or even the 'Mamata' (after the nutcase) or 'Despite Mamata'.
Nano at a lakh because "a promise is a promise".
The triumph of the Nano was merely the crowning glory in a series of successes.
Throughout the 21st century, the Tatas have beaten every doom-laden prediction and silenced every critic. Tata Motors came back from losses of over Rs 600 crore to make huge profits on the back of the Indica.
Infosys had fulfilled its early promise but even then Tata Consultancy Services (TCS), a company that had been little noticed in the 1990s, had grown to dominate the Indian IT sector, its size dwarfing Infosys.
Tata Steel had defied Rusi Mody's predictions, had been whittled down to a slim and lean company, and had even gone ahead and bought Corus, a global giant, after a bidding war during which Ratan had shown nerves of steel.
And even as Ratan was unveiling the world's cheapest car, the Tatas were on the verge of clinching the purchase of Jaguar, one of the world's great luxury cars.
How had so many people, who should have known better, got Ratan so wrong?
Business pundits will tell you -- in the kind of detail that I will never be able to master -- just how the Tatas turned themselves around. I'm sure they are right. But remember, most of these pundits were the same guys who wrote Ratan off to begin with, a decade or so ago.
A few theories on the remarkable rise of Ratan Tata.
It was his heart that told him to build the Nano. He would see families of four on a single scooter. The father would keep his son in front and the mother would hold on to her baby. He wondered why it was not possible to give such families a car where they could be safe and comfortable for the same price. Plus, they would keep their dignity.
There are many reasons for building a car. But this, I think, is the best one of all.
The Tatas had gone through good times and bad times. But they had always given nearly all of their profits to charity. They had consistently refused to break the law and encourage corruption.
Older generations of businessmen thought they were silly and shortsighted to do so considering that everybody else played the game. But now
When we see Ratan Tata refusing to pay bribes, refusing to lick politicians' boots and refusing to bend the rules -- and still taking the Tatas from strength to strength, still buying the world's best companies, and still reinventing the rules of the car industry -- well then, we know that there is a better way. The honest way.