In recent months, amid the housing slump and credit crunch, US economic growth came to a standstill and many economists believe the world’s largest economy is heading for a recession.
While nobody can confirm if “recession” has really descended since we are bombarded with confident and pessimistic news in equal measure daily, Warren Buffett (arguably the most successful investor) has spoken – the United States is already in recession. His aforesaid remarks appeared in German magazine Der Spiegel.
Buffett said: “It is perhaps not a recession in the way that economists would understand it… but people are already feeling the effects and it will be deeper and longer than people think.”
Warren Buffett, the 77-year-old chief of the Berkshire Hathaway, blamed financial institutions for introducing instruments “they can no longer control” and said the “genie can no longer be put back in the bottle.” He also called for tighter regulation of the financial markets.
According to the Forbes annual billionaire’s list published in March, Buffett saw his wealth jump from 52 billion dollars last year to 62 billion, pushing Microsoft co-founder Gates into third position after 13 years at the top.
I really respect what Buffet has done to preserve and even increase his wealth despite this period of hardship and financial wealth destruction. It is easy to balloon one’s assets when the market booms as a rising tide lifts all boats but in times of recession, skills and intimate knowledge of the market will separate the wheat from the chaff.
I expect the stock market to have further adverse reactions to his bleak assessment of the US economy this week, so sitting on cash for the time being is wise. However, be prepared to zoom in on favorable stocks when the general mood turns over-jittery.