Buffett bets big against double-dip recession
By Andrew Frye
Billionaire Warren Buffett said he is wagering on continued economic expansion and doesn’t expect a second recession.
“I would bet very heavily against that,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today after data showed slowing U.S. job growth. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”
The unemployment rate unexpectedly climbed to 9.2% in June, the highest level this year, and hiring by companies was the weakest since May 2010, Labor Department data showed. U.S. employers added 18,000 jobs last month, less than the 105,000 median estimate in a Bloomberg News survey.
“It means that we’re still a way off from getting to where we should be,” Buffett said in the interview, in Sun Valley, Idaho. “We’re seeing growth around the world, but it’s not mushrooming.”
Buffett’s Berkshire Hathaway Inc. added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The Omaha, Nebraska-based company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February. Employment gained last year at Berkshire units including car insurer Geico and railroad Burlington Northern Santa Fe. Staffing fell at carpet-maker Shaw Industries.
“Jobs come with demand,” Buffett, 80, said today. “We’re seeing demand in a lot of places but we’re not seeing it in the construction field.”
Berkshire owns a real estate brokerage, a maker of manufactured homes and units that construct roofs and sell bricks and carpet. Buffett said in February that a housing recovery would begin “within a year or so” and that he’s preparing the company’s businesses for growth. Buffett is chairman and chief executive officer of Berkshire.
Berkshire expanded its Acme Brick unit with a US$50-million acquisition, and Johns Manville, the roofing subsidiary, is building a US$55-million plant in Ohio, Buffett said in his annual letter. Shaw will spend $210 million on plant and equipment this year, Buffett said.
“We will come back big time on employment when residential construction comes back,” Buffett said. The unemployment rate will drop to 6 percent “within a few years,” he said.
Surging Yuan May Signal Boost For Global Recovery
(Bloomberg)The yuan’s strongest gain in more than three years may herald a new stimulus for a flagging global recovery as Chinese importers get more firepower to buy up goods from slowing economies in the U.S. and Europe.
The currency climbed 0.8 percent this week, more than any weekly increase since December 2007, breaking through 6.4 per dollar for the first time in 17 years. Today’s closing price in Shanghai was 6.3895. Yuan forwards had the biggest weekly gain since February 2009.
Chinese officials are allowing the currency to appreciate as slowing growth and gyrations in global currencies and stock markets threaten to spark a new recession. Besides countering inflation and accelerating China’s shift to domestic-driven growth, a stronger yuan may also signal a willingness to help shore up slumping confidence in the global economy.
“They may want to be seen as stepping up to the plate as the second-largest economy,” said David Cohen, an economist at Action Economics in Singapore who formerly worked for the U.S. Federal Reserve. “Inflation is also a little higher than they would want.”
During the global financial crisis, Premier Wen Jiabao’s government halted the yuan’s gains for almost two years, keeping the currency pegged to the dollar until June 2010. It has strengthened more than 6 percent since then. Reasons for allowing gains now include elevated inflation and a surge in the trade surplus in July.
Barclays Capital analyst Chang Jian estimates that the currency will rise 5 percent to 7 percent over a year. That would help to boost demand that is already surging, with imports climbing 27 percent to a record $973 billion in the first seven months of 2011, according to trade data released this week.
On Aug. 9, China’s State Council urged global cooperation to counter turmoil in financial markets and endorsed a Group of 20 pledge to take “all necessary initiatives in a coordinated way” to support financial stability and growth. While developed nations are struggling, the Chinese economy may expand more than 9 percent this year, according to the median estimate in a Bloomberg News survey of economists.
This week’s accelerated gains may partly be a “show of confidence” and “an effort to not appear overly worried about short-term financial market developments,” said Sacha Tihanyi, a Hong Kong-based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia.
The yuan rose 0.37 percent to close at 6.3945 in Shanghai yesterday, its biggest jump in nine months, according to the China Foreign Exchange Trade System. It touched 6.3895, the strongest level since the country unified official and market exchange rates at the end of 1993.
Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, said that the currency will appreciate “gradually,” state radio reported yesterday evening.
A front-page commentary in the China Securities Journal today said that the government may rely more on strengthening the yuan to ease inflation pressures, with the central bank cautious on raising interest rates because of the risk of attracting capital inflows.
The currency remains undervalued by 3 percent to 23 percent, depending on methodology, International Monetary Fund economists said in a report released last month.
Inflation that reached a three-year high of 6.5 percent in July is driving the gains, said Arjuna Mahendran, who is the Asian head of investment strategy at HSBC Private Bank in Singapore and helps manage about $499 billion. A side-effect is the boost to consumption as imports become cheaper for Chinese consumers, he said.
The IMF said last month that a stronger yuan would help to make the Chinese economy more stable by aiding a rebalancing of growth toward domestic demand and away from exports and investment. One aim is to limit the risk of any slump in Chinese growth that would reverberate through the global economy.
Wage increases and a stronger social safety net are also elements of a drive to boost consumption, laid out in a five- year plan running through 2015.