Buffett sees tough times ahead before recovery

May 4, 2009 7:13 PM ET

OMAHA, Nebraska (AP) - Billionaire Warren Buffett remains optimistic about the U.S. economy, but he says it's difficult to predict when the recession will end because American consumers changed their behavior significantly.

Berkshire Hathaway's chairman and chief executive conducted several TV interviews Monday after entertaining 35,000 people at his company's shareholders meeting in Omaha over the weekend.

"In the short term, things are going to be tough for a while. We see no real pickup in a whole variety of businesses we have, but they'll be doing fine in a few years," Buffett said Monday in an interview with CNBC.

Among Berkshire's more than 60 subsidiaries, there are furniture, brick, manufactured home, carpet, utility, insurance and jewelry companies, so Buffett gets a good sense of the health of the economy by looking at his internal reports.

On the positive side, Buffett said he sees residential real estate prices stabilizing in important parts of the country like California, although a huge oversupply of houses remains in southern Florida.

And Buffett's long-term outlook for the United States remains rosy.

"I am enormously optimistic about the future of this country over time," Buffett said.

Economists say the recession began in December 2007.

Buffett said the shift in American consumer behavior makes it hard to predict when the economy will recover. He said many Americans who still have the same jobs, same savings and same homes responded to the financial turmoil by changing their spending and buying habits dramatically.

"I think the American public generally is in a different mood than a year ago or two years ago or three years ago. In fact, I know they are by their buying habits," Buffett said in an interview with Fox Business News.

Also on Monday, a Taiwanese business tycoon criticized an investment Berkshire made in a Chinese battery and car maker that has been accused of stealing trade secrets. Terry Gou, head of Taiwanese electronics giant Hon Hai Precision Industry Co. Ltd., questioned Buffett's decision to invest in China's BYD Company Ltd. in an interview with a Taiwanese newspaper.

Berkshire officials said they believe the allegations against BYD are unfounded. Berkshire Vice Chairman Charlie Munger said the allegations made against BYD have already been litigated in a Japanese court and discredited.

Last fall, one of Berkshire's subsidiaries acquired a 9.9 percent stake in BYD, which was valued at $230 million.

At the shareholders meeting Saturday, Buffett and Munger said they believe the U.S. government has generally done the right things to help the economy recover. Buffett and Berkshire board member Bill Gates reinforced that notion in a joint interview on Monday.

Gates, who co-founded Microsoft, said the $700 billion Troubled Asset Relief Program Congress passed last fall may have been flawed because its designers didn't predict how negative factors would work together, but it was necessary.

"It's not going to be perfect, but they've been doing the right things," Gates said to Fox Business. "There wasn't anybody to count on except for government in late September."

Gates said he enjoys calling Buffett and talking about what's going on in the economy because of all the turmoil.

Buffett's company did have a rough year in 2008, but Berkshire still beat the S&P 500 index that Buffett measures his performance against.

Berkshire's Class A stock lost 32 percent in 2008, and Berkshire's book value — assets minus liabilities — declined 9.6 percent to $70,530 per share. That was the biggest drop in book value under Buffett and only the second time its book value has declined.

The Standard & Poor's 500 index fell 37 percent in 2008.

Berkshire reported a 2008 profit of $4.99 billion, or $3,224 per Class A share. That was down 62 percent from the previous year, but better than many companies. Berkshire plans to release its first-quarter results on Friday afternoon.

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