Over the weekend I posted a video by David Rosenberg claiming that we are in the middle of a modern day depression. I don’t exactly agree with that idea and I think that Warren Buffett did an excellent job explaining this on CNBC this morning. Buffett says the U.S. economy is actually incredibly bifurcated. Gauging his Berkshire businesses, Buffett says that much of the U.S. economy is actually very strong and reaching new highs. On the other hand, he says anything related to residential real estate is actually in a depression. With a D. Unfortunately for the U.S. economy, residential real estate happens to be one of the most important industries we have and residential real estate just so happens to be the U.S. consumers largest asset. So, I think it’s accurate to say that this one component of the economy is making the USA feel like it’s in the middle of a depression even though many industries are actually doing quite well.
He covers several other topics in the interview including the outlook for Europe and what he calls a “run on the banks” throughout the periphery countries. How do you stop a run? Well, you need a unified supranational entity in that case as Buffett explains:
“it’s very difficult if you have to stop a run. It takes a belief widespread belief that the people and authority will do whatever it takes to stop it and they have the ability. We believed Bernanke and Paulson would help it. There is no one with comparable authority and getting 17 people to agree on reforms next year is not necessarily a great answer.”
Buffett just summed up the Euro crisis in one paragraph for you. And so you have a massive run on the European economies. And as the leaders kick the can and shuffle the leadership position from bozo # 1 to bozo #2 the depression in Europe worsens. You can see the full interview below:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.