Here are a couple takeaways from Buffett's interview with Charlie Rose
“And those people who have a $22 trillion asset at the peak saw the value shrink dramatically. That’s -- that’s affecting two-thirds of the households in the United States. That had had incredible impact on the economy and we won’t come back big time until we’ve worked off the excess inventory that was created during our binge on housing a few years back. We are -- we are making progress on that every day, every week, every month. I mean, we are producing less houses than we are households.”
“But housing -- housing is way bigger than construction workers. Unemployment will fall significantly in my view [later he would mention below 7%] when we get back up to a million housing starts because it won’t just be construction workers, it will be our carpet workers where we’ve laid off 6,000 people, and it will be our brick workers. And go up and down the line. So the big recovery -- we’ve recovered our corporate profits. We’ve recovered in terms of -- of getting the banks back in shape, banks are in good” shape now. We’ve recovered in all kinds of areas.”
“I mean it could even be a million [housing starts] or two, we will have -- and unemployment will fall dramatically.”
“Yes, the U.S. economy. I think it’s -- well, it’s been picking up ever since the summer of 2009. Right up until last month. I mean I -- I -- I see figures on 70 plus businesses. What is unusual about this is we had a huge recession caused in large part by a housing bubble. I mean, you had -- you have 67 percent of the people in the United States own their own homes roughly.”
The significance in construction to unemployment and the greater economy is that it is relatively labor intensive compared to most industries as Buffett comments. The housing market is currently producing at a rate of about 600,000 houses annually so we are still a ways to go before the 1 million mark.
Buffett makes that last point from the data he receives from his businesses, but you could equally extrapolate that from rail freight data. Rail data shows a high correlation to the economy and as Buffett has commented before, if he were to be stuck on an island monthly rail data is all the information he would need. In July rail carloads logged the first year over year decline since the beginning of 2010. As he points out the economy has been picking up from the summer of 2009. Though January 2010 had a year over year decline it was still an improvement over previous months and as you can observe in the graph conditions have materially slowed down in recent months.
Buffett's recent purchase of Wells Fargo (WFC, Financial) and his holding of USG Corp. (USG, Financial) confirm his confidence in housing as the two are very much dependent on its recovery.
Disclosure: Long WFC, USG
Josh Zachariah
“And those people who have a $22 trillion asset at the peak saw the value shrink dramatically. That’s -- that’s affecting two-thirds of the households in the United States. That had had incredible impact on the economy and we won’t come back big time until we’ve worked off the excess inventory that was created during our binge on housing a few years back. We are -- we are making progress on that every day, every week, every month. I mean, we are producing less houses than we are households.”
“But housing -- housing is way bigger than construction workers. Unemployment will fall significantly in my view [later he would mention below 7%] when we get back up to a million housing starts because it won’t just be construction workers, it will be our carpet workers where we’ve laid off 6,000 people, and it will be our brick workers. And go up and down the line. So the big recovery -- we’ve recovered our corporate profits. We’ve recovered in terms of -- of getting the banks back in shape, banks are in good” shape now. We’ve recovered in all kinds of areas.”
“I mean it could even be a million [housing starts] or two, we will have -- and unemployment will fall dramatically.”
“Yes, the U.S. economy. I think it’s -- well, it’s been picking up ever since the summer of 2009. Right up until last month. I mean I -- I -- I see figures on 70 plus businesses. What is unusual about this is we had a huge recession caused in large part by a housing bubble. I mean, you had -- you have 67 percent of the people in the United States own their own homes roughly.”
The significance in construction to unemployment and the greater economy is that it is relatively labor intensive compared to most industries as Buffett comments. The housing market is currently producing at a rate of about 600,000 houses annually so we are still a ways to go before the 1 million mark.
Buffett makes that last point from the data he receives from his businesses, but you could equally extrapolate that from rail freight data. Rail data shows a high correlation to the economy and as Buffett has commented before, if he were to be stuck on an island monthly rail data is all the information he would need. In July rail carloads logged the first year over year decline since the beginning of 2010. As he points out the economy has been picking up from the summer of 2009. Though January 2010 had a year over year decline it was still an improvement over previous months and as you can observe in the graph conditions have materially slowed down in recent months.
Buffett's recent purchase of Wells Fargo (WFC, Financial) and his holding of USG Corp. (USG, Financial) confirm his confidence in housing as the two are very much dependent on its recovery.
Disclosure: Long WFC, USG
Josh Zachariah
