Warren Buffett :- I'm a bull on the United States

Warren Buffett said Wednesday he is confident the U.S. financial sector can get through its troubles without a government bailout and remains bullish about the long-term prospects for the U.S. economy. "I am a huge bull on the American economy," said Mr. Buffett, in an exclusive interview with the National Post. The comments from Mr. Buffett, the world's second richest man and regarded as one of its most successful investors, come as the United States sits on the brink of recession, bogged down by a housing market implosion that threatens to derail the consumer and that has left many U.S. banks saddled with defaulting subprime mortgages. Financial markets around the world have been heaving amid fears that banks will have restrain lending and damage other areas of the economy in order to shore up their capital and rebuild their balance sheets. But Mr. Buffett says the United States has survived such turmoil before. "We'll always get through," he said. "I'm a bull on the United States. Just think about how silly it would have been to be anything other than a bull on the United States since 1790. It is not a smart thing to sell the United States short over the years -- or Canada for that matter. The world does get better. People get more productive. More human capacity is unleashed over time." Mr. Buffett is chairman and chief executive officer of Berkshire Hathaway Inc., a holding company with a market capitalization of almost US$210-billion and investments in such iconic American companies as The Coca-Cola Co., American Express Co. and The Procter & Gamble Co. He has built his business by buying companies in businesses he understands, that have strong management, consistent earnings power, good return on equity and little or no debt. If he can get them at a cheap price all the better. He said the banks will be able to work out their troubles without government assistance but may not be the "best investments." Many of the big banks, including Merrill Lynch, Citigroup, Morgan Stanley and Canadian Imperial Bank of Commerce, have taken huge losses against their books on defaulting sub-prime loans and all the complicated derivatives that have been packaged up and sold against them. "They're going to be around," he said. "The ones that have taken the big write-offs, they're not going out of business but they're selling a lot of new shares in the process so they're diluting future earnings. They're paying a price. "I think most of the very big ones and I won't name names, I think five or 10 years from now people will have made money on them but I think they'll have made money on other things too. I don't think necessarily they're the best investments, but they have not been permanently crippled." He sees no need for any government bailouts in the financial sector, similar, to the government rescue of U.S. banks during the savings and loans crisis in the early 1980s. U.S. banks have enough money to handle the extra cost. "They can handle it and they're paying a price for it," he said. "Somebody has to bear those losses. Is it better that the XYZ bank bears it or is it better to socialize it for the American public. I'd rather have the XYZ bank pay for it." Mr. Buffett, who was in Toronto to promote the launch of Business Wire in Canada, a corporate news release company, said he sees no problem with foreign countries -- through so-called ‘"sovereign wealth funds" -- buying up big stakes in U.S. financial stocks. "It's the inevitable consequence of our trade deficit," he said. "If we're going to consume US$2-billion a day more of foreign goods than we sell to the rest of the world we have to ship them something in exchange. Initially we may ship them American dollars but those get converted into American assets of one sort or another. The United States is fueling the sovereign wealth funds. We're making deposits in their wealth funds in effect." Mr. Buffett has been a long-term critic of huge U.S. trade and current account deficits, a key reason he believes the U.S. dollar has weakened over the years and why he believes it will continue to weaken particularly against the Canadian dollar. While Mr. Buffett has certainly seen some weakening of demand in his businesses - Berkshire owns retail jewelry and candy operations - he does not believe the United States is facing a major credit crunch that will cripple the economy. "We actually went through a rolling credit crunch of sorts and we're still in it to some degree, but what we've really done is seen credit cut off to a lot of things that should have been cut off and we've seen credit that was mispriced get repriced," Mr. Buffett said. "The money is there ...we do not have an unavailability of credit to people who've got reasonable credit demands and it's not expensive. We're not in a credit crunch for those who have sound deals. I went through 1982 when short-term money cost 21%. This is not a tough period." Eventually the excess demand in the housing industry will be sopped up by a population that is expanding at about 1% a year. "Demand does soak up excess supply but it can take a while to do it ... but you do not have the problem that if you have excess supply it just sits there forever."