Buffett says economy fell off cliff

Mon Mar 9, 2009 2:50pm EDT
http://www.reuters.com/article/newsOne/idUSTRE5282J820090309
By Jonathan Stempel

NEW YORK (Reuters) - Warren Buffett said on Monday the U.S. economy had "fallen off a cliff" but would eventually recover, although a rebound could kindle inflation worse than that experienced in the late 1970s.

Buffett said Americans, including himself, did not predict the severity of home price declines, which led to problems with securitizations and other debt whose value depended on home prices continuing to rise, or at least not plummet.

He said Wells Fargo & Co and U.S. Bancorp, two large Berkshire holdings, should appear "better than ever" three years from now, while the ailing Citigroup Inc, which Berkshire does not own, would probably keep shrinking.

Bank of America Corp Chief Executive Kenneth Lewis, in a Wall Street Journal opinion piece on Monday, agreed that the vast majority of banks will survive. Berkshire has reported a small stake in Bank of America stock.

Buffett said he still expects Berkshire's derivatives contracts, whose value depends on where four stock indexes trade a decade and more from now, to be profitable. "Over 10 years", he said, "you will do considerably better owning a group of equities" than U.S. Treasuries.

Buffett also defended his imperfectly timed October opinion piece for The New York Times, where he said he was moving non-Berkshire holdings in his personal account to stocks. "I stand by the article," he said. "I just wish I had written it a few months later."

(Reporting by Jonathan Stempel; Additional reporting by Lilla Zuill; Editing by Lisa Von Ahn and John Wallace)