US econ­omy bet­ter than pres­i­den­tial hope­fuls say–Buf­fett

Business Mirror - - THE WORLD -

OMAHA, Ne­braska—Bil­lion­aire in­vestor War­ren Buf­fett said on Satur­day that the na­tion’s econ­omy is in bet­ter shape than the pres­i­den­tial can­di­dates make it seem, though busi­nesses like his still face chal­lenges. In his an­nual let­ter to Berk­shire Hath­away share­hold­ers, Buf­fett didn’t name spe­cific can­di­dates or is­sues, but noted that the neg­a­tive drum­beat about the econ­omy, health­care re­form and in­come in­equal­ity may get vot­ers down about the fu­ture.

“It’s an elec­tion year, and can­di­dates can’t stop speak­ing about our coun­try’s prob­lems [which, of course, only they can solve],” wrote Buf­fett, who has en­dorsed Demo­cratic Hi l lar y Clin­ton. “That view is dead wrong: The ba­bies be­ing born in Amer­ica to­day are the luck­i­est crop in his­tory.”

Buf­fett struck an op­ti­mistic tone in the wide- rang­ing let­ter, which largely fo­cused on what con­trib­uted to his con­glom­er­ate’s $24- bil­lion profit last year and dis­cussed Berk­shire’s prospects for the fu­ture. The let­ter also touched on cli­mate change. Buf­fett de­fended the lend­ing prac­tices at its mo­bile home unit, Clay­ton Homes, and Berk­shire’s as­so­ci­a­tion with the 3G Cap­i­tal in­vest­ment firm. Clay­ton’s lend­ing prac­tices have been ques­tioned over the past year in sto­ries by The Seat­tle Times and The Cen­ter for Pub­lic In­tegrity that sug­gested the com­pany was us­ing preda­tory lend­ing prac­tices.

Buf­fett said Clay­ton fol­lows state and fed­eral regulation and re­tains own­er­ship of ev­ery mort­gage it fi­nances. He in­cluded a copy of a dis­clo­sure form Clay­ton uses to in­form cus­tomers about lend­ing op­tions.

Berk­shire teamed up with 3G Cap­i­tal to buy Kraft Foods and Heinz—and promptly an­nounced lay­offs at both firms.

Buf­fett said Berk­shire has al­ways craved ef­fi­ciency and tends to buy lean com­pa­nies, while 3G looks for in­vest­ments that need costs re­duced.

Ed­ward Jones an­a­lyst Jim Shana­han said on Satur­day the fact that Buf­fett de­voted space to de­fend­ing 3G and Clay­ton sug­gests he’s still hear­ing crit­i­cisms. Buf­fett has ad­dressed both top­ics at share­hold­ers meet­ings in the past.

The let­ter also noted that Berk­shire share­hold­ers will be asked this year to vote on a pro­posal re­quir­ing the com­pany to pre­pare a re­port on the threat cli­mate change poses for its in­sur­ance op­er­a­tion.

Buf­fett said it’s rea­son­able to worry about cli­mate change’s ef­fect on the world, but it shouldn’t hurt in­sur­ance com­pa­nies be­cause pol­icy prices are set an­nu­ally based on that year’s risks. “As a home­owner in a low-ly­ing area, you may wish to con­sider mov­ing,” Buf­fett said. “But when you are think­ing only as a share­holder of a ma­jor in­surer, cli­mate change should not be on your list of wor­ries.”

Buf­fett said change can cre­ate chal­lenges for Berk­shire. For in­stance, he said, its BNSF rail­road is cer­tain to haul less coal in the fu­ture and Geico in­sur­ance could be hurt by driver­less cars. He said Berk­shire’s busi­nesses will adapt just as the com­pany did when its orig­i­nal Berk­shire Hath­away tex­tile op­er­a­tion failed. He said Berk­shire has an ad­van­tage in that it can in­vest in a va­ri­ety of in­dus­tries through its sub­sidiaries, which agreed to 29 smaller ac­qui­si­tions worth $634 mil­lion last year. Buf­fett’s let­ter is one of the most well- read doc­u­ments in the busi­ness world each year be­cause of his suc­cess­ful track record and his knack for ex­plain­ing com­pli­cated sub­jects in sim­ple terms.

The 85- year- old Buf­fett has said he has no plans to re­tire, and he of­fered no new hints about his fu­ture in Satur­day’s let­ter— other than to joke about be­ing 100 years old when he an­nounce Geico’s lat­est suc­cesses.

Buf­fett said the book value of Berk­shire’s busi­nesses im­proved 6.4 per­cent last year, even as its stock price fell 12.5 per­cent. When div­i­dends are fac­tored in, the S&P 500 gained 1.4 per­cent by com­par­i­son.

Berk­shire Hath­away em­ploys more than 360,000 peo­ple at its eclec­tic mix of com­pa­nies, in­clud­ing in­sur­ance, util­i­ties, rail­road, man­u­fac­tur­ing and retail firms. Berk­shire also holds sig­nif­i­cant stakes in Coca- Cola, Wells Fargo, Amer­i­can Ex­press, IBM and other com­pa­nies.

AP/NATI HARNIK

BUF­FETT

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