Recession Economics: Fresh & Easy Buzz Flashback - President-Elect Obama Talking Near $1 Trillion Stimulus Today

Recession Street USA - Strong Medicine For A Big Problem

Yesterday in this post about the economic recession [also see here], we wrote that U.S. President-elect Barack Obama and others will soon stop talking about implementing a "mere" $500-$600 million economic stimulus package when he takes office on January 20, 2009, and start talking about an economic stimulus package of about $1 trillion.

But we didn't think soon would actually mean just 24 hours after we wrote and published the post. But then that's "recession time" for you -- in such severe economic downturns everything seems to move faster, with the exception of the upward trend of the economy.

Today President-elect Obama, anxious to jolt the economy back to life, said he is considering a federal stimulus package that could reach a whopping $1 trillion, dwarfing last spring's tax rebates and rivaling drastic government actions in the 1930's to fight the great depression.

The latest figure "Team Obama" is considering appears to be about $850 million. However, since it was about $600 million just a day or two ago (remember we are on "recession time"), it could easily go from $850 million to $1 trillion between now and January 20, when President-elect Obama is sworn-in as the 44th President of the United States, particularly if the December unemployment figures, which come out in early January, 2009, are as bad as most think they will be.

We suggest you read the just breaking story from the Associated Press at the link below:

Obama looking at $850 billion jolt to the economy

Recession Economics: Follow-Up - U.S. Federal Reserve Drops Key Interest Rate to Near-Zero; What Next?

Breaking Follow-Up: Recession Street USA

Earlier today we wrote in this piece [ Recession Economics: U.S. Economy Worsens; Will Get Even Worse Before Gets Better] that it was likely the U.S. Federal Reserve would lower its benchmark lending rate sometime today to near zero.

The Fed has now done just that -- the U.S. Federal Reserve chopped its key target interest rate for overnight lending to a record low of about zero.

Beyond its slashing interest rates to just about zero, the Fed's campaign to save the U.S. economy involves an array of new economic measures to stimulate spending. [Read The Fed statement.]

The Fed also announced it would buy even more corporate debt and securities as part of its attempts to cure the financial crisis and economic recession. The stock market appears to like what the Fed is saying and doing as well, rising about 400 points on the news.

"We are going to do whatever we can, use all the tools we have, and do whatever it takes," Fed chairman Ben Bernanke said this afternoon in announcing the record interest rate reduction and further plans to buy up more debt and securities.

Read more at the links below:

Bloomberg: Fed Cuts Rate to as Low as Zero, Will Use All Tools.... Marketwatch.com: US stocks cheer as Fed cuts rates to record low....New York Times.... CNNMoney.com.... Reuters ....Forbes.

Recession Economics: U.S. Economy Worsens; Will Get Even Worse Before Gets Better

Recession Street USA.

The U.S. economy is going to get worse before it gets better, as we've been saying in Fresh & Easy Buzz for months. President-elect Barack Obama made this very same comment two weeks ago during a news conference in Chicago, Illinois.

Now, the U.S. government is reporting this morning that consumer prices fell the most on record in November and builders broke ground on the fewest new homes in half a century, signaling a deepening of the current U.S. recession.

You can read further at the following links:

Bloomberg: US Economy: Consumer Prices, Housing Starts Post Record Slide....Market Watch: Drop in consumer prices is most since 1932....Washington Post - New York Times - Reuters.

Meanwhile, it's suspected the U.S. Federal Reserve will today cut the key target interest rate for overnight lending, which is the benchmark rate, to near zero, 0.5%. [More here: Dollar Declines to Two-Month Low Before Fed’s Rate Decision]

In a news conference this morning, President-elect Barack Obama, asked about the Fed's likely decision to cut the key rate to near zero said: "It's not prudent for an incoming President to question the Fed's decision. What I will say though is the Federal Reserve is running out of ammunition to fight the recession (once at 0.5% all the Fed can do is lower the rate next to zero), which is why our economic stimulus plan when we take office becomes even more important," to implement. [Read more about the Obama plan here: Obama calls for broad strategy to fight recession.]

The U.S. dollar weakened beyond $1.38 per Euro for the first time in two months today amid the speculation the Fed will cut the target rate for overnight lending to near zero today.

That could offer a ray of hope for U.S. exporters. However, with the recession and financial crisis being global, demand for U.S. goods has dropped significantly, as has the demand for goods exported into the U.S. A bright spot though has been for agriculture exportation, particularly U.S. tree crops and some commodities.

If the Fed cuts the key rate today as expected, it will do little for both Wall-Street and Main Street, according to most economists, who say the current recession appears to be much more severe that can be managed by the Fed with its interest rate-cutting tool kit, which is almost empty.

Instead, everyone from Wall Street and Main Street, from corporate America to small business and consumers, is waiting for 'Obamanomics,' the huge economic stimulus package the President-elect wants to implement just days after taking office on January 20, 2009.

The stimulus amount seems to be growing by the day. Initial talk was something on the order of about $300 billion. That stimulus estimate was quickly pushed aside for suggestions it needs to be in at least the $500 billion range in order to have any impact on the going to hell in a handbasket U.S. economy.

In the last couple weeks, many in Washington, D.C., along with a number of economists, have started mentioning numbers like a one trillion dollar stimulus package. We suspect with today's worsening economic news, along with what's suspected to be even higher unemployment numbers for December, talk of a near-trillion dollar stimulus package will increase. in the days and weeks ahead.

Fresh & Easy Buzz Friday Essay: As Warren Buffet's Berkshire Hathaway Goes, So Goes America; But Like the Eternal Optimist Buffett is, 'Yes We Can'

It appears even America's smartest and wisest investor, Berkshire Hathaway, Inc. founder and Chairman, and major Tesco plc shareholder Warren Buffett, isn't immune from the United State's (and now the world's) worst financial crisis since the 1930's great depression and the stuck dead in the mud U.S. economy.

Berkshire Hathaway's third quarter operating earnings fell 19.3 percent to $1,335 a share from $1,655 a share in the same period the year before, the company reported today.

That's below the average forecast of $1429 from the two top analysts following the stock, as tracked by Thomson One Analytics.

Berkshire Hathaway owns a number of companies in the insurance industry, which is fairing about as badly as the financial services industry is in the current domestic and global financial crisis and recessionary economy.

Reflecting this industry reality, operating earnings for Berkshire Hathaway's insurance-underwriting activities took a big hit, falling to $81 million from $486 million in the year-ago quarter.

Overall, Berkshire Hathaway's net earnings plunged a whopping 77% to $1.06 billion ($682 per share) from $4.55 billion ($2942 per share.) A major factor behind these numbers are investment and derivative losses of $1.01 billion, compared to gains of $1.99 billion in last year's quarter.

Buffet said today though that last year's substantial derivative gains were do in large measure to Berkshire's year-ago period profitable sale of PetroChina stock.

The derivative portion of the gains and losses are on paper only. Buffett said the derivative contracts held by Berkshire will eventually be profitable, but right now they're losers, as they are for everybody who is holding them.

Berkshire Hathaway said today in a statement its net worth declined slightly to $120.15 billion over the first three quarters of the year. But it adds that net worth fell by roughly $9 billion in October amid all the carnage in the financial markets. That's not the kind of October surprise Warren Buffett, the "Oracle of Omaha" likes to receive.

[You can read additional, detailed information in Berkshire Hathaway's 10-Q filing for the quarter. You can read a press release issued today by Berkshire Hathaway at the link here: News Releases.]

Click on the links below for additional coverage of Berkshire Hathaway's 77% drop in third quarter earnings:

Associated Press: Berkshire reports 77 percent drop in 3Q earnings....Financial Times: Berkshire profit plunges 77%....MarketWatch.com: Berkshire quarterly net income falls 77%....Bloomberg: Berkshire Hathaway Profit Falls 77% to $1.06 Billion (Update2)....Reuters: Berkshire Hathaway profit tumbles 77 percent.

Warren Buffett holds about $1.4 billion in Tesco plc stock, which amounts to an approximate 3-4% ownership stake in the company, which is the third-largest food, grocery and general merchandise retailer in the world. United Kingdom-based Tesco owns and operates Fresh & Easy Neighborhood Market in the Western U.S.

Buffett is among the largest, if not the largest, single investors in Tesco.

Berkshire Hathaway's 77% third quarter earnings plunge demonstrates that not even one of the world's smartest, best and most prudent investors, Warren Buffett, is immune from the potentially negative investment results which are becoming a part of the most serious financial crisis in the U.S. since the great depression and recessionary economy gripping America and the world.

Unlike the investment banks that have now either been acquired for pennies on the dollar or have merely gone away, Buffett is a prudent investor. His Berkshire Hathaway, Inc. holding company owns "main street" companies, about 60 of them, including food and grocery industry sector companies like convenience store wholesaler McLane Company, candy maker and retailer See's Candies, and the International Dairy Queen, Inc. fast food chain.

Despite his practice of owning "main street" companies -- he also owns GEICO Auto Insurance, which is famous for its television commercials, the underwear and hosiery company Fruit of the Loom® and many others -- it is many of those "main street" companies that are hurting because of the bad economy.

For example, Berkshire Hathaway also owns a number of home building and related construction industry companies, a couple business services firms, additional insurance companies, furniture and jewelery retailers, and other main street-type companies that are seriously hurt when consumers have little money to spend and credit is super-tight. [Click here for a complete list of companies owned by Berkshire Hathaway.]

Warren Buffett was characteristically himself today though, despite Berkshire's Q-3 77% earnings drop. Still bullish on the stock market and optimistic about the future of the U.S. economy. Still looking to acquire new companies and get in on what he says are numerous great investments out there right now in companies that are seriously undervalued for the long term. And doing what he can to help the economy and country along.

In fact, Warren Buffett spent most of the day today in Chicago with U.S. President-elect Barack Obama, former chairman of the U.S. Federal Reserve Paul Volker, former U.S. Treasury Secretary (and current Chairman of Citicorp's executive committee) Robert Rubin, former head of Treasury and ex-president of Harvard University Larry Summers, and a group of other top Obama economic advisers, discussing and mapping out strategies to get the U.S. out of the current financial crisis and economic recession.

What Berkshire Hathaway's 77% drop in third quarter earnings should demonstrate to these policy makers giving advice to the new President-elect, and offer to those who don't think the U.S. is really in a historically severe financial and economic crisis situation, is to hammer home the urgency of the situation and the urgency of solving it.

After all, if a holding company, Berkshire Hathaway, owned and operated by a prudent, wise and historically successful investor, Warren Buffett, with arguably the best track record in the world, can experience such a dramatic drop in quarterly earnings, it means the financial crisis and economic meltdown has fully hit main street.

Things are unfortunately going to get a whole lot worse -- more firings and thus increased unemployment, continued tight credit, more business failings and more debt for taxpayers -- before they get better. This is especially true of unemployment, which is always a lagging indicator in a recession.

That's why it was good to watch President-elect Obama focus like a laser beam at his economic press conference in Chicago today, along with seeing Warren Buffett standing behind him with many other smart and good men and woman, Democrat, Republican and Independent.

President Franklin Delano Roosevelt (FDR) assembled what historians later came to call his "Brain Trust" to advise and help him pull the United States out of the great depression in the 1930's. FDR's "Brain Trust" included Democrats like himself and Republicans like the challenger he beat to win the Presidency of the United States.

We were pleased to see President-Elect Obama's version of his "Brain Trust" standing behind him at the press conference this afternoon. He's reached out and brought in some of the best and the brightest -- and is preparing well to hit the ground running in 74 days, when he becomes the 44th President of the United States.

Regardless if we share President-Elect Obama's politics completely or not, it would be wise to get behind him to solve the current financial crisis and recession. It's our (taxpayer's) money that will be used to do so after all, as already is the case with President Bush's $700 billion taxpayer-financed financial institutions bailout package.

Obama is approaching the economy in a much more serious and measured way though. And he is bringing in a bi-partisan group of experts, his version of FDR's "Brain Trust," to work on the economy.

It looks positive so far to us. He looks serious, calm and resolute. He isn't afraid to get advice from people who know more than he does. He is talking realistically about the nature of the problem but also is always optimistic, like Ronald Reagan was.

In the deepest hours of war and depression, FDR urged Americans not to fear. "Fear Nothing But Fear Itself," he said over and over in his characteristically optimistic way.

Barack Obama has been saying the same thing in his own way for two years during the long Presidential campaign -- just using different words: "Yes We Can." He offers optimism and hope for a better tomorrow, which is why he was elected in the main.

Like Ronald Reagan said often: "Hope and optimism are enduring American traits." Neither are a substitute for a good, well executed plan. But without hope and optimism it's hard to come up with such a plan or policy and get the American people to make it work. But of course..."Yes We Can."

Resources:

>Click here to read a selection of past stories about Warren Buffett from Fresh & Easy Buzz.

Business & the Economy: The Wisdom of Warren Buffett: On Innovators, Imitators and Idiots

Warren Buffett is many things -- the second-richest person in the world right behind his good friend Bill Gates, who's charitable foundation Buffett is giving most of his $40-plus billion fortune away to; the founder of Berkshire Hathaway, Inc., the largest corporate holding company on the planet with ownership in over 100 companies; the world's most able and humble investor; an advisor to Democratic Presidential candidate Barack Obama; and as he is called when it comes to all things economic and financial, the "Oracle of Omaha" (as in the Nebraska city where Berkshire Hathaway is based and where Buffett lives).

Warren Buffett also happens to be among the largest (if not the largest) individual investors in Tesco plc., the United Kingdom-based global food and general merchandise retailer that owns and operates Fresh & Easy Neighborhood Market in the U.S.

Buffett holds about $1.4 billion worth of Tesco stock, which amounts to a 3% -to- 4% total ownership stake in the company, which ha annual sales of $94,621 billion in its most recent fiscal year. Tesco is the world's third-largest retailer, after number two Carrefour Group of France and U.S-based Wal-Mart Stores, Inc, which is number one. Buffett also owns between $1.5 and $2 billion of Wal-Mart Stores, Inc. stock.

Despite the current U.S. and global financial crisis and what looks like a resulting economic recession, the "Oracle of Omaha" is bullish on corporate America, along with business in other parts of the free world and China.

Buffett, who prefers to dine at one of the many Berkshire Hathaway-owned International Dairy Queen fast-food restaurants in the U.S. rather than at a fancy white tablecloth restaurant when he is on the road, has been the go-too-guy for numerous heavy hitters during the current financial and credit crisis and banking industry meltdown in the U.S. and abroad.

For example, the "Oracle of Omaha" serves as one of Democratic Presidential candidate Barack Obama's, who he supports for President, chief economic advisers. Republican candidate for President John McCain has even consulted Warren Buffett on the financial crisis, even though he supports Senator Obama.

In fact, during the last Presidential debate, when asked by moderator Bob Schieffer of CBS News to offer a few names of who he might choose as his Treasury Secretary if elected President, McCain mentioned only one name -- Warren Buffett. When asked the same question by the longtime CBS newsman, Obama also mentioned only one name, Warren Buffett, making sure to add Buffett is a supporter of his and one of his key advisers on all topics and issues economic and financial.

Treasury Secretary Henry Paulson has talked with Buffett about the U.S. Government's $700 billion financial services industry bailout program, as have the CEO's of a number of banks and corporations, including Wells Fargo, Goldman Sachs, General Motors and General Electric, to name just a few.

Buffett also is mobbed by everyday citizens and investors whenever he goes, all asking him for investment advise in these troubling economic times.

The "Oracle of Omaha" also is playing a major part in the current financial crisis in the U.S. In just the last two months he has made a multi-billion dollar investment in ailing investment bank Goldman Sachs, a $3 billion investment in General Electric, which is hurting because it's GE Financial Services division is feeling the credit crisis meltdown, and in his role as the largest individual investor in San Francisco, California-based Wells Fargo Bank was a major force behind the bank's $12 billion acquisition earlier this month of Wachovia Bank, which happens to be the financial services and credit card services banker for Tesco's Fresh & Easy Neighborhood Market.

In his Practically Radical column in today's Harvard Business Review Online, contributor Bill Taylor has a piece about Warren Buffett based on a one hour interview and discussion the investor had earlier this month with Charlie Rose, who hosts the popular Charlie Rose interview program on PBS.

In the interview, as Taylor writes about in today's HBR-Online, Buffett offered a simple yet insightful theory on how the U.S. got into the current financial mess.

Bill Taylor writes: "Leave it to Warren Buffett, one of the world's richest men, to offer the most valuable advice on this score. In a recent hour-long television interview, Buffet gave a masterful course on how the world got into this financial mess."

Taylor further writes: "At one point, his interviewer (Charlie Rose) asked the question that is on all our minds: 'Should wise people have known better?' Of course, they should have, Buffett replied, but there's a 'natural progression' to how good new ideas go wrong. He called this progression the 'three Is.' First come the innovators, who see opportunities that others don't. Then come the imitators, who copy what the innovators have done. And then come the idiots, whose avarice undoes the very innovations they are trying to use to get rich.

Buffet is too polite of a man to name the "idiots." But we can all guess who they are.

Click here to read Bill Taylor's full column (plus there are some interesting reader comments) in which he discusses Buffett's theory and offers some analysis of his own.

You can view Warren Buffett's interview and discussion from the Charlie Rose program at this link.

We don't see Warren Buffett accepting an offer either from Senator Obama or Senator McCain to be the next U.S. Secretary of the Treasury. At 75-years of age Buffett wants to continue running Berkshire Hathaway (he is currently picking a successor) and involve himself in other endeavors. It's not that the "Oracle of Omaha" isn't a patriot. Far from it. Rather, he is far more valuable in a role such as key advisor to a President rather than being put in the nuts and bolts position of Treasury Secretary. It would be a bad fit for Buffett to be in a nuts and bolts position like Secretary of the Treasury.

Secretary of Commerce might be an interesting position for Buffett though, particularly in an Obama administration because he has a strong relationship with the Democratic candidate who he supports for President.

Commerce has always been more of a ceremonial position, although it is a full cabinet department.

However, Commerce Secretary's who have had strong relationships to a President like Buffett has with Obama (Don Evans, the first Commerce Secretary for President George W . Bush and his longtime friend, for example), can be extremely influential and successful. Since Secretary of Commerce is less nuts and bolts than Treasury Secretary, it also allows a man for all seasons like Warren Buffett to impact a much wider range of economic, business and consumer issues than he would be able to do as Obama's Treasury Secretary, for example.

In fact, Commerce is the perfect position for a cheerleader for American business, which Buffett is. Not only could Warren Buffett continue to advise a President Obama (or even a President McCain) on key economic and finance-related issues as Secretary of Commerce, he could travel the U.S. and the world -- which he does already -- talking with corporate CEO's, investors and government leaders on a daily basis.

Buffett also would be a major confidence builder for U.S. business and the economy both at home and abroad. Additionally, the "Oracle of Omaha" already has relationships globally with Presidents and corporate chief that not even Obama or McCain currently have. And Buffett is widely respected throughout the world.

We can't think of a better Secretary of Commerce -- and one who should be given very broad portfolio by any President he serves -- for these trying times than the "Oracle of Omaha," Warren Buffett.

He is a man who not only rides (metaphorically) in the real "Straight Talk Express," but also only knows straight talk. Buffett walks the straight talk walk rather than just talking it.

The next President could use a trusted advisor like that. So could the country. And we think Buffett might just accept Commerce Secretary -- but would be reluctant to accept Treasury for the reasons we mentioned earlier.

Resources:

>Click here for a selection of related stories about Warren Buffett and Tesco plc. previously published in Fresh & Easy Buzz.

>Click here to view the Web site for Buffett's Berkshire Hathaway, Inc. (Notice how Buffett extends his belief in frugality and simplicity to the design of the company Web site.)

>Click here for a list of companies owned by Berkshire Hathaway, Inc. The holding company owns a number of companies in the food and grocery space, including convenience store wholesaler Mclane Company, See's Candy Company, International Dairy Queen and The Pampered Chef.

>Click here for regularly-updated polls on the U.S. Presidential race between Democratic candidate Barack Obama and Republican candidate John McCain. The election is only seven days away, on November 4, 2008.