Warren Buffett: The U.S. Economy in Ruins in 2009 and Beyond

The renowned American investor, billionaire Warren Buffett, nicknamed the “Oracle of Omaha,” predicted on Saturday that the U.S. economy would be “in ruins during 2009,” and likely “well beyond that.”

In his annual letter to shareholders of his holding company Berkshire Hathaway Inc., Buffett informed them of a decline in Berkshire’s market value by $11.5 billion in 2008, based on a 9.6 percent drop in the book value of the stock, marking the worst performance in 44 years of leading the company, and only the second decline in that period, reported the business magazine Fortune.

The first decline of 6.2 percent was recorded in 2001, the year of the September 11 terrorist attacks on the U.S., and other issues with Berkshire’s insurance operations. In the letter, Buffett assessed that the credit crisis and the decline in real estate and stock values led to a “paralyzing fear in the market.”

Changes in book value are the usual way Buffett reports on the holding’s results, as this method includes all capital gains and losses of Berkshire, regardless of whether they are realized or not, emphasizes Fortune. According to a more conventional earnings measure, which does not reflect unrealized gains or losses, Berkshire reported earnings of $3,224 per share for 2008, compared to $8,548 in 2007.

Berkshire’s earnings primarily come from interest and dividends from its investments, as well as the earnings of its 700 subsidiaries. Berkshire has significant stakes in two industries whose earnings are not closely tied to those in the general economy – insurance and utilities.

The total pre-tax earnings from all of Berkshire’s businesses (excluding insurance) reflect the poor performance of many of Berkshire’s operations affected by the economic downturn, including real estate and retail businesses. Berkshire’s stock (BRKA, Fortune 500) fell from $142,000 at the end of 2007 to $96,600 a year later, and the decline continued into 2009, with trading on the New York Stock Exchange – NYSE, closing at $78,600 on Friday. Compared to the peak of $151,000, which it reached at the end of 2007, Berkshire’s stock has lost 48 percent of its value so far. (Hina)