Buffett says economy is in shambles, but still likes stocks

Speaking on CNBC before his annual charity lunch, Berkshire Hathaway (BRK.A, BRK.B) CEO Warren Buffett talked down speculation of an economic recovery.

"Everything that I see about the economy is that we've had no bounce... in terms of the economy coming back, it takes a while." Although Buffett said that measures taken in the fall of 2008 to stabilize the financial system had worked, the stimulus efforts had not made an immediate difference. He said that weak demand still existed across all business areas he receives data on, including retail, manufacturing, and even electricity.

As speculation is rising over whether or not Federal Reserve Chairman Ben Bernanke will be reappointed, Buffett weighed in, praising his actions overall. "I don't see how you could do better" than Bernanke's decisive actions in a time of great crisis, he added, and extended his approval to former Treasury Secretary Hank Paulson and current Treasury Secretary Tim Geithner. Paulson has been widely criticized for his handling of the TARP program, and for forcing banks -- including Wells Fargo (WFC), which Buffett owns -- to take government capital and issue warrants. Wells Fargo has not returned TARP funds yet, and although Buffett is somewhat disappointed by its forced issuance of warrants, he believes Wells will do fine over time.

Deflation is not a concern for Buffett and he granted that monetary policy may be setting the scene for inflation down the road. Today, the Federal Reserve voted to leave the Fed Funds rate in a range from 0% to 0.25%, citing significant slack in the economy, which the Fed anticipates will reduce inflation pressures for some time.

Between the potential for inflation and the current valuation of the stock market, Buffett said that he favored buying equities as opposed to fixed income on a ten year time horizon. Those holding money markets or other fixed income assets, may believe their money is safe, when in fact they risk seeing inflation eat away at most or all of their returns, he said.

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