Warren Buffett doesn't see the "green shoots" Ben Bernanke and other bullish investors have spoken of in recent months. In fact, the billionaire investor believes the economic picture will grow darker before things improve.
"Everything I see about the economy is that we have had no bounce," Buffett told CNBC anchor Becky Quick in a
televised interview Wednesday. "There were a lot of excesses to be wrung out and that process is still under way, and it looks to me that it will be under way for quite awhile. In the annual report, I said that the economy would be in shambles this year and probably well beyond, and I think that is true."
From our vantage point, the nearly $1 trillion in outstanding U.S. credit-card debt could be the next major crisis to roil the economy... Losses on U.S. credit cards rose above 10% of the total loans outstanding in May – a new high in the 20-year history of the Moody's Credit Card Index, and the sixth-consecutive monthly record.
The mounting losses are forcing banks to bail out off-balance-sheet entities they use to package hundreds of billions of dollars of credit-card loans into securities. The total losses are very hard to estimate and most likely exceeds earlier estimates.
Citigroup (NYSE:C),
Bank of America (NYSE:BAC),
JPMorgan Chase (NYSE:JPM), and
American Express (NYSE:AXP, and jumped up 6.6% in price on 06/25) all pumped billions of dollars into these securitization pools... The firms aren't obligated to support these pools when big losses hit, but they want to ensure investors continue buying these securities.
The worst-case scenario is if credit-card losses rise to a point where banks are forced to repay bondholders early... There is no possible way the banks could afford this payout without massive government loans.
Credit-card defaults and unemployment are highly correlated (see the chart published in today's
Wall Street Journal below). People have a difficult time paying bills without a job – which is why the government is focusing so much attention on creating jobs... that and the fact that the public loves job creation.
Thursday's surprise announcement from the Labor Department shows unemployment is still rising.
