Archived material Access restricted Article
Rantburg

Today's Front Page   View All of Sat 02/28/2009 View Fri 02/27/2009 View Thu 02/26/2009 View Wed 02/25/2009 View Tue 02/24/2009 View Mon 02/23/2009 View Sun 02/22/2009
1
2009-02-28 Home Front Economy
Berkshire Profit Plunges 96% on Stock Market Bets
Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.
Posted by Fred 2009-02-28 10:38|| || Front Page|| [11132 views ]  Top

#1 From Buffett's 2002 report "I view derivatives as time bombs, both for the parties that deal in them and the economic system." Warren must have crossed the red & black wires when he assembled this one.
Posted by Anguper Hupomosing9418 2009-02-28 13:44||   2009-02-28 13:44|| Front Page Top

#2 Warren must have crossed the red & black wires when he assembled this one.

*Ouch*, that's gonna leave a mark. Well done!
Posted by Ricky bin Ricardo (Abu Babaloo) 2009-02-28 13:47||   2009-02-28 13:47|| Front Page Top

#3 Lucky for him he's such a young man with many years ahead of him to recover.
Posted by Besoeker 2009-02-28 14:22||   2009-02-28 14:22|| Front Page Top

#4 Buffett can make mistakes. And his politics suck.
Posted by OldSpook 2009-02-28 16:30||   2009-02-28 16:30|| Front Page Top

#5 Fourth-quarter net income fell 96 percent to $117 million, or $76 a share, from $2.95 billion, or $1,904 a share, in the same period a year earlier

In other words, they still made a profit and are retaining their original capital which is something a number of other venerable institutions can't claim.
Posted by Procopius2k 2009-02-28 16:49||   2009-02-28 16:49|| Front Page Top

#6 retaining their original capital

Not sure what you meant by that but BH is a holding company and they have lost substantial capital as shares they own have fallen.

BTW, the article alludes to very long options BH sold and which represent a huge future (potential) liability.

Only time will tell, but they will either be seen a slamdunk surefire bet or incredibly reckless.
Posted by phil_b 2009-02-28 17:18||   2009-02-28 17:18|| Front Page Top

#7 Further proof that Buffet is better at making money by owning insurance companies (the core of his company - Now you know why his politics suck) than he is by trading stocks.
Posted by Mike N. 2009-02-28 17:40||   2009-02-28 17:40|| Front Page Top

#8 From Buffet's Letter to Shareholders

“there’s another less pleasant reality: During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt… Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.”
Posted by Skunky Glins 5***">Skunky Glins 5***  2009-02-28 19:09||   2009-02-28 19:09|| Front Page Top

#9 I believe Buffett wrote plain vanilla put options on various world equity indexes. The problem for him is if we end up with a Japan-like scenario (where equities fell 80% over 19 years). Depending on the size of these positions, Berkshire could lose its shirt and then some.

This year's report will include the fuller description that Buffett promised U.S. regulators he would provide about how Berkshire values its derivatives contracts.

Many involve put options that are tied to where the Standard & Poor's 500 and three other stock indexes are trading starting in 2019.
Posted by Zhang Fei 2009-02-28 21:38|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com]  2009-02-28 21:38|| Front Page Top

#10 Notional value is $35.5b. If the indexes fall in half as of 2019, Berkshire is on the hook for $18b.

Berkshire’s derivative contracts were sold to undisclosed buyers for $4.85 billion. Under the agreements, Berkshire must pay out if, on specific dates starting in 2019, four market indexes are below the point where they were when he made the agreements. In the meantime, Berkshire can invest the cash. Buffett has been buying preferred shares and debt of companies including General Electric Co. and Harley-Davidson Inc. to lock in yields as high as 15 percent.

The indexes, which include the S&P and three others Buffett hasn’t identified, would all have to fall to zero for Berkshire to be liable for the entire $35.5 billion that’s at risk.

The liabilities on the derivatives -- those expected to have affected book value in the fourth quarter -- are accounting losses that reflect the falling value of the stock indexes, not cash that Berkshire has paid out.

“There’s the potential for significant losses on that position,” said Bill Bergman, an analyst with Morningstar Inc. who gives Berkshire five stars, his firm’s highest rating. “But this is what they do. They’re in the risk absorption business, and in the long term it’s hard to see how there are going to be significant losses in 2019 or later.”
Posted by Zhang Fei 2009-02-28 22:18|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com]  2009-02-28 22:18|| Front Page Top

23:58 49 Pan
23:07 Pappy
23:00 whatadeal
22:57 Pappy
22:51 whatadeal
22:48 Pappy
22:41 Pappy
22:25 Procopius2k
22:24 Procopius2k
22:18 Zhang Fei
22:18 Ming the Merciless
22:09 phil_b
21:40 Rex Mundi
21:38 Zhang Fei
21:33 crosspatch
21:00 3dc
20:36 ed
20:27 lotp
20:21 rabid whitetail
19:55 Glenmore
19:45 Nimble Spemble
19:42 Rambler in Virginia
19:36 Eohippus Glugum8056
19:15 Large Snerong7311









Paypal:
Google
Search WWW Search rantburg.com