Warren Buffett Losing Midas touch? Hey It's Buffett and Berkshire Bashing Time!

It just got to happen, yes?

Posted on GlobeAndMail.com

• Has Buffett lost his Midas touch?
  Berkshire not immune to recession; investors bail as stock falls 50 per cent in past year
  
  JONATHAN STEMPEL
  
  Reuters
  
  November 21, 2008
  
  NEW YORK -- Investors are wondering if Warren Buffett has lost his gift for the markets.
  
  They are bailing out of Berkshire Hathaway Inc. stock and have lost some confidence that the insurance and investment company, run by one of the world's most admired investors since 1965, can pay its debts.
  
  Berkshire stock has lost close to half its value since hitting a record high last December, as the company struggles with lower returns at its insurance businesses, the declining value of its stock holdings and paper losses on derivative contracts.
  
  Meanwhile, the cost of protecting Berkshire's triple-A-rated debt has soared to a level more befitting a triple-B or even a junk-rated company.
  
  Omaha-based Berkshire has nearly 80 businesses - from car insurance to carpeting, clothing, food, kitchen utensils and manufactured housing - and owns tens of billions of dollars of stock.
  
  Mr. Buffett's empire is diversified enough so that at any given moment many parts are unlikely to run on all cylinders.
  
  "Everything you're seeing that affects other companies is eventually going to catch up with Berkshire," said Vahan Janjigian, author of the 2008 book Even Buffett Isn't Perfect. "I'm not saying Berkshire is not well run, but that even well-run companies will be hit in a severe recession."
  
  Mr. Buffett, 78, was not available for comment.
  
  Berkshire class A shares fell as low as $74,100 a share yesterday, their lowest level since August, 2003, before rebounding slightly. That's down 51 per cent from their record $151,650 set last Dec. 11 and down 34 per cent since Berkshire said on Nov. 7 that lower insurance returns as well as investment losses led to a 77-per-cent drop in third-quarter profit, the fourth successive quarterly decline. Operating profit was down 18 per cent. Berkshire ended September with $33.37-billion in cash.
  
  "We're buying Berkshire like crazy. It was our largest position, and we have made it much larger in the last two weeks," said Whitney Tilson, managing partner at T2 Partners LLC, a hedge fund firm.
  
  "Investors are looking at the derivative exposure, seeing Berkshire marking losses, and it reminds them of AIG and other companies whose derivative exposures got them into trouble," he added. "They are coming to the insane conclusion that Berkshire faces similar risks." He referred to American International Group Inc., which got a $152-billion government bailout.
  
  The cost of protecting $10-million of Berkshire debt against default for five years rose to $490,000 annually yesterday from $294,000 a week ago and $31,000 at the start of 2008, according to financial information services company Markit.
  
  "We're in an unusual time," said Peter Schiff, editor of Schiff's Insurance Observer. "It's like comparing a person having trouble making mortgage payments with a billionaire. The financial crisis affects them, but not in the same way."
  
  Berkshire could have to pay as much as $37.04-billion between 2019 and 2027 under some derivative contracts if the Standard & Poor's 500 index and three other stock indexes are lower than when Berkshire entered the contracts. It obtained about $4.85-billion of premiums upfront.
  
  As of Sept. 30, Berkshire had written down $6.73-billion on the contracts, and losses have almost certainly mounted since then. In October alone, Berkshire shareholder equity fell $9-billion or 7.5 per cent.
  
  Mr. Buffett has said he expects the contracts to be profitable, distinguishing them from the "financial weapons of mass destruction" that he labelled other derivatives.
  
  Berkshire also ended September with $10.78-billion in potential liabilities tied to various credit events, such as junk bond defaults, up from $4.66-billion at year-end 2007.
  
  Moody's Investors Service said the global junk bond default rate could rise to 10.4 per cent by the end of 2009 from 2.8 per cent in October. With a typical junk bond yielding more than 20 per cent, new financing is essentially non-existent.
  
  "Based on his 50-year track record selling insurance, I have a great deal of confidence he is selling these at the right price," Mr. Tilson said. "The critical thing is he does not have to post cash collateral until there are actual defaults."
  
  A credit rating downgrade would likely not be material. Berkshire would have to post "nominal" additional collateral on derivatives of "far below 1 per cent of assets" if Berkshire lost its triple-A ratings, according to Jackie Wilson, Mr. Buffett's assistant. It was posting no such collateral as of Sept 30, when Berkshire assets totalled $281.7-billion.
  
  Berkshire has other exposures to falling markets.
  
  It ended September with $76-billion in stock investments, including multibillion-dollar stakes in American Express Co., Coca-Cola Co., ConocoPhillips Co., Procter & Gamble Co. and Wells Fargo & Co. Shares in all have fallen this quarter.
  
  And investors have shrugged off Berkshire's investment of $8-billion in General Electric Co. and Goldman Sachs Group Inc. preferred shares, with their 10-per-cent dividend yields. Shares of both have fallen, rendering Mr. Buffett's warrants to buy common shares worthless for the time being.
  
  Mr. Buffett has been out of step with the markets before. After missing the late 1990s tech bubble, he gave himself a "D" for capital allocation in 1999, when Berkshire's book value barely budged and the S&P 500, including dividends, rose 21 per cent. Berkshire fared better in six of the subsequent eight years.
  
  "Earnings of Berkshire's operating businesses will undoubtedly decline given the worldwide economic downturn," T2 Partners' Mr. Tilson said. "However, these businesses remain enormously profitable, and will almost certainly continue to be."
  
  Mr. Schiff, of the Insurance Observer, expects Mr. Buffett will actually find new opportunities to win business or make acquisitions, in part because many insurance rivals are scrambling for capital. Several are applying to become bank holding companies to be eligible for the government's $700-billion financial rescue.
  
  "When insurers lose capital, you're going to be more conservative with how much business you write," Mr. Schiff said. "Berkshire doesn't have this problem because its balance sheet is so strong. What they own may be worth less, but they get more opportunities to buy things at cheap prices."

Source: http://www.theglobeandmail.com/servlet/story/LAC.20081121.RBUFFETT21/TPStory/?query=Berkshire

And then there is Danger Will Robinson

Point number 3 is simply funny like hell!

• 3. When do stocks stop falling? When one of the big guys, preferably the bull’s poster boy Mr. Buffett, collapses. Buffett going down would be a signal for panic, which would lead to an eventual selling climax. He wasn’t predicting this, it was just his temperature gauge on what needs to happen for pain to subside. He did note Buffett’s derivative exposure.

Uncle Bufett is now a poster boy! ROFLMAO!

Buffett collapses???!!!!????

Ho ho ho ho!!

Btw.. just some 4 hours ago.. Berkshire stocks went up a small 16.1%

• After nine straight days of drops, Berkshire Hathaway bounced back with the rest of Wall Street today (Friday).
  
  Shares of Warren Buffett's holding company ended at $90,000 each, up $12,500 or 16.1 percent.
  
  It's the biggest one-day percentage gain for Berkshire since at least 1985, topping the stock's 14.8 percent rally on September 19.
  
  The stock surged in the last few minutes of trading, in what may have been a flurry of short-sellers covering their positions.
  
  Just two days ago, we were telling you about a 12 percent daily drop, Berkshire's worst day since 1987's Black Monday.
  
  The stock is still down just over 20 percent since November 7, when its losing streak was sparked by a disappointing (to some) third quarter earnings report.
  
  Today's gain widens Berkshire's year-to-date outperformance of the S&P, although it's still nothing to write home about. Berkshire is down 36.4% vs. the benchmark index's 45.4 percent drop.
  
  Berkshire's drop from its December, 2007 all-time closing high, which was close to 50 percent yesterday, has been cut to "only" 39.7 percent.
  
  In an interview with Fox Business Network today, Buffett said he wasn't worried about Berkshire's decline, pointing out that it's had three similar drops in the past. "I hope I live long enough so it happens a couple more times to me."

Source: http://www.cnbc.com/id/27846807