Author Topic: Is Berkshire Hathaway Under Attack?  (Read 7049 times)

ericopoly

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Re: Is Berkshire Hathaway Under Attack?
« Reply #20 on: February 26, 2009, 07:04:49 PM »
Just to clarify, WFC is trading, even today at close, under book value.  Paying less than book value for 18-20% returns on book value.

They generate 18-20% ROE.  They have best-in-show management.  Best-in-show net interest margins.

Can Buffett toss that much cash at any of his in-house businesses and hope to get 18-20%?  I think they were muttering something about 13% in the past.  So, screw that when you can get 18-20%.

Just shovel a huge chunk in.  And 18-20% is a hell of a lot better than a 50 cent dollar.

Anyways, not saying I'm right or anything, just my forceful opinion, and nothing more.


arbitragr

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Re: Is Berkshire Hathaway Under Attack?
« Reply #21 on: February 27, 2009, 12:44:22 PM »
the author clearly hasn't even done any research on BRK's equity put sales.  He is very confused because:

1) he doesn't apparently understand that these are European-style put options (exercisable only on the day of expiry) vs. American-style put options (exercisable anytime they are in the money).  Since the expiry of these equity-index puts is more than a decade away -- short-term movements in the indices shouldn't be a cause for concern.

2) he keeps insinuating that BRK/Buffett is facing margin calls when Buffett has been explicit on these particular put options.  The 10-Qs explicitly state that BRK does not have to post collateral against these puts even if Berkshire Hathaway is downgraded and loses its AAA rating.

The article and author can be ignored.

wabuffo


Although I have long term faith in BRK, I do have concerns about the derivative contracts. Of course they are European contracts, which begs the question why BRK has made some small loss payments upfront of $56 million and $91 million in late 2008??
I wouldn't be suprised if they were margin calls, albeit small ... as any sort of long term contractual position like that would probably require some form of margin maintenance to keep the contracts in good faith - much like a futures contract. Maintaining margin vs. exercising option rights are not the same thing.
It is not completely black and white.
 ???
« Last Edit: February 27, 2009, 12:48:15 PM by arbitragr »
"worry top down, invest bottom up ..."

zarley

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Re: Is Berkshire Hathaway Under Attack?
« Reply #22 on: February 27, 2009, 01:08:24 PM »
Although I have long term faith in BRK, I do have concerns about the derivative contracts. Of course they are European contracts, which begs the question why BRK has made some small loss payments upfront of $56 million and $91 million in late 2008??  I wouldn't be suprised if they were margin calls, albeit small ... as any sort of long term contractual position like that would probably require some form of margin maintenance to keep the contracts in good faith - much like a futures contract. Maintaining margin vs. exercising option rights are not the same thing.  It is not completely black and white.

Arbitragr, I haven't read anything about those loss payments you mention.  Do you have a link to something describing them, or giving them context?

As of the Nov. 7th quarterly report, BRK hadn't needed to post any collateral for the puts.

zarley

arbitragr

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Re: Is Berkshire Hathaway Under Attack?
« Reply #23 on: February 27, 2009, 01:16:27 PM »
Although I have long term faith in BRK, I do have concerns about the derivative contracts. Of course they are European contracts, which begs the question why BRK has made some small loss payments upfront of $56 million and $91 million in late 2008??  I wouldn't be suprised if they were margin calls, albeit small ... as any sort of long term contractual position like that would probably require some form of margin maintenance to keep the contracts in good faith - much like a futures contract. Maintaining margin vs. exercising option rights are not the same thing.  It is not completely black and white.

Arbitragr, I haven't read anything about those loss payments you mention.  Do you have a link to something describing them, or giving them context?

As of the Nov. 7th quarterly report, BRK hadn't needed to post any collateral for the puts.

zarley

Hi Zarely,

See p. 24 of Berkshire's Q3 2008 10Q, about 5 paragraphs down:

The estimated fair value of credit default contracts at September 30, 2008 was $2,525 million, an increase of $687
million from December 31, 2007. The increase included fair value pre-tax losses of $478 million and premiums from
contracts entered into in 2008 of $265 million, partially offset by loss payments of $56 million. Berkshire made additional
loss payments of approximately $91 million in October 2008.
The estimated fair value of equity index put option contracts
at September 30, 2008 was $6,725 million, an increase of approximately $2.1 billion from December 31, 2007. The
increase was primarily due to fair value pre-tax losses of $1,731 million as well as $383 million in premiums from new
contracts entered into in 2008.


My only hope is that the Q4 result won't have any negative and nasty suprises on the derivative front.

I trust Warren.




« Last Edit: February 27, 2009, 01:19:23 PM by arbitragr »
"worry top down, invest bottom up ..."

zarley

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Re: Is Berkshire Hathaway Under Attack?
« Reply #24 on: February 27, 2009, 01:41:47 PM »
See p. 24 of Berkshire's Q3 2008 10Q, about 5 paragraphs down:

The estimated fair value of credit default contracts at September 30, 2008 was $2,525 million, an increase of $687
million from December 31, 2007. The increase included fair value pre-tax losses of $478 million and premiums from
contracts entered into in 2008 of $265 million, partially offset by loss payments of $56 million. Berkshire made additional
loss payments of approximately $91 million in October 2008.
  The estimated fair value of equity index put option contracts at September 30, 2008 was $6,725 million, an increase of approximately $2.1 billion from December 31, 2007. The increase was primarily due to fair value pre-tax losses of $1,731 million as well as $383 million in premiums from new contracts entered into in 2008.


My only hope is that the Q4 result won't have any negative and nasty suprises on the derivative front.

I trust Warren.

Ah, I see.  Thanks.  That's referring to payments on CDS, not the market puts.  Maybe a hairsplitting distinction, but I was simply thinking of the puts and was confused about the possibility of making current payouts on those.  Paying small amounts on CDS makes more sense.

I'm looking forward to WEB's discussion of the derivatives contracts in the annual letter.  I'll be enjoying it with my coffee in the morning.   ;)

arbitragr

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Re: Is Berkshire Hathaway Under Attack?
« Reply #25 on: February 27, 2009, 01:59:41 PM »
Yeah sorry.
I got confused between CDS vs. puts.
"worry top down, invest bottom up ..."

ubuy2wron

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Re: Is Berkshire Hathaway Under Attack?
« Reply #26 on: March 04, 2009, 10:20:15 AM »
I have just finished reading Patrick Byrnes latest post in Deep Capture and I think that BRK is under a bear raid however I believe the real target is GE and BRK is just a little side bet. I never liked how GE managed their earnings however I believe that GE at under 4 times trailing earnings is pretty frickin compelling managed earnings or not!!!!