Author Topic: Buffett/Berkshire - general news  (Read 522184 times)

longinvestor

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Re: Buffett/Berkshire - general news
« Reply #1320 on: September 06, 2019, 12:59:17 PM »
Yes -
¥108,500,000,000 0.170% Senior Notes due 2024
¥61,000,000,000 0.270% Senior Notes due 2026
¥146,500,000,000 0.440% Senior Notes due 2029
¥19,000,000,000 0.787% Senior Notes due 2034
¥59,000,000,000 0.965% Senior Notes due 2039
¥36,000,000,000 1.108% Senior Notes due 2049


Berkshire Yen notes offering (~$4 Billion USD)
https://www.sec.gov/Archives/edgar/data/1067983/000119312519239290/d779071dfwp.htm

Am I reading that right; they'll pay less than 1% on average annually for those notes?
More gifts for the successor.


Cigarbutt

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Re: Buffett/Berkshire - general news
« Reply #1321 on: September 06, 2019, 03:00:35 PM »
Yes -
¥108,500,000,000 0.170% Senior Notes due 2024
¥61,000,000,000 0.270% Senior Notes due 2026
¥146,500,000,000 0.440% Senior Notes due 2029
¥19,000,000,000 0.787% Senior Notes due 2034
¥59,000,000,000 0.965% Senior Notes due 2039
¥36,000,000,000 1.108% Senior Notes due 2049
Berkshire Yen notes offering (~$4 Billion USD)
https://www.sec.gov/Archives/edgar/data/1067983/000119312519239290/d779071dfwp.htm
Am I reading that right; they'll pay less than 1% on average annually for those notes?
Fascinating. 2-sided question:
1-Why is he doing this?
2-Who is buying this and why?

2-I understand that the demand was higher than expected and that helped with size and yield and the offer may target Japanese domestic investors who are very thirsty for yield. It appears that many Japanese banks and other institutions are ready to buy anything with a yield superior (even if barely) to risk-free rates. It appears also that international investors who are exposed to domestic positive investment-grade yields (with the US among the last standing) can synthetically derive a positive return because of the negative hedging costs.
https://www.bloomberg.com/news/articles/2019-09-03/japan-s-small-banks-load-up-on-risk-as-they-fight-to-survive?srnd=markets-vp
https://www.schroders.com/en/lu/professional-investor/insights/markets/six-reasons-why-it-can-make-sense-to-buy-a-bond-with-a-negative-yield/

1-About 15 years ago, Mr. Buffett was bearish on the USD and actually built financial positions as a hedge. The debt issue may be to hedge Japanese assets to be but that would be a break from decades of investments. The low rates may simply be too enticing. I assume the funds resulting from the issue will translated into USD and I wonder if Mr. Buffett does not expect extra return from currency movement as this appears to be an unhegded (or naked...) bet.

randomep

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Re: Buffett/Berkshire - general news
« Reply #1322 on: September 07, 2019, 05:34:23 PM »
Yes -
¥108,500,000,000 0.170% Senior Notes due 2024
¥61,000,000,000 0.270% Senior Notes due 2026
¥146,500,000,000 0.440% Senior Notes due 2029
¥19,000,000,000 0.787% Senior Notes due 2034
¥59,000,000,000 0.965% Senior Notes due 2039
¥36,000,000,000 1.108% Senior Notes due 2049
Berkshire Yen notes offering (~$4 Billion USD)
https://www.sec.gov/Archives/edgar/data/1067983/000119312519239290/d779071dfwp.htm
Am I reading that right; they'll pay less than 1% on average annually for those notes?
Fascinating. 2-sided question:
1-Why is he doing this?
2-Who is buying this and why?

2-I understand that the demand was higher than expected and that helped with size and yield and the offer may target Japanese domestic investors who are very thirsty for yield. It appears that many Japanese banks and other institutions are ready to buy anything with a yield superior (even if barely) to risk-free rates. It appears also that international investors who are exposed to domestic positive investment-grade yields (with the US among the last standing) can synthetically derive a positive return because of the negative hedging costs.
https://www.bloomberg.com/news/articles/2019-09-03/japan-s-small-banks-load-up-on-risk-as-they-fight-to-survive?srnd=markets-vp
https://www.schroders.com/en/lu/professional-investor/insights/markets/six-reasons-why-it-can-make-sense-to-buy-a-bond-with-a-negative-yield/

1-About 15 years ago, Mr. Buffett was bearish on the USD and actually built financial positions as a hedge. The debt issue may be to hedge Japanese assets to be but that would be a break from decades of investments. The low rates may simply be too enticing. I assume the funds resulting from the issue will translated into USD and I wonder if Mr. Buffett does not expect extra return from currency movement as this appears to be an unhegded (or naked...) bet.

Ya I also wanted to ask, has he ever acquired large foreign currency positions?  This is just bizarre, he has no need for Yen, so what will he do with it?   Hedge doesn't make a lot of sense either. He is in the business of earning US dollars.  A bet? Maybe, but how much profit can he expect?  Could the most plausible explanation be that he is hoarding Yen to ultimately buy Japanese companies?


DooDiligence

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Re: Buffett/Berkshire - general news
« Reply #1323 on: September 07, 2019, 06:51:56 PM »
I Googled "warren buffett buy japanese company" and came up with some interesting old & new articles.

IDK enough about SoftBank to say, but this Forbes article speaks about Masa's attempt to buy Swiss RE
and it made me think that he prob wouldn't mind being a part of Berkshires universe.

https://www.forbes.com/sites/williampesek/2019/03/26/move-over-warren-buffett-for-this-200-billion-man-from-japan/#4fe2e8702107

---

This one wraps a hand full of icons together as a comparison to Masa,

https://www.institutionalinvestor.com/article/b14z9v4ccf7q2z/buying-warren-buffett-richard-branson-and-steve-jobs-at-a-discount

---

and this one kind of throws shade on Masa's sun,

https://www.asiatimes.com/2019/08/article/is-japans-warren-buffett-losing-his-mojo/

---

Then a Goole search of "warren buffett masa son" turned this up, where Masa tried to put the arm on WEB & Malone,

https://www.wsj.com/articles/sprint-executives-have-engaged-warren-buffett-about-investment-1500055560

Could WEB have fallen under Masa Sons spell?

Not quite sure how I'd feel about that.

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Cigarbutt

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Re: Buffett/Berkshire - general news
« Reply #1324 on: September 07, 2019, 10:31:28 PM »
Yes -
¥108,500,000,000 0.170% Senior Notes due 2024
¥61,000,000,000 0.270% Senior Notes due 2026
¥146,500,000,000 0.440% Senior Notes due 2029
¥19,000,000,000 0.787% Senior Notes due 2034
¥59,000,000,000 0.965% Senior Notes due 2039
¥36,000,000,000 1.108% Senior Notes due 2049
Berkshire Yen notes offering (~$4 Billion USD)
https://www.sec.gov/Archives/edgar/data/1067983/000119312519239290/d779071dfwp.htm
Am I reading that right; they'll pay less than 1% on average annually for those notes?
Fascinating. 2-sided question:
1-Why is he doing this?
2-Who is buying this and why?
...
1-About 15 years ago, Mr. Buffett was bearish on the USD and actually built financial positions as a hedge. The debt issue may be to hedge Japanese assets to be but that would be a break from decades of investments. The low rates may simply be too enticing. I assume the funds resulting from the issue will translated into USD and I wonder if Mr. Buffett does not expect extra return from currency movement as this appears to be an unhegded (or naked...) bet.
Ya I also wanted to ask, has he ever acquired large foreign currency positions?  This is just bizarre, he has no need for Yen, so what will he do with it?   Hedge doesn't make a lot of sense either. He is in the business of earning US dollars.  A bet? Maybe, but how much profit can he expect?  Could the most plausible explanation be that he is hoarding Yen to ultimately buy Japanese companies?
In 2015, 2016 and 2017, Mr. Buffett ‘built’ what I think is basically an unhedged Euro debt position. I guess the proceeds were physically converted and the result has been a net exposure to the Euro relative value. Results from periodic revaluations or “remeasurements” of the liability (non-cash): 45M loss after-tax in 2015, 264M pre-tax gain in 2016, 990M pre-tax loss in 2017, 366M pre-tax gain in 2018 and as of now about 300M pre-tax gain in 2019. Mr. Buffett seems to intend on building further European debt (Euro and pound). So, the jury is still out. Looking at note 17 of the 2018 annual report, one can see that this periodic revaluation, which was favorable during that year, reduced the carrying value of the debt translated in USD. With a weighted average interest rate of 1.1%, this looks strangely like a modern Danish mortgage. Perhaps not obvious to the creditor but the debtor may hope to continue to pay this sliver of interest and the progressively lower carrying amount in USD may mean, on a net basis, a negative interest rate. (!)

I wonder if the same applies for the recent Yen issue. I assume that the proceeds will be physically converted to USD. If the intent is to buy Japanese companies, building a Yen cash position now IMO makes little sense (unless Mr. Buffett finds a specific out of favor or temporarily injured candidate) because 'real' bargains coming to the market in Japan are likely to be related to an environment where the Yen will depreciate, perhaps significantly, especially against the Master currency.

In the end, this is all speculation because Mr. Buffett plays his cards close to the vest and probably does not want to be labeled as an opportunist speculator but, in the early 2000’s, he used foreign currency forward contracts to make money on the expected depreciation of the USD against some specific currencies. Later on, he even ‘bet’ on the Brazilian real, an act IMO difficult to reconcile with the official message of fundamental analysis of specific stocks.
https://www.forbes.com/forbes/2005/0110/036.html#91c32e3677c0
https://archive.fortune.com/2008/02/29/news/international/buffett_dollar.fortune/index.htm?postversion=2008022916

In the early 2000’s, the message was: the trade deficit is unsustainable and the relative value of the dollar will go down. The message now: the trade deficit is unsustainable and it’s time to load up on foreign currencies on the liability side. The ironic thing is that I think he is likely to make money on the two occasions and then some say this is easy.

@DooDiligence
Mr. Son is a complex person but I don’t think there would be a symbiosis as Mr. Son has been reported to have said: “I ask investors to trust my instincts. The premonition that something will work bubbles up inside me” and “For startups, cash flow is less important than leadership and a stellar business model. You have to feel it, like in ‘Star Wars’—feel the force.”
Can you feel the Force?
« Last Edit: September 07, 2019, 10:41:38 PM by Cigarbutt »

SHDL

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Re: Buffett/Berkshire - general news
« Reply #1325 on: September 07, 2019, 10:44:01 PM »
There are apparently a good number of small, private, niche, but very profitable manufacturers over there that few people seem to know about.  My best guess would be that he has his eyes on those.

I really hope he doesn’t buy SoftBank or put money into a Vision Fund. 

gfp

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Re: Buffett/Berkshire - general news
« Reply #1326 on: September 08, 2019, 05:31:07 AM »
Warren is not the type to borrow in advance of a hoped-for acquisition in a particular country.  If he wants to borrow to fund a portion of any future deal in any country, there is plenty of time between signing and closing a deal to do so.  He has commented on several occasions that he evaluates acquisitions on an un-levered basis, since any debt he would employ to juice the potential returns on a prospective deal is really just using the general leverage available to Berkshire and not logical to mentally assign to a particular acquisition.  Despite this, he did chose to borrow a portion of the BNSF cash consideration.

When looking for an explanation for the Euro, UK and Japanese debt offerings I really do think you only need to look at the interest rates on those bonds and what he perceives as a low risk of large adverse currency losses over the life of the notes.  Unless he wants to generally inch up Berkshire's general leverage (which he very well may wish to do - or just keep it more or less constant over time with retained earnings factored in), he may elect to have some of the USD notes mature without being rolled over. 

None of it is really material to Berkshire at these numbers and I have long said that a big part of his motivation to dabble in these offerings is his desire to raise Berkshire's profile in the business communities in these countries he would be thrilled to be offered more wholly owned businesses in.  That and his life-long fascination with negative cost leverage (or capital with a reasonable expectation of near-zero cost).  Did he have to offer the SQUARZ?  No, it was Warren messing around.  Did he have to sell billions in premium of index puts and deal with the mark to market fluctuations?  No, it was Warren dabbling and proving a point (that he looks to have proven with a combined ratio of near zero on the billions in premiums).

Apple, Proctor & Gamble and others borrowed in Yen recently and nobody speculates that they are imminently announcing a deal for a Japanese acquisition.  Investment Bankers are out there actively pitching this idea and the cost of borrowing is the primary attraction.  BRK just put out 5 year paper at 17 basis points before the tax deduction.  10 year paper at 44 basis points.  Interesting times

Spekulatius

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Re: Buffett/Berkshire - general news
« Reply #1327 on: September 08, 2019, 06:38:25 AM »
I don’t think he raises Yen denominated debt because he has a deal in mind for a Japanese business. I think it is  just one way for him to raise very cheap debt. He could even hedge out the currency risk, if he wanted to, but he doesn’t care about Market to market fluctuations, so he probably won’t. I don’t think the Yen is currently very undervalued relative to the USD either.


Companies like PG have some business in Japan somit makes sense for them to raise some Yen denominated debt as a Natural currency hedge, somit speak. I don’t think this is the case with BRK though.
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roberts1001

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Re: Buffett/Berkshire - general news
« Reply #1328 on: September 08, 2019, 01:06:54 PM »
Could someone please help me understand the Japanese notes?  I have a couple of questions:
1.  Am I correct that if Buffett wishes to convert the $4 billion in yen that he has borrowed into US dollars, he can buy USD on the foreign exchange market while selling yen?  If so, while the contract is open doesn't he earn about 2% in interest on the USD bought and pay about negative 0.1% interest on the yen sold? Or do I have that backwards?
2.  Why issue notes in Japan instead of Switzerland where interest rates are lower?

Thank you for your help.

wachtwoord

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Re: Buffett/Berkshire - general news
« Reply #1329 on: September 08, 2019, 01:37:44 PM »
1. Looks like it
2. Yen is much weaker than CHF. Also there's likely more demand for these.
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