In the beginning, there was only pure puppy admiration for Warren Buffett, as in his annual letters to shareholders he made crazily candid, value-ridden, anti-hype statements, declaring at least once Berkshire Hathaway stock too richly valued, and that he himself wouldn't be a buyer at the time. He was an early (mid- to late-80's) critic of the USA's trade deficit, a dependable critic of financial derivatives, famously calling them weapons of mass financial destruction, and he plain made sense. He also made fun of the hedge fund business model right before its implosion that we are now witnessing. His annual letters are investing must-reads.
My opinion suffered a hit earlier this year, though, when Moody's reported a "computer glitch" had caused them to rate some CPDO derivatives AAA when they otherwise would not have. Funnily enough, S&P had already rated them as such, and Fitch had refused, leaving Moody's the last of the big three ratings agencies available to rate them. And many creditors wouldn't touch an instrument without the explicit blessing of at least two of the three agencies. How lucky for the issuers that this computer glitch came through in just the right way. Warren, a major shareholder in Moody's, boldly stated, “I would doubt very much that any events of any one day will permanently change the franchise value of Moody's." While strictly true, it sounded disingenuous at best, given their potential implication in this still-unfolding financial crisis, and that there exists a far better alternative to their debtor-paid, conflict-of-interest-ridden ratings agency business model. One glaring example of such is Egan-Jones, who are paid by creditors, and hence have the right financial interests by design.
Then there was the purchase of Goldman Sachs equity during the big turmoil of September. There were some internal reversals in my head over that, but they settled out in fine form. Goldman, the granddaddy of the hedgies, once fined for illegal naked shortselling, was now whining about shortsellers affecting its own stock price. Yes, based on the going stock price of $125, Berkshire's $115 price was a deal. Now, at $70, not so much. But my main problem was his glowing characterization of the company:
Goldman Sachs is an exceptional institution. It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.Kinda laying it on thick for my tastes, especially given his own previously-shared views about hedge funds and such. But wait; there's more: he also said he backed the $700B government bailout, and that the Goldman deal was an endorsement of such.
Slightly previously, Buffett had apparently made a similar offer to Lehman, which the inestimable Dick Fuld first solicited, then rejected. No doubt that woulda done even better than the Goldman deal has to date.
In October, Buffett swooped in to buy some GE stock at a then-bargain $22.25. That, for a financial black box that many suspect doesn't nearly deserve the AAA rating its CEO constantly has to remind the public it still has.
There's also the massive puts on the S&P500 index (from fuzzy recollection: need to verify) Berkshire wrote some years ago, which position is made financially tenable if the market manages to stay afloat somewhat. So one might say Buffett's talking the market up, and announcing he's a buyer, is actually a layered, derivative sort of book-talking. Not too terribly unlike one Bill "Bond King" Gross of PIMCO, also a supporter of gubmint as toxic waste buyer of last resort, ASAP.
Doug Kass, among others, has made a case for avoiding, or even shorting, Berkshire stock, going so far as to say, "Warren Buffett Has Lost His Groove."
Honestly, I dunno exactly what to think. Possibly Buffett deserves the benefit of the doubt, given his singular track record, and past straightforwardness, and history of being right, if early. But really, anyone else saying what he's said this year would be right up there by Ben Stein in my pantheon. Ugh; is it Nylabone time yet?
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