Buffet's NY Times Op-Ed

In today's Times, Buffet announced that he's moving his personal holdings into American equities. It's pretty clear that the market will hit a bottom, and in several years will be up far from where we are now. The question is when to get in. Buffet's getting in now.

I've been waiting for April, when the next round of ARMs re-set, another round of earnings reports, the holiday sales season over, and the new administration. That was looking like the best case for spotting a nadir on the horizon. But if Buffet moves in, and does so publicly, and everyone else does too, then screw April, this could be the bottom.

If you've been watching some stocks, now might be the time to make a move.

Market's Up, And?

Yes, DOW's up, but the underlying problems are serious and will remain for some time. And it's not clear yet what this means for equity markets in the short- and near terms. If equity prices are currently 'undervalued' (assuming that they will be 'corrected' to some golden-rule P:E/EBITDA ratio), then one would expect to see more people moving into the market than we see now.

As a general measure, take the terms of Buffet's investments in GE and Goldman Sachs. Yes, he put in some billions, but the more aggressive the terms, the less bullish he is, really. He's not pouring cash into general equities at the moment, instead, GE and Goldman drew up these insanely privileged contracts for a new class of shares, all his own, with a generous dividend and almost infinite options.

The questions now are:

1. Now that the banks have FED capital, when, and how far will LIBOR rates drop? (Meaning, When will the banks start trusting, and loaning to, each other, regardless of the spin that's being given to the general public at the moment?)
2. How honest will the banks be in stating their losses in the next earnings report?
3. How aggressively will the Financial Accounting Standards Board enforce the rules on valuing the toxic assets in the next round of earnings reports? (Meaning, When will the charade end, and when will finally know what debt's good and what debt's bad?)
4. As the FED racks up more debt (DOWWTF?! earlier predicted that the final tab will come in at $1.5 trillion, though that's now looking kinda low), who will keep buying the T-Bills?

Buffet is the New Moody's

Buffet sinks $3b into G.E., and as Edward Yardeni points out, “Warren Buffett has become the new triple-A credit rating system. It’s a big endorsement for G.E.”

(Like the Goldman deal, he gets his own class of fancy stock that, in this case, pays dividend of 10 percent, and G.E. can purchase the shares back from Mr. Buffett after three years by paying a 10 percent premium, or $3.3 billion.)

Permalink: http://dowwtf.blogspot.com/2008/10/buffet-is-new-moodys.html

What Does Buffet Know About Goldman's Derivatives Exposure?

Warren Buffet recently put $5b into Goldman (admittedly they issued him some new stock that comes loaded with all kinds of options and dividends), and amid reports that Goldman may have significant derivatives exposure via AIG, one would assume that Buffet (Mr. Anti-Derivatives, at least in name) required full transparency on the Goldman balance sheet before signing the check.

Gretchen Morgenson digs around for some numbers in yesterday's IHT, nohing the Blankfein was the only CEO at the Fed AIG meeting, but she comes up short:

"Few knew of Goldman's exposure to AIG. When the insurer's flameout became public, David Viniar, Goldman's chief financial officer, assured analysts on Sept. 16 that his firm's exposure was 'immaterial,' a view that the company reiterated during an interview....Lucas van Praag, a Goldman spokesman, declined to detail how badly hurt his firm might have been had AIG collapsed two weeks ago. He disputed the calculation that Goldman had $20 billion worth of counterparty risk to AIG, saying the figure failed to account for collateral and hedges that Goldman deployed to reduce its risk....Regarding Blankfein's presence at the Fed during talks about an AIG bailout, he said: 'I think it would be a mistake to read into it that he was there because of our own interests. We were engaged because of the implications to the entire system.'"

Given that Goldman was the only big bank to officially pull out of subprime crime crap ahead of the meltdown, I'm inclined to believe Blankfein, and take Buffet's investment as a vote of confidence.