Ich habe mir seinen Letter für 2008 durchgelesen. Die mMn interessantesten Passagen:
The table on the preceding page, recording both the 44-year performance of Berkshire’s book
value and the S&P 500 index, shows that 2008 was the worst year for each. The period was
devastating as well for corporate and municipal bonds, real estate and commodities. By yearend,
investors of all stripes were bloodied and confused, much as if they were small birds that had
strayed into a badminton game.
As the year progressed, a series of life-threatening
problems within many of the world’s great financial institutions was unveiled. This led to a
dysfunctional credit market that in important respects soon turned non-functional. The
watchword throughout the country became the creed I saw on restaurant walls when I was young:
“In God we trust; all others pay cash.”
I told you in an earlier part of this report
that last year I made a major mistake of commission (and maybe more; this one sticks out).
Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock
when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that
oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost
Berkshire several billion dollars.
I made some other already-recognizable errors as well.
They were smaller, but unfortunately not that small. During 2008, I spent $244 million for
shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to
market: $27 million, for an 89% loss. Since then, the two stocks have declined even further.
The tennis crowd would call my mistakes “unforced errors.”
The investment world has gone from
underpricing risk to overpricing it. This change has not been minor; the pendulum has covered
an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like
today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on
long-terms. When the financial history of this decade is written, it will surely speak of the
Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury
bond bubble of late 2008 may be regarded as almost equally extraordinary.
to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt
increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is
king,” even though that wonderful cash is earning close to nothing and will surely find its
purchasing power eroded over time.
Sleeping around, to continue our metaphor, can actually be
useful for large derivatives dealers because it assures them government aid if trouble hits. In
other words, only companies having problems that can infect the entire neighborhood – I won’t
mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that
is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence
simply won’t do; it’s mindboggling screw-ups that are required.
Considering the ruin I’ve
pictured, you may wonder why Berkshire is a party to 251 derivatives contracts (other than
those used for operational purposes at MidAmerican and the few left over at Gen Re). The answer
is simple: I believe each contract we own was mispriced at inception, sometimes dramatically so. I
both initiated these positions and monitor them, a set of responsibilities consistent with my
belief that the CEO of any large financial organization must be the Chief Risk Officer as well. If we lose money on our derivatives, it will be my fault. Our derivatives dealings require
our counterparties to make payments to us when contracts are initiated. Berkshire therefore
always holds the money, which leaves us assuming no meaningful counterparty risk. As of
yearend, the payments made to us less losses we have paid – our derivatives “float,” so to speak
– totaled $8.1 billion. This float is similar to insurance float: If we break even on an
underlying transaction, we will have enjoyed the use of free money for a long time. Our
expectation, though it is far from a sure thing, is that we will do better than break even and
that the substantial investment income we earn on the funds will be frosting on the cake.
Our put contracts total $37.1 billion (at current exchange rates) and are spread among four
major indices: the S&P 500 in the U.S., the FTSE 100 in the U.K., the Euro Stoxx 50 in Europe,
and the Nikkei 225 in Japan. Our first contract comes due on September 9, 2019 and our last on
January 24, 2028. We have received premiums of $4.9 billion, money we have invested. We,
meanwhile, have paid nothing, since all expiration dates are far in the future. Nonetheless, we
have used Black- Scholes valuation methods to record a yearend liability of $10 billion, an
amount that will change on every reporting date. The two financial items – this estimated loss of $10 billion minus the $4.9 billion in premiums we have received – means that we have so far reported a mark-to-market loss of $5.1 billion from these contracts.
category we described in last year’s report concerns derivatives requiring us to pay when
credit losses occur at companies that are included in various high-yield indices. Our standard contract covers a five-year period and involves 100 companies. We modestly expanded our
position last year in this category. But, of course, the contracts on the books at the end of
2007 moved one year closer to their maturity. Overall, our contracts now have an average life
of 21⁄3 years, with the first expiration due to occur on September 20, 2009 and the last on December 20, 2013. By yearend we had received premiums of $3.4 billion on these contracts and
paid losses of $542 million. Using mark-to-market principles, we also set up a liability for
future losses that at yearend totaled $3.0 billion. Thus we had to that point recorded a loss of about $100 million, derived from our $3.5 billion total in paid and estimated future losses minus
the $3.4 billion of premiums we received. In our quarterly reports, however, the amount of gain
or loss has swung wildly from a profit of $327 million in the second quarter of 2008 to a loss
of $693 million in the fourth quarter of 2008.
In 2008 we began to write “credit
default swaps” on individual companies. This is simply credit insurance, similar to what we
write in BHAC, except that here we bear the credit risk of corporations rather than of
tax-exempt issuers. If, say, the XYZ company goes bankrupt, and we have written a $100 million
contract, we are obligated to pay an amount that reflects the shrinkage in value of a comparable amount of XYZ’s debt. (If, for example, the company’s bonds are selling for 30 after default, we would owe $70 million.) For the typical contract, we receive quarterly payments for five years, after which our insurance expires. At yearend we had written $4 billion of
contracts covering 42 corporations, for which we receive annual premiums of $93 million. This
is the only derivatives business we write that has any counterparty risk; the party that buys
the contract from us must be good for the quarterly premiums it will owe us over the five
years. We are unlikely to expand this business to any extent because most buyers of this
protection now insist that the seller post collateral, and we will not enter into such an
Jeden Tag bringt einen neuen Grund sich zu wundern ob die Marktteilnehmer völlig den Verstand
Berkshire Credit Swaps Rise to Record, Imply ‘Junk’ By Erik Holm
and Shannon D. Harrington
March 4 (Bloomberg) -- The cost of protecting against default by
Warren Buffett’s Berkshire Hathaway Inc. soared to record levels more typical of junk-rated companies
amid concern the firm faces losses on derivatives.
Credit-default swaps used to guard against
losses on Berkshire’s debt climbed 15 basis points to 515 basis points at 3:45 p.m. in New York,
according to CMA DataVision, and earlier reached 535. The contracts yesterday traded as if the company,
rated Aaa by Moody’s Investors Service, was 11 grades lower at Ba2, according data from Moody’s capital
markets research group.
The price may be rising on concern the Omaha, Nebraska- based firm
will lose bets on the direction of world equity markets, high-yield corporate bonds and municipal debt.
That scenario assumes Berkshire would drain its $25.5 billion cash hoard and then find itself unable to
raise more from stock or bond sales or the company’s historically profitable insurance and utility
“There are two extremes on Berkshire, and one is that he’s going to make a lot of
money on these things, just like he’s promised,” said Jeff Matthews, the author of “Pilgrimage to Warren
Buffett’s Omaha” and founder of hedge fund Ram Partners LP. At the other extreme, investors worry that
“he could in fact suffer huge losses and it could really trigger some problems,” Matthews said.
American Express, AIG
The price of Berkshire’s credit-default swaps put it on par with
buying protection on American Express Co., the biggest U.S. credit-card company by purchases, which are
trading at 543 basis points.
Berkshire swaps still are about half the 1,102 basis points for
protection on American International Group Inc., the insurer that this week recorded the largest
quarterly loss in U.S. corporate history. And investors are demanding the equivalent of 948 basis points
to protect the bonds of the Aaa-rated finance arm of General Electric Co.
swaps, used to hedge against losses or to speculate on the ability of companies to repay their debt, rise
as investor confidence deteriorates. A basis point on a credit- default swap contract protecting $10
million of debt from default for five years is equivalent to $1,000 a year.
Buffett, who has
gained a reputation as the world’s pre- eminent stockpicker, has struck deals with unidentified firms to
protect them against long-term declines in four equity indexes, defaults by a group of corporations with
junk-bond ratings, and the inability of states and municipalities to repay their debts. Junk bonds are
high-yield securities graded below BBB- by Standard & Poor’s and Baa3 by Moody’s.
The maximum loss on those bets was $63.4 billion as of Dec. 31, a figure that
Berkshire would pay only if the markets fell to zero and all the states and municipalities failed to pay.
Berkshire said liabilities on those positions were about $14 billion as of Dec. 31.
be investing out there means he’s exposed,” said Scott MacDonald, head of research at Aladdin Capital
Management in Stamford, Connecticut. “And I think what was the shocker to people is that the sage of
Omaha has suddenly shown he’s human.”
immediately respond to a request for comment left with assistant Carrie Kizer.
expectation, though it is far from a sure thing, is that we will do better than break even” on
derivatives, Buffett wrote in his annual letter to shareholders Feb. 28. Berkshire held about $8.1
billion as of Dec. 31 that it collected through the contracts, and can make money by investing those
funds, Buffett wrote.
Berkshire’s fourth-quarter net income fell 96 percent to $117 million,
the firm said Feb. 28. Book value per share, a measure of assets minus liabilities, slipped 9.6 percent
for all of 2008, the worst performance under Buffett’s watch, on the falling price of stocks in the
firm’s equity portfolio and the declining value of the derivatives.
“They’re all paper
losses, and he doesn’t owe money on any of it for years,” said Guy Spier, principal at hedge fund
Aquamarine Funds LLC, which owns Berkshire shares. “People are doing crazy things in this market right
now, but if you just stop and ask about the logic of it, it doesn’t make any sense.”
of 2,400 credit-default swaps protecting a net $4.4 billion of Berkshire debt from default were
outstanding as of Feb. 27, according to the Depository Trust & Clearing Corp., which runs a central
registry for the market.
“It could very well be that the insurance
company or whoever it is who bought the derivatives are now buying the CDS to make sure they get paid,”
Matthews said. “It’s a lot like a stock price, where it’s hard to know what makes it go up or down.”
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