Thursday, November 20, 2008
The world's richest man, Warren Buffet, is nicknamed "The Oracle of Omaha" for his investment foresight.
Buffet's reputation is so great that when his investment company, Berkshire Hathaway, invested billions of dollars in companies like Goldman and GE, the stock market rallied on that news alone. Buffet's investing success is such that people figured if The Oracle was buying, the market must have hit bottom.
Buffet is also one of Obama's primary economic advisors, and his advice and assistance is sought by hundreds of CEOs.
But in a sign of the times, the Oracle's Berkshire Hathaway is in real trouble. BH is down 50% from its all-time high.
More importantly, as Bloomberg points out:
The cost of protecting against default by Warren Buffet's AAA rated Berkshire Hathaway Inc. has almost tripled in two months, a sign of just how skittish investors have become amid the global financial crisis.
The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk. The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values more than a decade from now. ***
For the swaps to pay off, Berkshire would have to exhaust its $33.4 billion cash hoard, and Buffett's decades-long record as the world's most successful investor would have to come to a cataclysmic end.
And as financial analyst and former high-level derivatives trader, Roger Ehrenberg, writes:
Economic conditions are so bad that they even blindsided the Oracle.
Berkshire Hathaway is genuinely threatened by a potential run on its credit, due to contractual provisions in its derivatives agreements that could compel it to post more collateral at exactly the worst time . . . .
If we are even talking about Berkshire Hathaway being at risk, then ANY company is at risk of a run on its credit . . . .