Financial Weapons of Mass Destruction Aimed at Omaha

Warren Buffett is credited with coining the phrase "financial weapons of mass destruction" with respect to derivatives.  However, after some big unrealized losses on index options that Berkshire (BRK.A) has written in the last couple of years, it now appears as though the derivative market is taking aim at Omaha. 

Over the last eight days, the cost to insure debt of Berkshire Hathaway has risen to 475 basis points per year.  To put this into perspective, Morgan Stanley's (MS) credit default swaps are currently trading at 456 bps, and that is the highest of the big global banks and brokers.  

Berkshire Hathaway has long been considered one of the safest of the safest financial companies, but if Black October 2008 has taught us anything, it's that nothing is safe.

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Comments

[DonSuper:]

can you say manipulation using the CDS market??

2008 Nov 20 11:28 AM

[Bendy:]

Berkshire at 30 sep 08 had TOTAL liabilities of $157bn. It had LIQUID assets of C.$140bn. (and another $140bn of Assets too). Where exactly is the default risk ?

2008 Nov 20 02:02 PM

[WhatsTheSto...:]

At least he wrote it on the SP500, bellwether of the economic health of the US, as opposed to writing CDS on subprime lenders.

Additionally, it takes simple math to see if he made a profit or a loss. And that means transparency. Also, no one is saying what he is doing with the money!

2008 Nov 20 02:37 PM

[tireman63:]

"The race is not always to the swift, nor the battle to the strong--but that's the way to bet" I'm betting on the sage of Omaha

2008 Nov 20 02:49 PM

[nmelendez:]

my bets on the "Guru of Omaha", one savvy and patient investor. Think Tortoise.

2008 Nov 20 06:43 PM

[happysoul77777:]

The stock goes down because sellers can push the stock down with the removal of the uptick rule and intra-day naked short selling.

Stock prices of many companies are not reflecting their fundamentals.
The SEC has created a structural defect for the market by removing the uptick rule and not enforcing the naked short selling ban.

2008 Nov 20 11:58 PM