Dan O'Neill

Moody's May Be Considering Reinstatement of Berkshire's AAA Rating

The reason why the credit default swaps are overpriced was explained by Buffett at the annual meeting. The entities that bought the index put options from Buffett had to purchase credit default swaps of Berkshire Hathaway to hedge their risk against a default of Berkshire in order to maintain their own credit rating. They had to keep on purchasing these credit default swaps at higher and higher prices to maintain their credit rating and at one point Berkshire appeared riskier than the credit of many South American countries. The credit default swaps will always be overpriced because of this pressure to hedge Berkshire's default risk by the credit rating firms.

Buffett Closes Derivatives Contracts, Goes Back to Writing Insurance

Finally, someone wrote a good article. I was getting tired of Doug Kass's articles. The key differences Buffett made with his derivative contracts was that he got his premium upfront, wrote European options and does not need to post collateral (more than 1%) in the event of a ratings downgrade. The premium is float for the next 10 - 20 years. These options only have to be paid on the day of expiration. An American option has the potential to ruin a company in the short term, where a European option can only ruin a company at one point in time. We also know that the trouble that AIG and others got into was they had to post collateral if they were ever downgraded. Buffett does not have to post any material amount of collateral if Berkshire is downgraded. I'm a shareholder and I am comfortable with these derivative contracts. Warren and Ajit understand the risks involved and so do Berkshire Shareholders. They are making a well priced and well calculated bet.

Buffett Metric Doesn't Say It's Time to Buy

Your article needs a fact check. First of all, Gillette and Coke were bought in the late 1980s. If you are going to quote Buffett, then get it right. He said when he was asked about how he felt about the market [in 1974] "Like an oversexed man in a harem". You should go back to college and learn how to write effectively and not to make things up.