Buffett’s buying, but not financials
September 18, 2008 – 1:11 pmYesterday I wondered if Buffett would put some cash to work buying distressed assets. Today we got the answer. From Bloomberg:
Warren Buffett’s MidAmerican Energy Holdings Co. agreed to buy Constellation Energy Group Inc. for about $4.7 billion, snapping up the largest U.S. power marketer at less than half its market value prior to this week.
The cash deal is worth $26.50 a share, the companies said today in a statement. That’s 7 percent higher than yesterday’s close. The stock plunged 58 percent this week on concern turmoil in financial markets would wreck Baltimore-based Constellation’s energy-trading business.
“Warren’s got the cash and he’s got the platform to fold it into at MidAmerican Energy,” said Greg Phelps, who oversees $3.5 billion at MFC Global Investment Management in Boston.
It’s good news that Buffett sees value somewhere in this market. (Not sure I agree. I still think the financial carnage has a ways to go and that the economy will suffer substantially as a result.*) Still, Buffett is a very smart guy and his move suggests there are good assets to be had.
One great asset going cheap right now: people.
If there’s one thing Wall St. isn’t short of, it’s talented traders, bankers, and other financial types. With their banks in disarray and their ‘08 bonuses gone, you have to think most of these folkss are sending out resumes.
The Journal had a headline today that JP Morgan has stopped trading with giant hedge fund Citadel in retaliation for poaching its talent. Haven’t seen the story yet.
By the way, the run is on at Goldman Sachs and Morgan Stanley. Goldman is now down $25 today to $88. Near the end of ‘07, the stock got to $250. Morgan is down a huge $9 to $13. That stock was at $90 in mid ‘07. Morgan knows if they don’t find a buyer, they are gone. They are talking to Wachovia and the Chinese. According to CNBC, MS is saying GS is trying to raise money from the same guys…
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*My macro thesis: The banking system has taken hundreds of billions of write downs. There are hundreds of billions left to take. Money in our economy is created by banks through credit. Bank writedowns destroy balance sheets and loan production. The money multiplier means that for every dollar of equity/reserves lost on a bank balance sheet, another $9 or $10 of loans is lost to the economy. (or in the overleveraged case of Wall St. banks $30) No credit, no money. No money, no corporate earnings. No corporate earnings, declining share prices.
Posted in Wall Street, shorts, stocks |
8 Responses to “Buffett’s buying, but not financials”
***It’s good news that Buffett sees value in this market. I still think the financial carnage has a ways to go and that the economy will suffer substantially as a result.* ***
I would concur with the last sentence; don’t know about the first. I think it’s hard for even Buffett to realize that everything’s going down–people will sell the good stock for margin calls and just to get some cash out. No money, no funds to buy with.
Is there anyone out there still lending on margin for stocks? That’s the real lack of oversight. No more margins–at least not over 25% of stock holdings if you want a rock solid market.
I think it’s gonna be like the original crash/depression—it’ll take a long time to come back up. My prediction is a sub 5000 DOW. It’ll take 3-5 years, but it’ll get there.
I’m telling everyone I know to get out of the market.
By Lisa on Sep 18, 2008
Good point Lisa. I’ve revised the line slightly.
By RolfeWinkler on Sep 18, 2008
Come on …. Constellation Energy is a no-brainer buy for Buffett. He bought a solid utility firm for something like 85% of book value. And people always will need electricity. There will be no doomsday, and even assuming a deep recession, that was a smart buy.
By Michael Goode on Sep 18, 2008
Looks like they somehow rallied the market (especially financials)… Goldman now above $110 again!
Happy times are here again! Again…
By Aaron Krowne on Sep 18, 2008
“talented banker” - a new oxymoron.
Now they need to get real economic jobs.
Problem is they don’t exist.
Maybe Warren will think of something useful for them to do…
By Keith on Sep 18, 2008
To M Goode:
Ever played poker? If Buffett dumps his Wells Fargo stock (which, from what I’ve heard are in it nearly as deep as WaMu with worthless home equity loans) the market drops and he loses a ton of money. Instead, he’ll smartly pick over the carrion and prop his portfolio for the eventual fall. It’s a stalling tactic, just to preserve his wealth. Or, at least, slow the slide.
Remember, folks, this is just the beginning. We haven’t even talked about what’s happening to pensions–including the monstrous CalPers–that are invested in the market. That’s gonna be one helluva bailout–to the tune of a quarter of a trillion for CalPers just by itself.
I wonder if Paulson/Bernake plan to bail if the next prez is Obama. I wonder why either of them took their jobs! Morbid curiousity maybe.
Seeking a stable currency, commodities, maybe agriculture seems the smart way to go. Can’t see any other place to hide.
By Lisa on Sep 18, 2008
So Lisa, what difference does it make if Obama gets the hot seat? Are you telling me McCain is actually going to make a difference…oh yea, he wants to fire Cox, granted he can put pressure on his to resign, but he CAN NOT fire him, it’s a fixed term.
Time for the Republicans to start distracting the voters, as they don’t have any answers, and they’ve gotten a BOOB elected twice with this strategy, why not a 3rd time?
By LVMF on Sep 19, 2008
I agree; neither McCain or Obama have a clue about solutions or the scope of this problem.
Hillary Clinton was asking for a moratorium on foreclosures and help of 30 billion for distressed homeowners **last year**. Obama dismissed it, saying that it wouldn’t help.
Gee, now ‘north of a trillion’ is supposed to solve our woes and lower to middle income taxpaying homeowners get the boot from their homes and get vilified in the process. Does this smell really bad to anyone else out there? Me myself, I’m gagging.
I tend to disagree with Rolfe on the Paulson/Bernake issue–I don’t think they’re handling this so well. If they really cared about the taxpayers, they’d help them out instead of burdening them with outrageous debt—-and worst of all, completely NOTHING to show for it. Not billion dollar profits, not multi million dollar golden parachutes, not healthcare, not crap.
It’s shitty, horrible. Reprehensible. Think ‘Mr. Change’ is going to change this?
Don’t make me laugh.
By Lisa on Sep 22, 2008