Monday, March 23, 2009

Let's take another look at the Berkshire downgrade

Since common sense isn't a prerequisite to work with the rating agencies, let's take another look at their downgrade of Berkshire Hathawy.

You may first want to read my viewpoint!
http://aaronandmoses.blogspot.com/2009/03/fitch-and-buffetts-age-same-old-story.html

And then let's do the rating math. Just six trading days ago, Fitch downgraded Berkshire.

Since then Berkshire's position in Wells Fargo has added about $1.2 billion, and now his imputed value in his Goldman Sachs warrants is close to $2 billion.

The January 2011 115 calls on Goldman Sachs are trading around $35. Buffett has warrants on 43 million shares at 115. These options expire in less than two years, and Buffett has 4 1/2 years left on his, so if we price these with a 43% volatility we can get a value of $43 for these warrants.

43 million warrants at $43 gives us $1.85 billion.

Did Fitch figure that in?

How about his "scary" derivative put positions? Anyone think Buffett didn't pick up a couple billion on that position?

Fitch didn't have the foresight to wait, to see if the market had bottomed, in the week that it bottomed, before they downgraded Buffett.

Maybe a short hedge fund had Fitch's ear, and they needed the market down.

Somebody's position got spanked, but it wasn't Buffett's!

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