These days, it’s tough to figure out who you can trust.
You can’t trust the bankers, because they put personal greed ahead of sober solvency.
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You can’t trust insurance companies because they’re more interested in finding ways to deny your claim than to help you out a jam.
You can’t trust lawyers, well … just because you can’t.
You can’t trust the government because it’s the government.
The last icon of trust in America was Warren Buffett. Even though he was virtually the richest guy on the block, he managed to stay above fray. While the miscreants of Wall Street were being excoriated, he was being lionized. In the midst of the storm, he remained the sage investor; the Oracle of Omaha.
Last week, it finally looked like Buffett had thrown in the towel.
In a series of interviews, the usually ebullient Buffett looked worn and appeared exasperated. He told interviewers that the economy had fallen “off a cliff,” and lamented our financial markets were in a “shambles.”
Despite his billionaire status, Buffett’s dirge bemoaned the wail of the everyday folks who have watched as their nest eggs have crumbled, their equity has shriveled and their jobs have begun to wither. Warren could feel our pain.
Talk about your big fake out!
Buffett has been on a buying spree. His holding company Berkshire Hathaway has been hunting for bargains; and apparently, the pickings are good.
Last year, Buffett took his wallet to Europe hoping to find opportunities on the continent. He liked the food, but didn’t find any deals that suited his fancy.
Sometimes the best way to buy a company is through the back door by acquiring its debt. That’s precisely what Buffett is doing.
[img]424|left|||no_popup[/img] He agreed to buy convertible notes from Swiss Reinsurance Co. worth 3 billion Swiss francs ($2.6 billion), and has made smaller deals to buy debt in firms including motorcycle-maker Harley-Davidson Inc., luxury jeweler Tiffany & Co. and Sealed Air Corp., the maker of Bubble Wrap shipping products, commanding yields as high as 15 percent.
Berkshire’s stock has plummeted this year on concern that Buffett’s bets on derivatives — which he has called “financial weapons of mass destruction” — will crush profit at the Omaha, Nebraska-based insurer. Berkshire is backing derivatives tied to corporate junk bonds, municipal debt and the performance of stock indexes on three continents, with liability of more than $14 billion as of December 31.
In spite of these concerns, Buffett has been spending Berkshire’s cash on preferred shares and debt of companies including Goldman Sachs Group Inc. and General Electric Co. Buffett says he hasn’t grown more cautious about shepherding capital as liabilities on the derivatives have increased. Berkshire had $25.5 billion in cash as of Dec. 31, compared with $44.3 billion a year earlier.
Even though Berkshire’s retail interests in everything from jewelry and candy to carpeting and motor homes have sharply declined, Buffett made clear that he’s got money and he’s willing to spend it.
As Buffett recently said in an interview, “I’m open for business, but it’s got to be the best business in town.”
Happy hunting Warren.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
