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!

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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