Buffett also talked about the purchase of US energy company Constellation Energy. Constellation Energy is US largest energy company. The company headquarters is in Baltimore City, it is one of Fortune selected top 200 most competitive energy companies.
A few weeks ago, Constellation Energy stock price dropped from about 50 USD per share to about 14 USD per share. Following that, Mid American Energy gave Buffett a call to report about the incident as talks of bankruptcy surrounded the company as generally enterprises have a series of market valuation ratings, if the ratings were to drop, it means that the company has to provide more collateral.
So Buffett after learning that the company could be in trouble gave Mid American Energy top management a call. The chairman's assistant picked up the call and said that David Sokol (David Sokol officially joined BYD's board of directors) was in a very important meeting and that he was not to be disturbed. She also said that David Sokol said that even if she were to pass a note with 2 words to him and interrupt the meeting, she will be fired. However, the assistant still took Buffett's advise and informed David Sokol.
That night the whole company was very excited as they can quote a price and funds will be injected and they know that Berkshire can do it. The same is with other companies. When they are sinking in the sea, Berkshire can easily pull them out of it. Buffett said that initially they rejected the offer, which he say using their word is hesitation. However, that night, the deal was signed.
Today is an economy 'Pearl Harbor'
Since the start of the sub-prime crisis, how bad can the US economy be is an unavoidable topic. But Buffett was confident. He said he hope that if he is around, the word will not be too bad.
Buffett said that he never saw the credit market like today. So he thinks that today is an economy 'Pearl Harbor'. A lot of capital is needed. He said to take note that we are talking about the whole world and not just only US, the whole world is lowering financial leveraging. If everyone were to increase leveraging, then they will get the money they want, at anytime, between lending and spending, this is the truth widely used. Everyone wants to reach a higher target. Now, everyone is lowering their leveraging (the broken financial system is adjusting towards a good direction), and the only obstructing force to such de-leveraging is the US government, only the US government can stop it and increase leveraging. This is what the whole world economy needs. Whatever type of funding is not perfect and so Buffett believes that the 700 billion USD stimulus package will be approved.
As to how to spend the 700 billion USD, Buffett believes that the key is to buy at market price. Because if bought at market price, the US treasury will definitely have profit. Buffett say that you may see the situation that if the fund were to buy at a loss from those who want to increase leveraging but not capable of doing it, that is, if arbitrage funds were to buy Merrill Lynch at 22 cents, they have to get funding at 3/4 the price. Buffett's meaning is that it is not possible to funding from the market in the name of the assets.
As such, if those assets were to be sold at a loss, with no leverage adjustment, arbitrage funds or other institutions will buy in small portions, about 15%-20% of the deal. If the treasury department were to buy at market price, and to buy at the treasury low end buying price, then all forces will have a leveraging adjustment effect and make a lot of money. Buffet said that he can have a 1% chance, that is to say, he can earn or loose 7 billion, but he is willing to do such a thing because the government can do something he cannot. The government can lend out unlimited amount of funds, they can lend unlimited amount of money based on the cost price, no one else can do it. And even if they can buy at market price, it will also be a great opportunity. Because of the government's intervention, maybe the market price could be lifted up a little. But they cannot buy some company at cost price or book value, that is when the supervision committee member should come in.
[An interview with Warren Buffett at the MPW Summit - Part 1 here.]
[An interview with Warren Buffett at the MPW Summit - Part 3 here.]
Showing posts with label Warren Buffett. Show all posts
Showing posts with label Warren Buffett. Show all posts
Thursday, December 4, 2008
Wednesday, December 3, 2008
An interview with Warren Buffett at the MPW Summit - Part 1
During October, Warren Buffet had an interview with the Chinese media at the Most Powerful Women Summit. Here are the extracts.
Investment guru who likes to joke
Since the start of the financial crisis, a lot of US company's CEO called up Buffett, the main reason being that they need Buffett's help in terms of funding. Buffett said that the market actually treat them like toads and Berkshire Hathaway is treated like a princess. If they were to receive a kiss from the princess, they will become a handsome prince. If they says no, then they will remain a toad. Buffett said mockingly that they have a lot choices but they only accept the few minorities kisses and will provide them funding. He said that if you have no money, no body will kiss you.
Buffett: I am optimistic about the China market
Buffett was asked whether are there any characteristics for every economy cycle turning point and can he discuss based on China actual situation. Buffett said that in every economic cycle, there are no rules to base on especially in an emerging market like China which is constantly changing. When asked about which industry he sees that he is optimistic about, Buffett said that he is not interested in all industries even though some may have good future prospects. To select stocks based on a certain industry does not work he said. Every stock has its own set of complicated selection criteria. Normally you need to consider various situations and cannot select based on a certain industry.
When asked about his thoughts for the China market, Buffett said that he is optimistic about the China market. Not considering the short term situation, in the coming 10 years, China stock market will be the world's top performers.
MidAmerican, which is 87.4%-held by Berkshire Hathaway , said on 27 September it would buy 225 million shares of BYD, equivalent to a 10% stake, for HK$1.8 billion. BYD deals mainly on re-chargeable batteries and cars and slightly more outstanding in the field of electric vehicles development. Because of Bufett's buying into it, BYD's stock price rose by about 89% within 3 trading days.
[Read here for more information on Buffett's buying of BYD.]
About buying into GE
Buffett's Berkshire Hathaway, came out with 3 and 5 billion USD and bought GE and Goldman Sachs preference shares. When people lost confidence in the market, Buffett went in the market and bought.
When asked why he bought into GE, Buffett said smilingly that he likes to call cards, a term used in the Bridge card games. He said that GE is a landmark enterprise that US presents to the world. For the past few decades, he has been GE and its leaders' friend and admirer. Buffett said that GE is a very famous US company. Basically, it has lots of financial businesses going on everyday. They need a sum of backup fund and without that sum, they could not adequately proceed with their next program.
Buffett went on to further explain that he was thinking that Berkshire will be having a constant 10% return yearly to earn back the 3 billion USD and that the assessment was very interesting. The proposal actually came out not long before the investment was made. Buffett said that fast and timely action can bring big profits. People know that they can call him directly to ask questions and they will get an answer quickly. For example, when GE calls, GE will ask him when he will settle the problem. The same applies for Buffett's investment on Goldman Sachs. Buffett said that Goldman Sachs will get an answer and it will materialize. It was a big profit and Berkshire Hathaway will try to let them pay back the debts themselves which is good for them.
[An interview with Warren Buffett at the MPW Summit - Part 2 here.]
[An interview with Warren Buffett at the MPW Summit - Part 3 here.]
Investment guru who likes to joke
Since the start of the financial crisis, a lot of US company's CEO called up Buffett, the main reason being that they need Buffett's help in terms of funding. Buffett said that the market actually treat them like toads and Berkshire Hathaway is treated like a princess. If they were to receive a kiss from the princess, they will become a handsome prince. If they says no, then they will remain a toad. Buffett said mockingly that they have a lot choices but they only accept the few minorities kisses and will provide them funding. He said that if you have no money, no body will kiss you.
Buffett: I am optimistic about the China market
Buffett was asked whether are there any characteristics for every economy cycle turning point and can he discuss based on China actual situation. Buffett said that in every economic cycle, there are no rules to base on especially in an emerging market like China which is constantly changing. When asked about which industry he sees that he is optimistic about, Buffett said that he is not interested in all industries even though some may have good future prospects. To select stocks based on a certain industry does not work he said. Every stock has its own set of complicated selection criteria. Normally you need to consider various situations and cannot select based on a certain industry.
When asked about his thoughts for the China market, Buffett said that he is optimistic about the China market. Not considering the short term situation, in the coming 10 years, China stock market will be the world's top performers.
MidAmerican, which is 87.4%-held by Berkshire Hathaway , said on 27 September it would buy 225 million shares of BYD, equivalent to a 10% stake, for HK$1.8 billion. BYD deals mainly on re-chargeable batteries and cars and slightly more outstanding in the field of electric vehicles development. Because of Bufett's buying into it, BYD's stock price rose by about 89% within 3 trading days.
[Read here for more information on Buffett's buying of BYD.]
About buying into GE
Buffett's Berkshire Hathaway, came out with 3 and 5 billion USD and bought GE and Goldman Sachs preference shares. When people lost confidence in the market, Buffett went in the market and bought.
When asked why he bought into GE, Buffett said smilingly that he likes to call cards, a term used in the Bridge card games. He said that GE is a landmark enterprise that US presents to the world. For the past few decades, he has been GE and its leaders' friend and admirer. Buffett said that GE is a very famous US company. Basically, it has lots of financial businesses going on everyday. They need a sum of backup fund and without that sum, they could not adequately proceed with their next program.
Buffett went on to further explain that he was thinking that Berkshire will be having a constant 10% return yearly to earn back the 3 billion USD and that the assessment was very interesting. The proposal actually came out not long before the investment was made. Buffett said that fast and timely action can bring big profits. People know that they can call him directly to ask questions and they will get an answer quickly. For example, when GE calls, GE will ask him when he will settle the problem. The same applies for Buffett's investment on Goldman Sachs. Buffett said that Goldman Sachs will get an answer and it will materialize. It was a big profit and Berkshire Hathaway will try to let them pay back the debts themselves which is good for them.
[An interview with Warren Buffett at the MPW Summit - Part 2 here.]
[An interview with Warren Buffett at the MPW Summit - Part 3 here.]
Monday, November 24, 2008
Buffett: US economy no signs of recovery before mid 2009. Un-employment may rise.
Investment guru Warren Buffett recently in an interview said that a longer period of time is needed for US economy to recover and un-employment to rise in the coming period of time.
Buffett said on Friday during the interview that more people will be jobless. He is not worried about the economy 5 years later but the performance 5 months later will still be painful and the situation will not turn for the better before mid of 2009.
Buffett estimates that the un-employment rate will rise greatly in 2009 to over 5.9% to 6.5% which is the FEDs estimation level for un-emplyment rate in mid 2009. The un-employment rate announced for October is 6.5%.
Buffett's vews are in great contrast to chief executive of the Fifth District Federal Reserve Bank at Richmond Jeffrey Lacker. Jeffrey Lacker estimates that it is reasonable that the economy will start to recover before mid of 2009.
Jeffrey Lacker says that it is reasonable to estimate that US economy will make a turn for the better sometime in 2009. He also warns that inflation may be back. Jeffrey Lacker says that a lot of analyst estimates that US economy will show upturn somtime in 2009 and he thinks that such estimations are reasonable.
Buffett says that he has also been through the low times and his company's stock price plummet. But is is not worried about the economy performance in the long run. A few months ago he urged investors to start buying US stocks and he recently increased a few investments including buying of Goldman Sachs and GE shares.
Also, Buffett says that even if he is invited, he will not accept to become the finance minister because he lovese what he is currently doing and he has yet to receive the offer.
Buffett said on Friday during the interview that more people will be jobless. He is not worried about the economy 5 years later but the performance 5 months later will still be painful and the situation will not turn for the better before mid of 2009.
Buffett estimates that the un-employment rate will rise greatly in 2009 to over 5.9% to 6.5% which is the FEDs estimation level for un-emplyment rate in mid 2009. The un-employment rate announced for October is 6.5%.
Buffett's vews are in great contrast to chief executive of the Fifth District Federal Reserve Bank at Richmond Jeffrey Lacker. Jeffrey Lacker estimates that it is reasonable that the economy will start to recover before mid of 2009.
Jeffrey Lacker says that it is reasonable to estimate that US economy will make a turn for the better sometime in 2009. He also warns that inflation may be back. Jeffrey Lacker says that a lot of analyst estimates that US economy will show upturn somtime in 2009 and he thinks that such estimations are reasonable.
Buffett says that he has also been through the low times and his company's stock price plummet. But is is not worried about the economy performance in the long run. A few months ago he urged investors to start buying US stocks and he recently increased a few investments including buying of Goldman Sachs and GE shares.
Also, Buffett says that even if he is invited, he will not accept to become the finance minister because he lovese what he is currently doing and he has yet to receive the offer.
Thursday, November 20, 2008
Why Yahoo Finance Is Wrong About Buffett
Seeking Alpha
Why Yahoo Finance Is Wrong About Buffett
Devin Hobbes
November 20, 2008
Yahoo! (YHOO) Finance's front page has yet another article that has me infuriated. First it was the 29 year old housewife who is the paragon of a saver and early retiree. Now this.
The article in question asks whether Warren Buffett has lost his touch. It recounts what it calls three of Buffett's mistakes.
The first mistake, the article states, is Buffett's investment in Goldman Sachs (GS). Buffett invested $5 billion in the company in September, getting a 10% dividend. He also received the right to buy $5 billion worth of Goldman stock at $115 per share within the next five years. As Goldman was trading at $64 a share, the article concludes that Buffett lost over $2 billion.
I don't get it. Did Buffett exercise his warrants to buy $5 billion worth of GS stock? No. Did the warrants expire? No. Did he even pay anything for the warrants? So how did he lose money? (It actually shows how smart he is, not buying the common stock).
What about the sum he invested in Goldman (and GE) preferred stock? Buffett is getting $500 million in dividends every year from GS. Excluding taxes, if GS survives and keeps paying, Buffett will get all his money back in ten years. If Goldman calls the shares (it has the option to buy the preferred shares back at a 10% premium), Buffett will make $500 million in addition to the interest payments he receives up to that point.
Buffett's second mistake, the article says, is that he thought that Congress' passing of the bailout bill would make his investment succeed. The S&P 500 is down 25% since Buffett lent money to GS, and 21% since the bailout was passed. Berkshire Hathaway's (BRK.A) stock is down 30% off its 52 week high, the article also notes. I'm not quite sure what Berkshire's stock has to do with the bailout or the Goldman investment (it's down for a number of reasons, including owning businesses that are exposed to the depressed housing sector), but the article's point is that Buffett made a mistake because the market is down since the bailout passed.
It's been only two months since the bailout has passed. While Paulson seems to change his mind every day about how to proceed, that doesn't mean the bailout and Buffett's investment are failures. Two months is not enough time to make a judgment one way or the other.
Buffett's third mistake, the article argues, is his NY Times op-ed. "'Buy stocks, cash is trash,'" the article paraphrases. Buffett's cash is trash philosophy did not fare very well, says the article. You see, over the last ten years T-Bills have returned 30%. Thus, "If your money would have been sitting in cash for the past year, you'd be able to buy most everything on massive discounts."
I am shocked. Had the person who wrote the article actually read the op-ed, he would see that Buffett has been all in cash in his personal account for a long time. Now that stocks are trading much lower, and the government printing presses are running at full steam, Buffett thinks stocks will outperform cash over the next ten years. He doesn't know if stocks will go up tomorrow, or a year from now. But he's going from all cash to all stocks if stocks stay at their current levels. He's doing pretty much what the article implies is the right thing. But that's his third mistake. Why? And anyway, (at least the article acknowledges that) it's been a month since the op-ed. We'll know in ten years whether Buffett is right about stocks being better than cash.
The third mistake claim is just ridiculous. The first two claims are very common in the investing press. When someone's portfolio is down (no matter over how short a period), they're a fool. If they're up, they're a genius. You can't call Buffett a fool. So the next best thing is to ask whether he has lost his touch.
Has he lost his touch? Maybe. I don't know, and neither do you. It's only been two months! His investing horizon is years, decades. We can say he lost his touch if GS goes out of business or stops paying him dividends. That hasn't happened yet.
If Yahoo! keeps publishing such garbage, they might as well invite me to write for them.
Why Yahoo Finance Is Wrong About Buffett
Devin Hobbes
November 20, 2008
Yahoo! (YHOO) Finance's front page has yet another article that has me infuriated. First it was the 29 year old housewife who is the paragon of a saver and early retiree. Now this.
The article in question asks whether Warren Buffett has lost his touch. It recounts what it calls three of Buffett's mistakes.
The first mistake, the article states, is Buffett's investment in Goldman Sachs (GS). Buffett invested $5 billion in the company in September, getting a 10% dividend. He also received the right to buy $5 billion worth of Goldman stock at $115 per share within the next five years. As Goldman was trading at $64 a share, the article concludes that Buffett lost over $2 billion.
I don't get it. Did Buffett exercise his warrants to buy $5 billion worth of GS stock? No. Did the warrants expire? No. Did he even pay anything for the warrants? So how did he lose money? (It actually shows how smart he is, not buying the common stock).
What about the sum he invested in Goldman (and GE) preferred stock? Buffett is getting $500 million in dividends every year from GS. Excluding taxes, if GS survives and keeps paying, Buffett will get all his money back in ten years. If Goldman calls the shares (it has the option to buy the preferred shares back at a 10% premium), Buffett will make $500 million in addition to the interest payments he receives up to that point.
Buffett's second mistake, the article says, is that he thought that Congress' passing of the bailout bill would make his investment succeed. The S&P 500 is down 25% since Buffett lent money to GS, and 21% since the bailout was passed. Berkshire Hathaway's (BRK.A) stock is down 30% off its 52 week high, the article also notes. I'm not quite sure what Berkshire's stock has to do with the bailout or the Goldman investment (it's down for a number of reasons, including owning businesses that are exposed to the depressed housing sector), but the article's point is that Buffett made a mistake because the market is down since the bailout passed.
It's been only two months since the bailout has passed. While Paulson seems to change his mind every day about how to proceed, that doesn't mean the bailout and Buffett's investment are failures. Two months is not enough time to make a judgment one way or the other.
Buffett's third mistake, the article argues, is his NY Times op-ed. "'Buy stocks, cash is trash,'" the article paraphrases. Buffett's cash is trash philosophy did not fare very well, says the article. You see, over the last ten years T-Bills have returned 30%. Thus, "If your money would have been sitting in cash for the past year, you'd be able to buy most everything on massive discounts."
I am shocked. Had the person who wrote the article actually read the op-ed, he would see that Buffett has been all in cash in his personal account for a long time. Now that stocks are trading much lower, and the government printing presses are running at full steam, Buffett thinks stocks will outperform cash over the next ten years. He doesn't know if stocks will go up tomorrow, or a year from now. But he's going from all cash to all stocks if stocks stay at their current levels. He's doing pretty much what the article implies is the right thing. But that's his third mistake. Why? And anyway, (at least the article acknowledges that) it's been a month since the op-ed. We'll know in ten years whether Buffett is right about stocks being better than cash.
The third mistake claim is just ridiculous. The first two claims are very common in the investing press. When someone's portfolio is down (no matter over how short a period), they're a fool. If they're up, they're a genius. You can't call Buffett a fool. So the next best thing is to ask whether he has lost his touch.
Has he lost his touch? Maybe. I don't know, and neither do you. It's only been two months! His investing horizon is years, decades. We can say he lost his touch if GS goes out of business or stops paying him dividends. That hasn't happened yet.
If Yahoo! keeps publishing such garbage, they might as well invite me to write for them.
Berkshire Hathaway credit risks shoots up. Warren Buffet encounters credit crisis
In the current financial crisis turmoils, even investment guru Warren Buffett cannot escape from it. In the past 2 months, the cost of protecting against default by Warren Buffett's AAA rated Berkshire Hathaway Inc. has almost tripled in two months, the risks levels higher than companies with low credit ratings. Buffett's investments are now in doubt by the market.
The killing power of CDS cannot be underestimated. Once a certain big trading opponent goes down, it will bring the CDS market and credit market a big mess and fear and will have a multiplying effect on the CDS losses. On the day before Lehman Brothers goes bankrupt, once Wall Street's third largest investment bank Merrill Lynch was bought over by Bank of America. In the week that follows, the first and second largest investment bank Goldman Sachs and JP Morgan was slashed twice by the stock and CDS market ending up in a shaky position which then pressures the US finance department to come out with an emergency market rescue plan worth 700 billion USD.
Market Worries About Buffett's Futures Investments
CDS is something similar to an insurance contract with reference to a certain type of bond. According to the different judgment to the bond's credit rating, there is a purchase of another insurance from another party. The higher the CDS premium, it means that the risks for it is higher.
The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Companies Inc. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk.
According to CMA Datavision, Berkshire Hathaway's bonds default premium has risen from a 2 month's ago value of 140 basis points to 415 basis point which means that a 5 year 10 million USD bond premium has reached 415 basis point a year.
Berkshire Hathaway's shareholders says that this rise in premium could be related to Buffett's series of investments in the 4 global futures which includes S&P 500. Buffett sold 4.85 billion USD worth of contracts to counter the drop in the stock market. Under the agreement, if on a certain date in 2019, the market index is lower then the signed value, Berkshire Hathaway will have to pay an extra 37 billion USD. Till 30 September 2008, Berkshire Hathaway has signed 67.3 billion USD worth of contracts and at that time the S&P index has been going down for consecutively 4 quarters. Buffets did not disclose what other indexes he invested in other then S&P 500.
Shareholder: Company Will Not Loose 40 billion
For the swaps to pay off, Berkshire would have to exhaust its $33.4 billion cash hoard, and Buffett's decades-long record as the world's most successful investor would have to come to a cataclysmic end. Pabrai investment manager, also Berkshire Hathaway's shareholder Mohnish Pabrai says that the swap buyers are projecting "present circumstances into infinity'' and concluding Buffett's bet will cost the company $40 billion USD. But he said it will never happen.
"If you were going to start picking companies that are going to default, you probably wouldn't put Berkshire at the top of the list, so it's totally unexpected to see them there,'' said Jeff Matthews, Connecticut-based hedge fund Ram Partners LP. Of the swaps, he said: "I wouldn't buy them, and yet it's there.''
Standard & Poor's said Buffett's bet on the stock indexes wouldn't cause a liquidity crisis. Berkshire spokeswoman Jackie Wilson said she had passed along requests for comment to Buffett. The stock fell below $100,000 a share for the first time in two years last week and has dropped about 33 percent this year.
Short Term Fluctuations In Exchange for Bigger Gains In the Long Term
"I believe these contracts, in aggregate, will be profitable,'' Buffett said in a statement in May, reiterating comments from his letter to shareholders in February. "We are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run. That is our philosophy in derivatives as well.'' "If Berkshire isn't triple A, I'm not sure which company would be,'' Buffett said in May.
The Depository Trust & Clearing Corporation (DTCC) data shows that ending 14 November 2008, totaling 2450 of Berkshire default swaps have been sold out, insurance net worth 4.7 billion USD.
The killing power of CDS cannot be underestimated. Once a certain big trading opponent goes down, it will bring the CDS market and credit market a big mess and fear and will have a multiplying effect on the CDS losses. On the day before Lehman Brothers goes bankrupt, once Wall Street's third largest investment bank Merrill Lynch was bought over by Bank of America. In the week that follows, the first and second largest investment bank Goldman Sachs and JP Morgan was slashed twice by the stock and CDS market ending up in a shaky position which then pressures the US finance department to come out with an emergency market rescue plan worth 700 billion USD.
Market Worries About Buffett's Futures Investments
CDS is something similar to an insurance contract with reference to a certain type of bond. According to the different judgment to the bond's credit rating, there is a purchase of another insurance from another party. The higher the CDS premium, it means that the risks for it is higher.
The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Companies Inc. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk.
According to CMA Datavision, Berkshire Hathaway's bonds default premium has risen from a 2 month's ago value of 140 basis points to 415 basis point which means that a 5 year 10 million USD bond premium has reached 415 basis point a year.
Berkshire Hathaway's shareholders says that this rise in premium could be related to Buffett's series of investments in the 4 global futures which includes S&P 500. Buffett sold 4.85 billion USD worth of contracts to counter the drop in the stock market. Under the agreement, if on a certain date in 2019, the market index is lower then the signed value, Berkshire Hathaway will have to pay an extra 37 billion USD. Till 30 September 2008, Berkshire Hathaway has signed 67.3 billion USD worth of contracts and at that time the S&P index has been going down for consecutively 4 quarters. Buffets did not disclose what other indexes he invested in other then S&P 500.
Shareholder: Company Will Not Loose 40 billion
For the swaps to pay off, Berkshire would have to exhaust its $33.4 billion cash hoard, and Buffett's decades-long record as the world's most successful investor would have to come to a cataclysmic end. Pabrai investment manager, also Berkshire Hathaway's shareholder Mohnish Pabrai says that the swap buyers are projecting "present circumstances into infinity'' and concluding Buffett's bet will cost the company $40 billion USD. But he said it will never happen.
"If you were going to start picking companies that are going to default, you probably wouldn't put Berkshire at the top of the list, so it's totally unexpected to see them there,'' said Jeff Matthews, Connecticut-based hedge fund Ram Partners LP. Of the swaps, he said: "I wouldn't buy them, and yet it's there.''
Standard & Poor's said Buffett's bet on the stock indexes wouldn't cause a liquidity crisis. Berkshire spokeswoman Jackie Wilson said she had passed along requests for comment to Buffett. The stock fell below $100,000 a share for the first time in two years last week and has dropped about 33 percent this year.
Short Term Fluctuations In Exchange for Bigger Gains In the Long Term
"I believe these contracts, in aggregate, will be profitable,'' Buffett said in a statement in May, reiterating comments from his letter to shareholders in February. "We are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run. That is our philosophy in derivatives as well.'' "If Berkshire isn't triple A, I'm not sure which company would be,'' Buffett said in May.
The Depository Trust & Clearing Corporation (DTCC) data shows that ending 14 November 2008, totaling 2450 of Berkshire default swaps have been sold out, insurance net worth 4.7 billion USD.
Sunday, November 16, 2008
Warren Buffett is now biggest shareholder of Conoco Phillips
In 3Q this year, under the situation of sliding stock prices, investing guru Warren Buffett's Berkshire Hathaway Inc. has became the biggest shareholder of Conoco Phillips. He has also bought into US manufacturer Eaton Corp.
Berkshire Hathaway in its submitted regulatory documents says that till 30 September 2008, Berkshire Hathaway has more than 83 million shares of Conoco Phillips, much higher then the value ended 31 March of 17.5 million. The reason given by Berkshire Hathaway is that it expects global demand for energy will keep on increasing.
Also in the document, Buffett says that he decreased holdings in Bank of America Corp. and at the same time increased holdings in Texas second largest electricity generator NRG Energy Inc.
Berkshire Hathaway in its submitted regulatory documents says that till 30 September 2008, Berkshire Hathaway has more than 83 million shares of Conoco Phillips, much higher then the value ended 31 March of 17.5 million. The reason given by Berkshire Hathaway is that it expects global demand for energy will keep on increasing.
Also in the document, Buffett says that he decreased holdings in Bank of America Corp. and at the same time increased holdings in Texas second largest electricity generator NRG Energy Inc.
Wednesday, November 12, 2008
George Soros: Global financial crisis has bottomed
George Soros in his recent interview with the Estonia media said that the global credit crisis has bottomed and the financial systems are on the self healing stage.
George Soros said that with the filing for bankruptcy of Lehman Brothers, the financial system that has stopped functioning before that has started to work again. But he also mentioned that the unemployment, the survival of the companies and other financial problems arising from the crisis will still continue to happen.
Regarding this crisis, George Soros mentioned that this is the biggest crisis he has ever seen in his life time. He said that he has never seen such a crisis before and he will not see another such crisis again.
To those points by George Soros, secretary general from the Academy of Social Sciences International Financial Research Center 张明 said in an interview with the Chinese media that he basically agrees with what George Soros have said. 张明 thinks that although the financial market will still have some pitfalls, it needs time to stabalize but the big fluctuations in September period will not occur again. After the big fluctuations in September, with the mesures taken by various countries, the banking credit system is starting to show signs of recovery, the banks self healing process can be seen. But 张明 also points out that the current crisis effect on the real economy will need a longer time to recover. The recovery process will take at least 3 to 5 years. The impact to the real economy has just only begun.
Market analysts said that under the current panic period where people are selling their stocks, George Soros and another investing master Warren Buffett have been buying up big companies stocks around the world. Their buy ups stretches from the US to Australia. They are looking for seeds in the market which can provide long term returns. Recently Buffett spent 5 billion USD investing in Goldman Sachs and invested another 3 billion USD in GE. And in last month, Buffett in an article in The New York Times said that he has started to buy US stocks and suggests investors to start investing in the US stock market. George Soros has also started buying 5% of Australia's Sphere Investments. Sphere Investments is preparing to develope a metal mining project worth billions of USD in Mauritania.
Rebound of German Investor Confidence Index
The ZEW Center for European Economic Research in Mannheim announced yesterday the November 2008 Germany's Investor Confidence Index. The data shows that becuase of the Europe Central Bank action in reducing the interest rates and the determination of the German government to stimulate the economy, Germany's Investor Confidence Index shown a rebound from October's -63 to November's -53.5. Analysts expectation were -63.
The German government this month started implementing its 500 billion Euros economic stimulus plan. The German DAX started to rebound last month from its 3 years low. At the same time, the Euro inter-bank lending rates has dropped the lowest point since February.
Frankfurt Commerzbank AG economist Ralph Solveen thinks that investor confidence has reached a turning point. But this will not change the gloomy situation for Germany's economy in the coming few months because the Investor Confidence Index historical average value is -27.1 and currently it has been negative for 16 months consecutively. Also, a gauge measuring investors' assessment of the current situation fell to minus 50.4 from minus 35.9 in October. The Euro November ZEW economic index is -54, expectation was -60.5.
George Soros said that with the filing for bankruptcy of Lehman Brothers, the financial system that has stopped functioning before that has started to work again. But he also mentioned that the unemployment, the survival of the companies and other financial problems arising from the crisis will still continue to happen.
Regarding this crisis, George Soros mentioned that this is the biggest crisis he has ever seen in his life time. He said that he has never seen such a crisis before and he will not see another such crisis again.
To those points by George Soros, secretary general from the Academy of Social Sciences International Financial Research Center 张明 said in an interview with the Chinese media that he basically agrees with what George Soros have said. 张明 thinks that although the financial market will still have some pitfalls, it needs time to stabalize but the big fluctuations in September period will not occur again. After the big fluctuations in September, with the mesures taken by various countries, the banking credit system is starting to show signs of recovery, the banks self healing process can be seen. But 张明 also points out that the current crisis effect on the real economy will need a longer time to recover. The recovery process will take at least 3 to 5 years. The impact to the real economy has just only begun.
Market analysts said that under the current panic period where people are selling their stocks, George Soros and another investing master Warren Buffett have been buying up big companies stocks around the world. Their buy ups stretches from the US to Australia. They are looking for seeds in the market which can provide long term returns. Recently Buffett spent 5 billion USD investing in Goldman Sachs and invested another 3 billion USD in GE. And in last month, Buffett in an article in The New York Times said that he has started to buy US stocks and suggests investors to start investing in the US stock market. George Soros has also started buying 5% of Australia's Sphere Investments. Sphere Investments is preparing to develope a metal mining project worth billions of USD in Mauritania.
Rebound of German Investor Confidence Index
The ZEW Center for European Economic Research in Mannheim announced yesterday the November 2008 Germany's Investor Confidence Index. The data shows that becuase of the Europe Central Bank action in reducing the interest rates and the determination of the German government to stimulate the economy, Germany's Investor Confidence Index shown a rebound from October's -63 to November's -53.5. Analysts expectation were -63.
The German government this month started implementing its 500 billion Euros economic stimulus plan. The German DAX started to rebound last month from its 3 years low. At the same time, the Euro inter-bank lending rates has dropped the lowest point since February.
Frankfurt Commerzbank AG economist Ralph Solveen thinks that investor confidence has reached a turning point. But this will not change the gloomy situation for Germany's economy in the coming few months because the Investor Confidence Index historical average value is -27.1 and currently it has been negative for 16 months consecutively. Also, a gauge measuring investors' assessment of the current situation fell to minus 50.4 from minus 35.9 in October. The Euro November ZEW economic index is -54, expectation was -60.5.
Thursday, November 6, 2008
Warren Buffett's 232 million USD investment in a China company
Warren Buffett's recently not long ago invested 232 million USD in a China company listed on the Hong Kong stock market - BYD.
Is this the company that Buffett was interested in August period where he said he was rejected for a $500 million investment in a Chinese company?
http://financial-information-updates.blogspot.com/2008/08/buffetts-rejected-us500-million-bid-for.html
This is Buffett's next big investment in a China company listed on the Hong Kong stock market after PetroChina. This is also Buffett's second largest investment after the US sub-prime crisis turned into a credit-crisis. Warren Buffett's Berkshire Hathaway Inc. previously announced to invest at least 5 billion USD in Goldman Sachs.
Why did the investment guru strike again at such difficult times in a Chinese company? BYD deals mainly on re-chargeable batteries and cars and slightly more outstanding in the field of electric vehicles development. This current investment shows that Buffett has confidence in that industry.
MidAmerican, which is 87.4%-held by Berkshire Hathaway , said on 27 September it would buy 225 million shares of BYD, equivalent to a 10% stake, for HK$1.8 billion. Berkshire Hathaway is the Omaha investment run by Buffett, holding stakes in insurance and finance, utilities and energy, manufacturing retailing and services.
Based in the southern Chinese city of Shenzhen, BYD Co. has risen from obscurity in a few short years to become the world's biggest producer of rechargeable batteries for cellular handsets. Another business line makes handsets for companies such as Nokia Corp., while another makes gasoline-powered compact sedans and subcompacts, in addition to automobile parts.
Its most attractive asset, some analysts say, and the one believed to have garnered the most attention from Buffett, is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
What's unusual, especially for someone with Buffett's track record in investing in the likes of Coca-Cola and Gillette, is that BYD represents a growth story based on as-yet unproven technologies.
Chinese sales of BYD's gasoline-powered vehicles nearly doubled in the half of this year and climbed nearly 24% in the first two months of the July to September quarter. Analysts caution the firm still has an uphill battle to win over consumers in the rest of the world. It could be especially tough displacing Japanese powerhouses in electric-vehicle technology such as Toyota Motor Corp.
There also could be synergies in Buffett's recent acquisitions. Berkshire's investments in BYD were made about a week after acquiring Constellation Energy Group, whose assets include three nuclear power stations. Berkshire followed that move with a $3 billion purchase of preferred shares of General Electric.
(Article contains reference from article by Chris Oliver, MarketWatch)
Is this the company that Buffett was interested in August period where he said he was rejected for a $500 million investment in a Chinese company?
http://financial-information-updates.blogspot.com/2008/08/buffetts-rejected-us500-million-bid-for.html
This is Buffett's next big investment in a China company listed on the Hong Kong stock market after PetroChina. This is also Buffett's second largest investment after the US sub-prime crisis turned into a credit-crisis. Warren Buffett's Berkshire Hathaway Inc. previously announced to invest at least 5 billion USD in Goldman Sachs.
Why did the investment guru strike again at such difficult times in a Chinese company? BYD deals mainly on re-chargeable batteries and cars and slightly more outstanding in the field of electric vehicles development. This current investment shows that Buffett has confidence in that industry.
MidAmerican, which is 87.4%-held by Berkshire Hathaway , said on 27 September it would buy 225 million shares of BYD, equivalent to a 10% stake, for HK$1.8 billion. Berkshire Hathaway is the Omaha investment run by Buffett, holding stakes in insurance and finance, utilities and energy, manufacturing retailing and services.
Based in the southern Chinese city of Shenzhen, BYD Co. has risen from obscurity in a few short years to become the world's biggest producer of rechargeable batteries for cellular handsets. Another business line makes handsets for companies such as Nokia Corp., while another makes gasoline-powered compact sedans and subcompacts, in addition to automobile parts.
Its most attractive asset, some analysts say, and the one believed to have garnered the most attention from Buffett, is the development of green automotive technologies, including lithium-ion batteries and a related line of hybrid and all-electric vehicles.
What's unusual, especially for someone with Buffett's track record in investing in the likes of Coca-Cola and Gillette, is that BYD represents a growth story based on as-yet unproven technologies.
The company plans to unveil it first green cars in China before the end of the year, and in the U.S. and Europe in 2010. Both the vehicles, and batteries that will power them, have never been put into mass production. The firm is also attempting another first by moving into the production of notebook batteries, stretching beyond its handset-based experience.
"This investment is a bit unique," said Daniel Kim, a research analyst at Merrill Lynch in Hong Kong, adding the company doesn't fall within Buffett's usual value-oriented investment philosophy. "The company has to prove itself; the company is facing a few challenges."
BYD was established in 1995 and listed in Hong Kong in 1992. The company has seven production facilities located in different regions around China.
MidAmerican chairman David Sokol cited BYD's management and strengths in research and development as benefits that made sense in moving ahead with the deal. Sokol will take a seat on the board of BYD as a non-executive director.
"As worldwide discussions relating to global climate change and environmental respect continue, the technologies being developed by BYD will be an integral part of that future."
What's emerging could be a super growth story. BYD's green vehicles may strike a chord with China authorities eager to promote alternative-fuel platforms to reduce the nation's growing dependence on imported oil. With much of the highway and related infrastructure yet to be built, there are also fewer legacy costs, such as mothballing gasoline stations and refineries to consider. Also, Chinese consumers upgrading from bicycles and scooters might be more receptive to electric vehicles than their counterparts in the West.
Chinese sales of BYD's gasoline-powered vehicles nearly doubled in the half of this year and climbed nearly 24% in the first two months of the July to September quarter. Analysts caution the firm still has an uphill battle to win over consumers in the rest of the world. It could be especially tough displacing Japanese powerhouses in electric-vehicle technology such as Toyota Motor Corp.
"There is still skepticism in the market regarding the safety and reliability of electric vehicles, especially ones produced by a new Chinese automobile manufacturer that was previously unknown outside the country," Marco Mak, head of research at Hong Kong's Tai Fook Securities, said in a research note.
Mak said Buffett's endorsement is crucial in helping to alleviate the firm's reliance on short-term debt to fund research and development in its automobile business. The firm will face capital expenditure outlays of about 8 billion yuan ($1.2 billion) through the end of next year.
"Having the endorsement of one of the world's most successful investors undoubtedly provides BYD immediate added capital, credibility and a higher profile," Mak said.
There also could be synergies in Buffett's recent acquisitions. Berkshire's investments in BYD were made about a week after acquiring Constellation Energy Group, whose assets include three nuclear power stations. Berkshire followed that move with a $3 billion purchase of preferred shares of General Electric.
(Article contains reference from article by Chris Oliver, MarketWatch)
Friday, September 12, 2008
Buffett: To save Fredie and Fannie, US government may loose a few 100 billion USD
Investing guru Warren Buffett on an interview with The Wall Street Journal recently said that if the US housing market were to further worsen, the US government's intervention in the helping of Freddie and Fannie may loose a few hundred billion USD.
Buffett says that whether the results for the US government's intervention in bailing out Freddie and Fannie is good or bad will be based on the development of the US housing market. If housing prices continues to decline 15%-20%, the US government may loose a few hundred billion USD. However if the housing market is already near bottoming out, then the losses will be relatively smaller. When asked whether the US housing maket has reached a turning point, Buffett declined to comment on that.
The looser may not be only the US government. Citi's credit analyst says that the CDS for Freddie and Fannie and the banking industry has lost 25 billion USD. Because after the US government's bailout of Freddie and Fannie, they may be unable to repay in full the CDS. Citi's credit analyst also thinks that CDS by Freddie and Fannie circulating in the market is worth about up to 500 billion USD, investors may only be able to get back 95% of it.
After the US government's take over, notes issued by Freddie and Fannie are now in high demand by investors. Fannie Mae sold a record $7 billion of two-year notes to investors, signaling renewed confidence in the mortgage lender. The notes received more than $9 billion of orders, according to The Wall Street Journal. This is the largest single deal notes transaction in history. Fannie Mae placed 63 percent of the notes with US investors. A further 12 percent of the notes went to investors in Asia, 8 percent to buyers in Europe and 17 percent to others. Fund managers took the lead as the biggest buyers of the notes, taking 54 percent of the new securities, followed by 27 percent to central banks.
Buffett says that whether the results for the US government's intervention in bailing out Freddie and Fannie is good or bad will be based on the development of the US housing market. If housing prices continues to decline 15%-20%, the US government may loose a few hundred billion USD. However if the housing market is already near bottoming out, then the losses will be relatively smaller. When asked whether the US housing maket has reached a turning point, Buffett declined to comment on that.
The looser may not be only the US government. Citi's credit analyst says that the CDS for Freddie and Fannie and the banking industry has lost 25 billion USD. Because after the US government's bailout of Freddie and Fannie, they may be unable to repay in full the CDS. Citi's credit analyst also thinks that CDS by Freddie and Fannie circulating in the market is worth about up to 500 billion USD, investors may only be able to get back 95% of it.
After the US government's take over, notes issued by Freddie and Fannie are now in high demand by investors. Fannie Mae sold a record $7 billion of two-year notes to investors, signaling renewed confidence in the mortgage lender. The notes received more than $9 billion of orders, according to The Wall Street Journal. This is the largest single deal notes transaction in history. Fannie Mae placed 63 percent of the notes with US investors. A further 12 percent of the notes went to investors in Asia, 8 percent to buyers in Europe and 17 percent to others. Fund managers took the lead as the biggest buyers of the notes, taking 54 percent of the new securities, followed by 27 percent to central banks.
Saturday, August 30, 2008
Buffett reduced stock purchase by 52% in first half of this year
"God of Stocks" Warren Buffett mentioned that US economy, at least in the coming months, will still be in decline. However, from an investing point of view, current US difficult economy actually created a window of opportunity for investment. US stocks are 'more attractive' as compared to a year ago. But during the first half of this year, Buffett stock purchase has reduced by quite a lot as compared to the same time period last year. Looks like he is waiting for a better opportunity.
Waiting For A Better Investment Opportunity
Buffett recently in his interview with CNBC says that although he believes that the US economy can perform better in the next 5 years, but in the coming 5 months the economic situation may get worse. The sub-prime crisis repercussions will continue to bring difficulty to the financial industry and the economy. His housing development businesses are also facing problems getting credits and the progress is slow.
Talking about sub-prime crisis, Buffett believes that Fannie and Freddy will not go broke easily, but this does not mean that its shareholders can escape. He predicts that if the problems get bigger for Fannie and Freddy, the government will eventually has to step in and help.
Also, Buffett thinks that more banks will go broke, especially those which have a lot of involvement in the housing market. But the FDIC will provide the necessary deposit insurance to prevent the bank from facing mass cash withdrawal.
When talking about investing, Buffett says that from another angle, current bad economic situation in the US economy presents investing opportunities. Stock prices are 'more attractive' compared to a year ago.
Reduction In Stock Purchase
Berkshire's recently announced second quarter financial report shows that currently the company have in cash and assets worth 35.456 billion US dollars, about 315 million less compared to December 2007.
From data provided by Bloomberg, in the first of this year, Buffett sold of 1.76 billion US dollars worth of stocks and bought in 5.51 billion US dollars worth of stocks. In the same time last year, Buffett bought in 11.5 billion US dollars worth of stocks and sold 20.9 billion worth of stocks.
The amount bought by Buffett this year has reduced by about 52%, which may hint that Buffett expects there is possibility of further decline in the US stock market.
On 14 August Buffett showed his latest portfolio. Ending 30 June, Berkshire has about 3.2 million shares of NRG Energy Inc. At the same time, Buffett reduced his stake in Anheuser- Busch Cos. from 35.6 million share in March to 13.8 million shares in June, slashed by 61% before the brewer agreed to be purchased by InBev NV.
On the day the news of Buffett increasing his stake in NRG Energy Inc is released, the share price went up by 4%. Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares says that NRG Energy Inc is US Texas state second largest electrical enterprise. Energy price has risen 24% comparing to same time last year. Demand for electricity is still high. To Buffett, increasing stakes in electrical stocks or public utilities stocks is quite reasonable and NRG Energy Inc quite matches his investing principles.
Buffett, also added to stakes in refrigeration-equipment maker Ingersoll-Rand Co. and Sanofi-Aventis SA, France's largest drugmaker.
On 21 August Buffett says that in the second quarter this year, he finally spent $3.98 billion on equities. The purchases disclosed may have cost Buffett about $260 million all told if he bought the shares at their highest second quarter prices. Berkshire also increased its holding of American depositary receipts in Sanofi-Aventis by 8.8 percent to 3.9 million. So what did he buy with the rest of the 3.6 billion US dollars?
Said Gerald Martin, a finance professor at American University in Washington that considering in May where Buffett made a trip to Europe (Germany, Switzerland, Spain and Italy) to source potential buyouts, he could have invested outside of US.
No Interest In Alberta, Yet
Buffett also clarified that last week he and Bill Gates trip on 18 August into northeastern Canada Alberta on Monday to take a look at the oilsands does not mean that he or Berkshire is interested.
The trip aroused a lot of guessing by investors. The Horizon oilsands development project visited was owned by Canadian Natural. Amount invested was about $9.3 billion Canadian dollars. The project is expected to go into commercial operation before the end of the year.
Analysts says that the Canadian oilsands offers a secure supply of oil for the United States. A source said that Buffett and Gates recently have been understanding about the Canadian oilsands situation. The visit is to satisfy "their own curiosity" but also "with investment in mind."
Because of the high cost involved in the development of oilsands, it still cannot compare to the mainstream crude oil supply. But with the recent rise of the crude oil price, it makes the development of oilsands economically viable. Analyst estimate that to extract oil from oilsands in Canada, each barrel would be about 35 to 45 US dollars. Comparing to current crude oil price, extracting oil from oilsands can be profitable. Some big oil companies have already started to work on the oilsands in Canada. This makes Canada becoming one of the few countries who can increase oil supply at times of tight oil supply situation.
Analysts estimates that Alberta's oilsand contains about 1.8 trillion barrels of oil. And the Horizon project contains about 175 billion barrels of oil. Canada's northern region will add about 100 billion Canadian dollars in investment to work on the oilsands development planning in 2015 to produce about 2.8 million barrels of oil per day.
Another energy analyst says that although the rise in oil price has caused people to drive less, but in the stock market, it has no impact to the oil related stocks superb performance.
Reseachers have said that if investors were to follow Buffett's portfolio, especially those companies that he is interested in, in the past 30 years, the yearly returns can be around 25% which is two times the rise in S&P 500 index.
Waiting For A Better Investment Opportunity
Buffett recently in his interview with CNBC says that although he believes that the US economy can perform better in the next 5 years, but in the coming 5 months the economic situation may get worse. The sub-prime crisis repercussions will continue to bring difficulty to the financial industry and the economy. His housing development businesses are also facing problems getting credits and the progress is slow.
Talking about sub-prime crisis, Buffett believes that Fannie and Freddy will not go broke easily, but this does not mean that its shareholders can escape. He predicts that if the problems get bigger for Fannie and Freddy, the government will eventually has to step in and help.
Also, Buffett thinks that more banks will go broke, especially those which have a lot of involvement in the housing market. But the FDIC will provide the necessary deposit insurance to prevent the bank from facing mass cash withdrawal.
When talking about investing, Buffett says that from another angle, current bad economic situation in the US economy presents investing opportunities. Stock prices are 'more attractive' compared to a year ago.
Reduction In Stock Purchase
Berkshire's recently announced second quarter financial report shows that currently the company have in cash and assets worth 35.456 billion US dollars, about 315 million less compared to December 2007.
From data provided by Bloomberg, in the first of this year, Buffett sold of 1.76 billion US dollars worth of stocks and bought in 5.51 billion US dollars worth of stocks. In the same time last year, Buffett bought in 11.5 billion US dollars worth of stocks and sold 20.9 billion worth of stocks.
The amount bought by Buffett this year has reduced by about 52%, which may hint that Buffett expects there is possibility of further decline in the US stock market.
On 14 August Buffett showed his latest portfolio. Ending 30 June, Berkshire has about 3.2 million shares of NRG Energy Inc. At the same time, Buffett reduced his stake in Anheuser- Busch Cos. from 35.6 million share in March to 13.8 million shares in June, slashed by 61% before the brewer agreed to be purchased by InBev NV.
On the day the news of Buffett increasing his stake in NRG Energy Inc is released, the share price went up by 4%. Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares says that NRG Energy Inc is US Texas state second largest electrical enterprise. Energy price has risen 24% comparing to same time last year. Demand for electricity is still high. To Buffett, increasing stakes in electrical stocks or public utilities stocks is quite reasonable and NRG Energy Inc quite matches his investing principles.
Buffett, also added to stakes in refrigeration-equipment maker Ingersoll-Rand Co. and Sanofi-Aventis SA, France's largest drugmaker.
On 21 August Buffett says that in the second quarter this year, he finally spent $3.98 billion on equities. The purchases disclosed may have cost Buffett about $260 million all told if he bought the shares at their highest second quarter prices. Berkshire also increased its holding of American depositary receipts in Sanofi-Aventis by 8.8 percent to 3.9 million. So what did he buy with the rest of the 3.6 billion US dollars?
Said Gerald Martin, a finance professor at American University in Washington that considering in May where Buffett made a trip to Europe (Germany, Switzerland, Spain and Italy) to source potential buyouts, he could have invested outside of US.
No Interest In Alberta, Yet
Buffett also clarified that last week he and Bill Gates trip on 18 August into northeastern Canada Alberta on Monday to take a look at the oilsands does not mean that he or Berkshire is interested.
The trip aroused a lot of guessing by investors. The Horizon oilsands development project visited was owned by Canadian Natural. Amount invested was about $9.3 billion Canadian dollars. The project is expected to go into commercial operation before the end of the year.
Analysts says that the Canadian oilsands offers a secure supply of oil for the United States. A source said that Buffett and Gates recently have been understanding about the Canadian oilsands situation. The visit is to satisfy "their own curiosity" but also "with investment in mind."
Because of the high cost involved in the development of oilsands, it still cannot compare to the mainstream crude oil supply. But with the recent rise of the crude oil price, it makes the development of oilsands economically viable. Analyst estimate that to extract oil from oilsands in Canada, each barrel would be about 35 to 45 US dollars. Comparing to current crude oil price, extracting oil from oilsands can be profitable. Some big oil companies have already started to work on the oilsands in Canada. This makes Canada becoming one of the few countries who can increase oil supply at times of tight oil supply situation.
Analysts estimates that Alberta's oilsand contains about 1.8 trillion barrels of oil. And the Horizon project contains about 175 billion barrels of oil. Canada's northern region will add about 100 billion Canadian dollars in investment to work on the oilsands development planning in 2015 to produce about 2.8 million barrels of oil per day.
Another energy analyst says that although the rise in oil price has caused people to drive less, but in the stock market, it has no impact to the oil related stocks superb performance.
Reseachers have said that if investors were to follow Buffett's portfolio, especially those companies that he is interested in, in the past 30 years, the yearly returns can be around 25% which is two times the rise in S&P 500 index.
Wednesday, August 27, 2008
Buffett's rejected US$500 million bid for a Chinese stock
Buffett's recent announcement of a rejected US$500 million bid for a Chinese stock is like a rock thrown into the murky pool of the China stock market.
Chinese investors after hearing the news have been scuffling around to find out which Chinese company is that while the China stock market continues to decline.
The situation is very interesting. Its like a lot of people surrounding a big pool of water trying very hard to find out where the rock has dropped into the pool but ignoring the fact that the rock has dropped into the pool and created waves.
Unless Buffett he himself says it out, there is no way to know which company out of the 1000 plus listed company in China that Buffett is interested to buy. But we can do some analysis and determine some basic facts. Like for example from Buffett's speech, we can say that the deal is not successful because the bidding price may be too low. On this argument, we can further say that Buffett is interested in a China share listed on the China stock market and not in the Hong Kong stock market. It is a strategic investment and not an institutional investment.
If the stock Buffett is interested in is listed in Hong Kong, he could have just bought it openly like what he has done with PetroChina and will not be rejected, unless of course it is a substantial purchase amount. There is also one thing to add. Buffett says that it is a good deal and when the environment is suitable, you will see him doing big investments in China. It is believed that the environment that Buffett is referring to is the policy that restricts foreign investments in China.
Chinese investors while searching around to find out which company Buffett is interested in has neglected the fact that Buffett is once again interested in the China stock market. Chinese investors only see on the surface which stock Buffett is interested in and did not think deeper on the background of his recent decision to buy a China stock. Things like why Buffett is interested only recently and not when SSE was at 6000 or 5000 or 4000 points. This should be the key point to note.
Currently the SSE PE ratio is lower than S&P. Although there are a lot of factors like high inflation causing low confidence in the stock market, but maybe with this recent move by Buffett, it may be time to sit down and re-think and analyse the environment again and look at those companies which you think are worth to start investing in again.
Chinese investors after hearing the news have been scuffling around to find out which Chinese company is that while the China stock market continues to decline.
The situation is very interesting. Its like a lot of people surrounding a big pool of water trying very hard to find out where the rock has dropped into the pool but ignoring the fact that the rock has dropped into the pool and created waves.
Unless Buffett he himself says it out, there is no way to know which company out of the 1000 plus listed company in China that Buffett is interested to buy. But we can do some analysis and determine some basic facts. Like for example from Buffett's speech, we can say that the deal is not successful because the bidding price may be too low. On this argument, we can further say that Buffett is interested in a China share listed on the China stock market and not in the Hong Kong stock market. It is a strategic investment and not an institutional investment.
If the stock Buffett is interested in is listed in Hong Kong, he could have just bought it openly like what he has done with PetroChina and will not be rejected, unless of course it is a substantial purchase amount. There is also one thing to add. Buffett says that it is a good deal and when the environment is suitable, you will see him doing big investments in China. It is believed that the environment that Buffett is referring to is the policy that restricts foreign investments in China.
Chinese investors while searching around to find out which company Buffett is interested in has neglected the fact that Buffett is once again interested in the China stock market. Chinese investors only see on the surface which stock Buffett is interested in and did not think deeper on the background of his recent decision to buy a China stock. Things like why Buffett is interested only recently and not when SSE was at 6000 or 5000 or 4000 points. This should be the key point to note.
Currently the SSE PE ratio is lower than S&P. Although there are a lot of factors like high inflation causing low confidence in the stock market, but maybe with this recent move by Buffett, it may be time to sit down and re-think and analyse the environment again and look at those companies which you think are worth to start investing in again.
Subscribe to:
Comments (Atom)
