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  • Writer's pictureJeff Matthews

Is Buffett Worried? Part II: “It’s Not Personal, Sonny.”

Finally, Berkshire Looks Undervalued By ANDREW BARY

Ignore misplaced skepticism — Buffet’s baby is finally cheap again.

—Barron’s, November 24, 2008

Well, now we know.

The culprit in Berkshire Hathaway’s recent fall from grace—at least in the credit default swap market—may just be the very firm Warren Buffett himself invested in just two months ago.

That firm would be Goldman Sachs.

According to this week’s Barron’s:

The Street talk is that Berkshire’s counterparties, believed to include Goldman, are worried about their Berkshire financial exposure and are trying to hedge that by buying protection in the credit-default swap market.

Barron’s goes on to point out what we alerted readers here on Thursday:

The cost of that protection last week hit five percentage points — up from a half-point earlier this year, and seemingly absurd for a company that still deserves a triple-A credit rating. Similar protection for Chubb (CB), which has a lower credit rating, costs less than a percentage point.

What makes Barron’s speculation particularly juicy is the fact that Warren Buffett is an extremely loyal person. Buffett almost never replaces the CEOs of the 76-plus Berkshire companies, short of government pressure in the case of General Re; never sells what he calls Berkshire’s “permanent” investments in the likes of Coke and Washington Post, no matter how high the price or how much their prospects have change; and even hangs on to once-great companies such as Fruit of the Loom despite the near-total evaporation of their competitive “moat” and the inevitable decay in their business.

One wonders, if the Barron’s speculation is true, how Buffett feels about Goldman Sachs’ own peculiar notion of “loyalty”…which is to say more of the Michael Corleone type—“It’s not personal, Sonny. It’s strictly business”—than of his own.

Jeff Matthews I Am Not Making This Up © 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

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