Berkshire Hathaway/Warren Buffett invests $13 billion in the economy

In a few short weeks, Warren Buffett has made 3 significant investments into selected businesses within the US economy. (He also bought into a Chinese company). The US investments total about $13 billion. They include buying an energy company, Constellation for about $4.6 billion, a $5 billion investment for a part of Goldman Sachs and a $3 billion investment in GE.

Lots of money and all at good prices with good returns. The energy company had a five year stock history of prices at about $50-100/share. He bought at $25.50/share. The company had a leveraged risk problem with energy futures that had forced its stock to collapse to the low $20's/share price.

Goldman had seen its stock price collapse and GE's stock price plummeted because about 1/2 of its business is from its finance wing. GE has been a relatively risk averse financing business. It was not into US home mortgages. It is invested into commercial real estate and a wide variety of corporate financings. It is also invested into British mortgages, which could present a problem.

Wise and powerful cherry picking investments imho. GS just saw 2 of its competitors fold. As the economy rebounds in time, it will naturally pick up market share. GE has simply been a bellweather company performing extremely well over decades in a select number of industries. Constellation has a long term steady business providing energy. He bought the company at a rought 60% discount over its 5 year history.

Should the economy straighten out, he just bought a couple of tremendous winners IMHO.

 

he wants some of the 700bn

 

While Berkshire trades well over 100,000 per share, class B shares are relatively affordable. They are roughly 1/30 of a regular share with no voting rights. They trade at around $4,500 per share.

Ticker is BRK.B

http://finance.google.com/finance?q=NYSE:BRK.B

 

You failed to mention all the terms of what he is buying.

I am willing to bet that GE was within inches of a rating downgrade which would cause a loss much more than what they are throwing at Buffett. It reeks of desperation.

Plus off the top of my head the 10% rate and 10% premium to call in 3 years is something like 13-14%. These rates for a AAA company is robbery. GE must be flat broke. And what does this say about the other weaker companies?

 

Not really, but with the capital markets being seized up its unlikely to them to be able to issue any debt. Their long term debt trades at to a 10% yield

 

Not really what?

 

that GE is Flat broke, they may need to raise reserve to protect against future loses in their finance unit but they are not broke. In fact they got $19 Billion in cash

 

Haha. I would bet you they have ate through all that cash like pacman. Then what is the reason for their CDS trading at a junk bond level? You know something the bond traders do not?

 

GE is/was moving into bad shape. That is why they made the deal with Buffett. He did get great terms.

Its the golden rule. He who has the gold rules.

He did the same with Constellation Energy and Goldman Sachs.

We should look at Berkshire Hathaway purchases over time. He didn't do much buying during the early to mid part of the 2000's as asset and stock prices were rising.

 

I know he wrote a bunch of long dated puts on the S&P500 which are probably heavily underwater. These are MTM as well which are probably hurting Berkshire.

 

Buffet was on Charlie Rose last night. Good interview.

 

The industries he is buying into stand to gain the most from a new route of entitlements if the 700bil passes!

 

I think Bill Gates and Warren Buffett are doing great jobs, for the developing world. Hats off to them!