dcollon

These appeared this morning from Doug Kass: After the close of trading, Moody's (MCO) stripped away Berkshire Hathaway's (BRK.A) Triple-A rating. This move, following Fitch's downgrade last month, is almost laughable in its timing. But, if nothing else, investors have become inured to untimely moves by the ratings agencies. As to the effect on Berkshire Hathaway's balance sheet and income statement, it is negligible. Gross debt expenses will only rise slightly -- thanks to the company's still large cash hoard and given the fact that Berkshire is overcapitalized (both absolutely and vis-à-vis other insurance companies). Importantly, Berkshire has structured its derivative contracts ingenuously in the fact that it did not have to provide additional collateral when the major world stock market indices dropped precipitously; it simply recorded non-cash charges. Nights in white satin, never reaching the end. Letters I've written, never meaning to send. Beauty I've always missed, with these eyes before. Just what the truth is, I can't say anymore. -- "Nights in White Satin," Moody Blues The irony is that the Moody's downgrade has coincided with: a substantial improvement in the value of Berkshire's investment portfolio; and a reversal in some of the losses from Buffett's foray into shorting puts on the major world indices. As it relates to Berkshire's common shares, I have been conspicuously negative toward the composition of Buffett's investment portfolio and what I described as his "style drift" regarding the foray into derivatives. My concerns peaked regarding the plight of Berkshire Hathaway's shares with a column I wrote as the U.S. stock market was bottoming in early March, "Buy American? I'm Damned!" At the same time, I qualified that view with the notion that I admired Buffett's remarkable long-term record; from my perch (and from many others'), he is the single greatest investor in modern financial history. Tuesday, afternoon, I'm just beginning to see. Now I'm on my way. It doesn't matter to me, Chasing the clouds away. -- "Tuesday Afternoon," Moody Blues I have often written that both Cassandras and Polyannas are attention-getters, not money-makers. My day job is to deliver superior investment returns to my clients, and, in order to provide alpha, flexibility is a necessary reagent, so is a contrarian streak, logic of argument and strong financial dissection and analysis. When conditions change, as they appear to be doing now -- see this morning's Wells Fargo (WFC) news -- opinions must change, and opportunities must be embraced. This is especially true in the case of Berkshire Hathaway as the considerations that led to my shorting of Berkshire Hathaway's shares at around $145,000 a share have now reversed, and, with the shares today trading under $90,000 a share, I have begun to accumulate a long position in Berkshire Hathaway. My current estimate of Berkshire's investment portfolio value is now in the neighborhood of about $73,000 a share, so I am paying less than 3.5 times after-tax operating earnings for the non-investment assets of Berkshire Hathaway. If we triangulate Buffett's own view of intrinsic value of Berkshire (in the letters to shareholders in the 1990s), the intrinsic value of today stands at about $115,000 a share , or nearly 30% higher than its share price. And, as I expect the world's stock markets to advance smartly from current levels (and for financial stocks like Wells Fargo to lead the way), the value of the company's investment portfolio and its intrinsic value will likely be much higher by midyear. (This morning's $3 premarket rise in Wells Fargo's shares equates to more than a $1 billion increase in value in Berkshire's investment portfolio.) Moody's move yesterday was classic in it's timing; the horse has already left the barn. And, umm, memo to Moody's: You better go now! Go now! Position: Long BRK.A

Everyone who is involved with WFC, BRK or the preferreds should read this preliminary data. Wow... http://finance.yahoo.com/news/Wells-Fargo-Expects-Record-bw-14889738.html

MPG looks like it could be an interesting spec. The pfd is cumulative and it looks like they didn't pay the Dec. dividend. I haven't gone through the documents, but it would be interesting to see if the pfd shareholders can elect board members after a certain amount of quarters when the dividend hasn't been paid. Michael Ashner is obviously a great real estate investor, but it's going to be tough for him to get 25% of shares (I realize that he already owns 9.5%).

I enjoyed this commentary from Bankstocks.com. http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=5742&ArticleTypeID=2

I still like the following: Everest Re (re.b) Markel (mkv) Hilltop Hldgs (hth.a) I'm glad this thread has worked out so well. Some great idea sharing.

I obviously missed this a month ago, but thought I would pass it along anyways. I figured some might enjoy reading it. I searched the site to see if was already posted and couldn't find it, so I apologize in advance if it's already out there. http://www4.gsb.columbia.edu/null?&exclusive=filemgr.download&file_id=6836

I thought some of you might find the comments (below) from a sell-side firm interesting. Some of what is mentioned has already been mentioned in this thread. A few people have asked me about going long C common and for my long-term shareholders and those that can trade the prefs I would take a look at the following... You can buy the C P pfd = currently trades at $13.11 ...each C P pfd will be exchanged for 7.30769 shares of C common - meaning you create C common at a price of $1.82 a share roughly - this at a time when the common is trading at $2.49 - a pretty meaningful pick-up. Why is the spread this wide? because people can't get a borrow in C to set the arbitrage up and there is a finite amount of buyers in the pref market. We think the swap could take anywhere from 6 weeks to 3 months to complete. For guys who already own C common when they took a flier on it down near $1.00 you can sell your common here and buy the pref and essentially get back in the stock at 60c discount and lock in the gain on the flier you took. This trade is for those more bullish on C long term that (1) have to own because it’s part of the index and (2) think that C survives and is worth $5.

If this has already been posted I apologize. I didn't see the video link anywhere. http://tinyurl.com/dbsga4

OEC, It depends on the structure of the preferred for tax treatment. Trust preferreds and enchanced trust preferreds dividends are taxed at the ordinary income tax level (in taxable accounts). The reason is the dividend is deemed interest income since the trust owns debt securities. Straight preferreds qualify for the the reduced dividend tax level. The prospectus should have all the detail you need. Hope that helps.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHc37dvgJRn4&refer=home#

Since I started this thread and Citi is forcing the conversion of some preferreds I thought I should make a quick comment. I still think many of the preferreds (not necessarily Citi's) are interesting are current levels. I also would point out that even though many of Citi's preferred securities will be forced to convert the trust preferred & enhanced trust preferred will continue to be paid (C.u and C.v). Unfortunately, the government doesn't seem to have a playbook. They are reacting and sending mixed messages to investors i.e. suspending FRE & FNM preferreds outright and now splitting Citi's. This is a horrible thing to do given the current environment. It will be interesting to see which companies are hurt by the most recent move. My guess is that anyone who owned the Citi preferreds should have already taken an impairment charge, but it might not have been enough.

kawikaho, Not many that I'm aware of, but Everest Re and Markel are in the insurance space and have less balance sheet risk as it relates to the banks. However, they obviously face risks from the insurance business. I would suggest taking companies you like and seeing if they have any preferred/debt outstanding that might be interesting.

ericd1, I thought you might find it interesting that Doug Kass just posted in his blog that he is starting a position in PGF. I know many believe that Doug is a hack, but I find his commentary to be quite interesting.

I have listened to it and find management to be impressive. I like the individual businesses that they own and believe that management have been good stewards of shareholders capital over time. The presentation is also nice since it provides slides to go along with the communication. I don't completely agree with the valuation that Barron's put out over the weekend, but would agree that the Loew's is certainly trading at a discount to the sum of the parts.

mhdousa, Below is a presentation that management made not too long ago. It should provide some more insight into Loew's businesses. http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-EventDetails&EventId=1990428

oec2000, I agree with your comments on the equity like returns. I have built a small basket that should yield close to 9-10% pre-tax. In addition, I also believe their is the potential for capital appreciation over time. Time will tell if this is as good an opportunity as it appears to be.

I wanted to start a brief discussion of preferred's that board members either own or are following closely. Here are a few that I either own or am keeping a close eye on: Markel (MKV) Everest Re (RE b) M&T Bank (MTB a) US Bancorp (USB j) Hilltop Holdings (HTH a) Schering Plough (Convert) (SGP b) JP Morgan Chase (JPM y)

Scorpion, This might help a little. http://www.investopedia.com/terms/p/paidincapital.asp

I have a couple quick questions: When reviewing a banks liabilities are banks with higher levels of non-interest bearings deposits worth more that CD funded banks in your eyes? How do find your ideas? i.e. screens, other investors, etc... Thanks and great idea. I look forward to reading his/your comments.

You will have to register, but it's free.

Below is the link to the Markel transcript. I think it is worth a read for those involved with the company. Tom Gayner had some interesting comments on the investment portfolio. http://seekingalpha.com/article/118242-markel-q4-2008-earnings-call-transcript

I thought some of you might find Bill Ackman's recent presentation to his partners interesting. http://dealbreaker.com/images/thumbs/Annual_Dinner_Presentation_1.22.2009_FINAL.pdf

The attached letter is Greenlilght's 2008 partners letter.

I would take some time to review the operating results. The Q4 results are interesting and don't appear as bad as some have suggested. However, I can understand the frustration about multiples/valuations.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ambS7aPxIaw4&refer=home