Kiltacular

I love the chart in that article showing, how, at the low point of Goldman's stock price, the warrants had a "negative" value of almost $3 billion. This, of course, reveals a complete and total lack of understanding of these instruments. The value of the warrants could never drop below zero. Berkshire can't lose money on the warrants. Of course, the value of the preferred could drop to zero and Berkshire could lose $5 billion there but that is not affected by (though might be correlated with) changes in Goldman's stock price -- only its solvency. In any case, Berkshire has also collected $500 million for the preferred in the last year. It will collect an additional $500 million when the preferred is paid back (at Goldman's option) and $500 million each year until such date. Finally, I've always assumed that -- as long as Berkshire plans to hold Goldman stock after the conversion date -- the warrants won't be exercised until the last possible moment....why would Buffett give up the opportunity to invest $5 billion elsewhere -- even in treasuries paying only a few basis points -- until the last possible moment. Nevertheless, at least CNBC is reminding everyone Buffett hasn't lost his touch....

From today's posting of the second half. BECKY: All right. Let me go at this another way. Let's pretend you're on a desert island for a month. There's only one set of numbers you can get. What would it be? BUFFETT: Well, I would probably look at-- perhaps freight car loadings and-- perhaps-- and-- and truck tonnage moved and-- but I’d want to look at a lot of figures. (LAUGHTER) Grenvile...I saw this interview but didn't catch the double entendre the first time around....Nice catch. Classic line.

Well, I do think we're on the proper subject now -- will people walk away en masse because they are underwater. Sharper -- my feeling is that if something like you describe really gained traction, laws would be passed / changed pretty quickly to make this type of maneuver unpalatable. But, you raise in interesting point. In Southern California, the last time real-estate really corrected, prices fell about 25% from 1991 to 1996 (roughly). There was a period where a lot of people with a mortgage were underwater. Most didn't walk away. But, if you guys are right and people just keep walking away -- even with the ability to pay -- we will go into a massive depression (I guess we might anyway). My feeling is that before it gets there, you'll see more and more tax breaks, incentives, loan mods (where banks get gov't money to do the mod.), etc., etc. The only way out is to inflate and I believe that is what they'll do. If the gov't has to pass targeted programs to inflate the proper assets, I believe they'll do everything they can. Interesting discussion, as always.

I think a distinction needs to be made -- whenever discussing the housing issue -- between supply and price. Buffett, likely correctly, has explained that new household formation will sop up the rest of the overbuilding in the next 18 months as the run-rate of new dwelling construction is now well below the run rate of new household formation. That should put things back into balance and stem the decline in prices at the lower ends of the housing spectrum. As well, it should allow for the pace of new home construction to go back up (though of course not the level during the bubble). But, that doesn't mean housing prices don't keep falling in various geographies or at various price-points. In my opinion, we've worked through much of the riskiest, most speculative owners and those people have likely walked away. I would guess a high majority of the remaining owners do not want to walk away -- even if their house falls below their purchase price. These people are more likely to walk away if they can't pay their mortgage and that is where unemployment becomes important. Assuming job losses stop within the next 12 to 18 months, we should be through with most of this pain, imho.

Crip...thanks for the memories. I remember the throw he made from the base of the wall in left field to home plate -- ON THE FLY-- over 370 feet to nail Harold Reynolds at the plate -- superhuman. Here's a great clip of Harold Reynolds getting a little ribbing on the subject. Click on the embedded video in the third post in this link (give it a bit and you'll get to see the throw...though I wish the camera work was a bit better): http://forums.eog.com/online-sportsbooks-and-gambling-discussion/bo-jackson-throw-left-field-203897.html He was and still is the most amazing all-around athlete I've ever seen. He's the last pro running back I can remember where he regularly was pitched the ball to the outside with no lead blockers -- just Bo and the open field. I've seen it done a few times but they did it with Bo on a regular basis and the other team new it was coming and no one could catch him. And, of course, if anyone did get in his way....well, he'd run you over....Boz on Monday Night Football. Great memories! Thanks

Someone else can do a poll on the price at which it would happen....

I think the numbers and analysis are solid -- especially as you laid out the three scenarios. Thanks for posting the spreadsheet.

ubuy, Don't forget that, while each "B" share has 1/30th the economic interest of an "A" share, it only has 1/200th the voting power. So, Buffett will retain control of Berkshire until his death.

Great list! thanks

Yeah...thanks...this is the kind of thing I was looking for. This type of thing and anything that relates to presentations / conferences on different sectors -- for example, didn't Prem present at an insurance conference in Toronto recently? I'm looking for a website that might list such upcoming event in NYC. Thanks for your thoughts.

Hey guys, I recently moved to New York City and I'm wondering if anyone knows a good website or two which would list upcoming investor presentations, conferences and the like?? You know, things like "The Goldman Sachs Bank conference" or some such. Also, anything I should know about gaining entry or getting access. TIA

Thanks to you and Grenville for the "thank-you's". Thought I would just use this occasion to say thanks to all the terrific contributors to this board.

This is a pretty good link from the Omaha Paper: http://www.omaha.com/index.php?u_page=1208&u_sid=10622672

hey eric, Wouldn't additional equity raises be good for the preferreds....or are you thinking that preferred holders may be forced to convert to common well below par a la the Citigroup deal.

For those holding RBS-P and/or RBS-S, you may have noticed each spiked almost to $7 today and both closed at $6 -- up over 40% and 30% respectively. Apparently, RBS is offering to buy back some debt at prices much higher than it is currently trading at in the secondary. I couldn't find all the details and had to talk to my broker, who has a Dow Jones feed. But, I think that is the reason for the spike. Here's one article I found: http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLQ97321220090326 If anyone has anything better, please post.

Hey oec...Just want to take a moment to say thanks for highlighting the particular attractiveness of WFC-L. I had been looking at WSF (another Wells one) but this one is callable (already) and doesn't get the good tax treatment....I didn't buy it....of course, it has been a pretty quick double. But, when you pointed out WFC-L I got excited again. Also, a big thanks to ericd for the spreadsheet you put together. This thread, I think I already said, was really one of the best I've seen in a while and shows what a benefit you can get from a community like this. Thinking back to what happpened in the meltdown in the municipal market -- there were probably similar opportunities and I let them go by. This thread on preferreds allowed me to get a handle on what was out there, get some input from smart investors looking at the downside, etc. Obviously, no investment is certain and these may not workout but the risk/reward seems great. This board has turned into my most useful resource -- not because of the ideas alone...but rather because people question each other with logical insights, there is little "ego", I see people questioning ideas that they like -- always a very good sign, etc., etc. I also really like the new board format. At first, I felt that three sub-boards was too many. Now, I feel the opposite...the sub-boards allow for much more focussed conversation. Anyway, next time there is a big dislocation in some area of the market, I hope we get another thread like this one. These dislocations obviously don't happen that frequently but when they do the window doesn't seem to stay open that long.

Hey ericd....I also bought a very small position in RBS-P in my personal account. I'm prepared to watch it go to zero. I also have a very nice gain in a short time but I'm holding this one unless/until we get to at least 80% of Par. This one is for a home run....though my investment is small enough that it won't move the needle much. I did but it in an IRA so the gains and big dividend -- if it works out -- will be tax free for a long time. I have been searching daily for information which supports or undermines the idea that with the U.K gov't bailout, the preferreds will be protected. I have not seen much either way. Reading between the lines, however, you have a firm like AFLAC which holds huge positions in many bank preferreds, including RBS. It seems to me that gov't, banking and insurance regulators are EXTREMELY concerned that if they let preferreds continue to fail in the U.S. and the U.K., the follow-on effects will be horrible. Frankly, that is my bet with the RBS preferreds and to a lesser extent with the other bank preferreds. I think these gov't's decided that letting FNM and FRE preferreds go to zero was a disaster. Since then, you've seen that the preferreds got a sweet deal in the Citigroup bailout (as discussed in this thread). You've also seen that BofA kept their common dividend at 1 penny which forces them (signals to the market) to continue to pay on their preferreds as if they pay any common dividend, they have to pay their preferreds. When you step back and look at how intertwined all these financial institution holdings actually are and you see that the gov't's both understand this and appreciate the downside risks to the system in letting them fail (MORE BAILOUTS), my read is that preferreds in the U.S., U.K. and Canada are mostly, if not all, in the too big to let go pile. Obviously, even if this is right, things could change and we should continue to hunt for any info. which throws a wrench in this analysis (assuming it is even correct for now).

Well, WFC-L is a non-cumulative preferred. But, as long as Wells pays a common dividend, it is obligated to pay on this preferred. But, on the what could go wrong front....things could deteriorate even further for the banks, leading Wells to cut its common dividend to zero and decide to quite paying on WFC-L. You would never get back the lost payments. Wells does have some cumulative preferreds where this wouldn't be the case, but IIRC, they are callable on certain dates. So, there is the possibility that this happens and in that case, I think you would see the price get crushed. But, my read of the situation -- and as discussed in the thread -- it seems that since FRE and FNM quit on their preferreds and the system coninued to implode, it seems the gov't is intent on putting the banks in a position to keep paying on their preferreds and everything that has happened in recent weeks on the gov't front suggests to me that the risks of losing on these preferreds is shrinking by the day. In my mind, buying WFC-L at $500 is still steal given that as you point out, you're still getting 15% until Wells common goes up about 10 fold from here and stays there for 20 of 30 days. Perhaps others have seen some more significant downsides emerging in recent weeks...I see the downside outcomes receding over the last couple of weeks....of course, that is probably the main reason these things are all up 50% or more in that time...

Hi OEC, I'll throw my 2 cents in... (1) The preferreds discussed here were great...I thought this was one of the best threads ever. (2) You have pushed the idea of sitting back and collecting on WFC-L for an extended period....that's my plan. We've got a ridiculously high return from these and as you pointed out, they effectively can't be called for a very, very long time. I think this is an incredibly unusual opportunity that resulted from the fact that they were just issued by Wachovia and it seems to me that barring the financial meltdown, Wachovia (or any issuer of a preferred like this) would have always intended to force conversion or figured that they'd never be converted if the stock went to zero. The fact that Wells stepped in makes these a highly unusual opportunity. My feeling is that you collect these amazing yields and use the proceeds to buy better opportunities. Personally, in my many years of investing, I can hardly recall an investment where I thought I could get a 20% return on the initial investment for as far as I could see. I mean, when I was younger, I "expected" to get those kinds of returns but my experience is that they are extremely rare. The fact that many of the preferreds discussed -- assuming they work out -- offer a great opportunity to avoid the problems so common to outside passive investment. Namely, actually getting money back in your hands and not having to rely on the market to revalue the holding and/or finding that management has squandered excess profits before the market comes around to your view. I have no plans to sell these holdings for some time. Thanks again to all who posted on these ideas.

If you guys are interested in this space, you might also want to check out helmerich and payne (HP). They've got a much newer stable of rigs which work terrifically in horizontal stuff -- they call them Flex Rigs (there's more than one generation). My take is that they're the last to be stacked. Company has solid management, in my opinion. Nothing egregious on options, family run, they've got some reasonably sized stakes in Atwood and SLB which they were selling at when they were 3 times as high. Here's their latest presentation for good, if quick, primer: http://library.corporate-ir.net/library/10/101/101650/items/326418/9CD8C332-6780-492A-A15E-9FBB1EB7BD65_22709_Presentation.pdf kiltacular