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Buffett Rented Good Name To Goldman Too Cheap


Parsad
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I don't agree with most of the sentiment Alice Schroder expresses in this article, but I do agree with the comment about whether Goldman informed Buffett about the SEC investigation when it first started months ago.  Or did Goldman hide it from Buffett?  Will be interesting to hear what Warren and Charlie say about this at the AGM.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601039&sid=adbst.qXhw9s

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I don't agree with most of the sentiment Alice Schroder expresses in this article, but I do agree with the comment about whether Goldman informed Buffett about the SEC investigation when it first started months ago.  Or did Goldman hide it from Buffett?  Will be interesting to hear what Warren and Charlie say about this at the AGM.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601039&sid=adbst.qXhw9s

 

If Goldman did hide it, do you think WEB/CM would sue? That would really be a blow to Goldman.....

 

cheers

Zorro

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I think shareholder's may have a case, since it is certainly a material event.  Whether they should have told Buffett or not is another matter, since he is a shareholder and shouldn't be privy to material information that isn't public.  I don't think he knew...because if he did, Buffett would have made them go public.  Cheers!

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"It is painful to watch Buffett behaving like a hostage to Wall Street, damaging himself by defending investment banks and saying flattering things about Goldman in a way that contradicts any principled view of the securities business."

 

Who here thinks that deep down, Charlie agrees with the above quote from the article.

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"It is painful to watch Buffett behaving like a hostage to Wall Street, damaging himself by defending investment banks and saying flattering things about Goldman in a way that contradicts any principled view of the securities business."

 

Who here thinks that deep down, Charlie agrees with the above quote from the article.

 

Mungerville, I was thinking exactly the same thing.

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The real risk for Goldman is all the idiots who will now come out of the woodwork to recoup losses that Goldman isn't really to blame for...such as AIG!

 

http://www.cnbc.com/id/36656434

 

I can already see perma-tan man Angelo Mozillo blaming Countrywide's demise somehow on Goldman's advice.  Goldman is guilty of playing both sides of the field and hiding material information, but a lot of people did alot of stupid things that had nothing to do with Goldman.  Cheers!

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Goldman can fight all they want; but the rational thing is to sue, as in its early stages the cost of a lawsuit is essentially a very cheap call option premium. Untill they do a deal with the SEC their share price is going to drop, & at an accelerating rate as support starts 'backing away' from them.

 

But ... Goldman also has an optics problem in that they can't hedge. 

Going long puts now, & going long calls just before they deal, will simply prove the allegations true; and given the extremes - the 'self dealing' gains will be in the billions. Competitors of course will be shorting them down, & doing exactly this  ;D 

 

And .... if they tried their luck with off balance sheet hedges on other peoples books, the fed/SEC will see enough of the trades to go after the hosts ... & spread the tar. Elegant

 

The smart thing is to cave, & quickly.

 

SD

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I have been seeing a few people pitching buy recommendations around for GS.  This completely baffles me.  Here is a company that pays out some 70% some years of its earnings as bonuses to its employees.  The total return for shareholders (stock price basis) since inception has been 100% (11 years) which works out to about 6.5% return per year.  And it was the best performer of all the large investment banks, during the most lucrative period in their collective history.

 

The market mainstream never ceases to amaze me.  

 

 

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Hi Mungerville,

 

I have positions in all of the following.  I wont be adding to any positions right now because I have all I want of each:

 

Bought at prevailing prices.

 

Canfor:  Most recent addition - pulp side of business is going gangbusters.  Once OSB and lumber picks up this will be a homerun.  Bought in the $10 range.  Jim Pattison is the significant shareholder.

 

Precision Drilling: Still as cheap as dirt.  Leveraged and comprehensible way to buy into oil and gas in NA.  They are paying back their debt at a rapid clip.  Should be ready for the drilling boom, when it starts.

 

Mullen Group:  Still cheap as dirt.  Have held mostly for 4 years.  Transport for the western oil and gas business.  Largest independent transport company out west.  Incidentally, FFH holds common and debentures - not sure of the exact holdings (not a reason to buy BTW).  

 

Seaspan-N:  I bought well under $10 - Cant think of a reason why I wouldn't buy at todays prices except I already hold enough.  Cash dispenser.  Will be particularly valuable if they can self finance the remaining ships.  Pays a big dividend to wait.  Good track record through various shipping scenarios.

 

Manulife:  Bought around existing prices - hold some common and some 2011/12 leaps (wont buy leaps on the MSX again - not liquid enough - once your in/your in.  These guys are lagging the market considering the reason they were hammered was due to stock market tied instruments.  Gathering cash at a rapid clip and we know they aren't going anywhere.  I figure 1/3 of Canadians deals with MFC in some way shape or form.  A bit like the Tim Hortons of the health and life business.  

 

Permanent holds - but wouldn't buy more at existing prices: Russell Metals, Power Financial, GE (via leaps), HD (via leaps), tiny bit of JNJ, BCE.

 

Fairfax of course:  I would probably add at these prices - but already hold enough.  

 

A few others that I am slowly reducing.  I am starting to build up reserves for a downturn (no hurry).  

 

This time around I am trying to stay higher on the quality curve.  

 

 

 

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Thanks a lot. 

 

- My portfolio is pretty pathetic in terms of value-type holdings.  As per Grantham, I am long high quality US (mainly KO, JNJ, BRK; these are not even that cheap) and short the market in equal amounts.  (way down on that position although BRK's recent rise helped a lot!)

 

- I hold UTS.to as a cheap long-term call on oil prices

 

- I hold a lot of long-term out of the money calls on precious metals, and hold 20% in gold (similar to Sprott's position)

 

- I hold long-term way out of the money puts on the market (way down from my buy price!)

 

Odds and ends include Walmart, long-term Government of Canadas, COP calls, cash.

 

My portfolio is down in 2010 by 20% so far.  I have been way too busy at work to find good value investments lately which would be helpful to generate returns to pay for the macro optionality costs I am incurring.  Maybe the better solution for me is just go to cash but... that would be too simple! 

 

Thanks for sharing some of your picks - much appreciated.

 

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Hey UCC, why Precision vs any of the other high quality land drillers. I own Ensco in the Offshore market, but have noticed that the drillers have not been hit at all by this recovery.

 

Familiarity...and only so much time to do research. 

 

re:  recovery - yes I have noticed.  Over the long term as there is something of a secular shift in the drilling industry to horizontal drilling of old fields, and more gas drilling, so there should be a big improvement.  Strikes me its a fairly good time in the cycle to be buying drillers.  The sweet spot is reached when most of the drilling capacity is realized before the expenses go crazy. 

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Thanks I will start digging in. I owned PDS before the GW deal and made some cash. I got out before the massive downturn. I dont like the price they paid for GW, but love the fact that they have entered NA. The problem for me is nat gas drilling is very low, but volumes are fairly high. I think you are right though best to get in now before the turn.

 

I looked at PDS when it was discussed on the board, but cash flows seemed low and debt seemed sky high. Things look much better so I think its time to look again.

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Terence Corcoran of the National Post is proposing a positive legal case for Goldman:

http://www.financialpost.com/story-printer.html?id=b8c0d98b-6f86-4bcc-af13-19da67c6fb3b

 

-O

 

 

Goldman can fight all they want; but the rational thing is to sue, as in its early stages the cost of a lawsuit is essentially a very cheap call option premium. Untill they do a deal with the SEC their share price is going to drop, & at an accelerating rate as support starts 'backing away' from them.

 

But ... Goldman also has an optics problem in that they can't hedge. 

Going long puts now, & going long calls just before they deal, will simply prove the allegations true; and given the extremes - the 'self dealing' gains will be in the billions. Competitors of course will be shorting them down, & doing exactly this  ;D 

 

And .... if they tried their luck with off balance sheet hedges on other peoples books, the fed/SEC will see enough of the trades to go after the hosts ... & spread the tar. Elegant

 

The smart thing is to cave, & quickly.

 

SD

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An awesome panel on the Charlie Rose show dissects the Goldman lawsuit.  This is a political move more than anything which is interesting the the ongoing reforms and regulation.  Panel was Michael Lewis, David Boies, and Andrew Ross Sorkin.

http://www.charlierose.com/view/interview/10973

 

Terence Corcoran of the National Post is proposing a positive legal case for Goldman:

http://www.financialpost.com/story-printer.html?id=b8c0d98b-6f86-4bcc-af13-19da67c6fb3b

 

-O

 

 

Goldman can fight all they want; but the rational thing is to sue, as in its early stages the cost of a lawsuit is essentially a very cheap call option premium. Untill they do a deal with the SEC their share price is going to drop, & at an accelerating rate as support starts 'backing away' from them.

 

But ... Goldman also has an optics problem in that they can't hedge. 

Going long puts now, & going long calls just before they deal, will simply prove the allegations true; and given the extremes - the 'self dealing' gains will be in the billions. Competitors of course will be shorting them down, & doing exactly this  ;D 

 

And .... if they tried their luck with off balance sheet hedges on other peoples books, the fed/SEC will see enough of the trades to go after the hosts ... & spread the tar. Elegant

 

The smart thing is to cave, & quickly.

 

SD

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Guest ValueCarl

Alice Schroeder does an outstanding job even while bringing Goldman's Great Depression history into the foray for analogy purposes. However, there isn't an exact correlation because Goldman along with its employees were on the wrong side of the market's crushing wave back then, as I recall it. This time, they were right except they hadn't yet been fully assured of there being enough chips on the table to pay their bets from counter parties until Government Sachs SACKED the US tax sucker. All with Buffett and Munger's blessings I might add! Some will recall politicians including Congressman Brad Sherman discussing the GUNS that were placed at their HEADS during that period. Buffett acted as a bridge in between, for the most part.

 

Speaking of Government Sachs, this is why Goldman, Buffett and a favored legal mind as well as Berkshire share owner of theirs, Olsen, will win!

 

It's a fixed, rigged and criminal game, I tell you!

 

If I've been correctly reading another thread on this board (SNS) surrounding Fremont Insurance of Michigan, and a special "state legislated" PUT to prevent Biglari Holdings(BH) from taking over one of its insurance companies, this principle will not be missed!

 

There's plenty to learn from "Reminiscences of a Stock Operator" tied to the lengths and measures a government will undertake to manipulate a market its way notwithstanding the normal ebbs and flows of supply/demand factors along with human nature in so called, "free market systems." 

 

Goldman rules the known financial universe beyond having dominion over its most important trading partner, The United States Government. imo   

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  • 2 weeks later...

 

How much is too cheap?

 

Despite all the current headlines surrounding GS, it is interesting that BRK has probably made pre-tax profits of US$3bn on the US$5bn investment in cumulative preferred stock of GS with the attached warrants. This is a pre-tax gain of 60% in about 19-20 months since the investment was made or CAGR of about 35% p.a from the time the investment was made.  The absolute dollar level of profits will likely be higher by the time 2013 rolls around (but the return in terms of percentage per annum will be lower) and also highly dependent on the share price of GS at expiry of the warrants. At the very least BRK will earn a 10% p.a return if the warrants expire worthless and that GS remains a good credit risk.

 

The cashflows of the investment so far is estimated to be US$8bn and is attributed as follows:

1. Pref dividend received in 2009 is US$500mn

2. Redemption value of cumulative pref is US$5,500mn

3. Value of warrants on 43.478mn shares at strike of 115 is US$2,043 mn (this conservatively values the warrants at 47.00 each based on the GS Jan 2012 LEAPS with the same strike price - given that BRK's warrants have a longer maturity in October 2013, they are likely to have a higher price using Black Scholes)

 

Is a 35% p.a return, (or US$3bn profit) too cheap?

 

There is one other point to highlight - BRK was given an opportunity to invest in a very attractive security in GS.  I highlight a comment that was made in the 1989 Chairman's letter when BRK made investments in convertible preferred stocks of USAir, Gillette and Champion International which all had coupons of 8.75-9.25%.  The comment also made reference to BRK's earlier investment in the convertible preferred stock of Salomon.

 

"Our lack of strong conviction about these businesses, however, means that we must structure our investments in them differently from what we do when we invest in a business appearing to have splendid economic characteristics."

 

 

 

 

 

 

 

 

 

 

 

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Keep in mind that if 'criminal probe' turns into 'criminal prosecution', they are dead in the water. Primary dealer status goes almost immediately, restructuring/new issue flow dries up, & they're left with only trading; which is in fact what they effectively do. If you deal with a criminal organization, you're also innocent untill proven guilty; but you dont presume that anyone else will touch you untill you can prove your innocence.

 

They are locked into the streets culture, & both them & the street haven't been able to adjust to the obvious reality; they've screwed up so badly that re-regulation is now a given, & its not going back to what it used to be.

 

Probably too late to cave now.

 

SD 

 

 

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