In BNI Buffett Agrees Equity Soon is Dead Money ~ The Risk Averse Alert

Tuesday, November 03, 2009

In BNI Buffett Agrees Equity Soon is Dead Money

Today, November 3rd, 2009 - a date which will live in financial infamy - the asset class called equity was suddenly and deliberately swapped for a capital-intensive physical asset by the Empire of Omaha. Why?

(I hereby submit a motion recommending that, with ownership of a major American railroad, the former "Oracle of Omaha" from hereon be known as the "Emperor of Omaha.")

Why does not Buffett average his BNI cost over time? Why suddenly grab the whole thing? (And pay a fat premium no less!)

One wonders whether many investment bankers tonight will be doing some serious crunching of numbers, or whether the premium Buffett is offering BNI shareholders is his way of saying, "Don't bother."

And about Buffett's ballpark $35 billion commitment ... in the day when wildcat finance ran full throttle and made for easy profits in core BRKA businesses (not that the two necessarily are related), how many other ways might a sum this great be invested?

Why grab full control over a core physical asset of the U.S. economy, extraordinarily capital-intensive though it be?

Might this be how a billionaire investor best insures his legacy's posterity given the risks present today?

Buffett's equity is currency ... and with that currency there's apparent urgency to secure something likely to possess lasting, wealth-producing value.


Why not wait for the possibility BNI's shares might go on sale?

Because there's an equal possibility BRKA shares might be marked down harshly, too. And what then might this equity buy? Who knows!

Everything's Zen? Everything's Zen? Buffett don't think so. He's grabbing what he can while his just as grossly overpriced equity still has great currency.

And what did he do to bolster this, his equity's currency? A 50-1 split in BRKB, making it as easy as pie for every living sucker to own a piece! Said suckers are those who believe Mr. Buffett's "faith in America" is his primary motivator for buying all of BNI. Trouble is it's not.

No doubt, BNI likely will help preserve the long-term book value of BRKA. That's Buffett's prime motivation. And this comes aware there might be awful years in the rail business ... and possibly awful years upon awful years to endure. Yet despite this, Mr. Buffett went all in. The prospect of losses, likely or not, plainly is endurable ... because in fact it is reasonable to have faith in American progress.

It is hard to disagree with this position he has taken. Surely Mr. Buffett accepts the possibility of enduring losses should the rail business falter. "Faith" is its faltering won't turn fatal. Seems likely it won't.

I submit that, like me, Mr. Buffett recognizes equity is grossly overpriced and fears his, too, might soon become dead money. This, I believe, is the yet untold story behind today's big news. I would only add that some silent sense of this does appear evident among various observers. The realization that Buffett's move is not necessarily bullish for stocks in general — though largely unspoken — does not appear far removed...

Fast Money
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Anonymous said...

Are head and shoulders tops forming?