presenting the Finance not so "Reform" bill

I posted previoulsy regarding Warren Buffett's deplorable testimony in Washington regarding the rating agencies and specifically his Moody's service. Things are going swimmingly well for Mr. Buffett's agenda if you tally points by trying to benefit from the free cash being doled out by the government and being able to influence government and regulation. Under considered incarnations of the financial reform bill, Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) likely would be required to put up $6 billion to $8 billion in additional collateral on its $63 billion of index derivative contracts. Not to mention requirements on the huge CDS exposure that it has for municipal bonds. I am quite sure you know how this turned out (click here). We got the bill passed so Hathaway did not get a bill and does not need to post additional collateral on those positions. The reality is that Buffett does not have enough money to cover his CDS and other derivatives obligations in the case of a significant market event. The other reality is that is grandpa/uncle Buffett is really a leverage junkie, it will be a sad state of affairs when the tide does indeed go out.

Warren Buffett and other holders of derivatives lobbied hard to exempt existing derivatives contracts from the requirement to post collateral to cover possible losses.

It would now appear that these efforts paid off, with a letter from Senate Banking Committee Chairman Chris Dodd and Senate Agriculture Committee Chairwoman Blanche Lincoln – two of the main authors of the financial regulation bill – saying that the bill "provides legal certainty to those contracts currently in existence, providing that no contract could be terminated, renegotiated, modified, amended or supplemented" ex post facto.

Warren Buffett’s Berkshire Hathaway conglomerate holds $63 billion in existing derivatives contracts, according to Barclays Capital, so the assurance from lawmakers will save the company from having to commit enormous quantities of capital – possibly as much as $8 billion – to meeting collateral obligations.

Reportedly, the majority of the derivatives sold by Berkshire are equity-index puts, hedging against the possibility of a sustained collapse in stock prices.

I think that one of the greatest assumptions of those able to speculate with the shadow money system is based on there being always being a greater fool or a reasonable way to create one. The rating system was one way and Buffett clearly was deceptive or at the least disingenuous in his testimony regarding it.

Ironically, when the tide goes out...it may not only be JP Morgan and Goldman Tax's (not to mention the rest of the crew) lack of underwear we will be observing...(I for one do not particularly want to see Warren without skivvies) In any case, our revolutionary financial reform bill allows any entity to trade derivatives over-the-counter if they are using them for hedging purposes - for example an airline hedging jet fuel. I think we should get ready for quite a few off-balance sheet airline fuel hedging (I mean speculation) entities funded and run by our discount window supplied and over-leveraged pals...this finance bill is great at managing the people who did not need to be managed, while enabling wolves to roam free via big loopholes for types like Goldman and friends including our buddie Warren.





in case you are interested in seeing some of that testimony, here is a video below:



My comments on June 2nd:

Buffett simply dismisses the biggest bubble of all time as a "bubble-et" and that "...since 300 million people never saw it coming why should Moody's have been expected to see it"...on its face that is rediculous.

More on Buffett...

Warren Buffett Testimony for Committee on Financial Crisis is a disgrace

Check it out: Congressional Tesimony. Apparently, he simply dismisses the biggest bubble of all time as a "bubble-et" and that "since 300 million people never saw it coming why should Moody's have been expected to see it"...on its face that is rediculous.

Warren Buffett investments vs bailout funds

Somebody certainly is in on the government game...interesting to ponder.

Dollar Breaks Out - takes out stops in futures contracts

Over night the dollar broke the 76.40 trendline...and took out stops in the low volume overnight session for the DX contract. The prices popped there to 81.00 on 3,000 contracts. If this was a hedge or speculative position...the net effect was an $11,000,000 hit on those contracts from overnight lows. Please look at these trades to see how you can get killed in overnight stop hunting. DX is not a very liquid contract and can not absorb  a 3,000 contract order.

In any case, the market is not down on european banks as is being spread in the press. The market is down on relative value dollar issues. We may be setting up a leading diagonal for a downside break. This was my assumption yesterday and continues to be a preferred view today.

Buffett's, hair-brained purchase of Burlington Northern is an example of the Buffett credit inflation thesis. Please read my Buffett pieces on the featured article list. Credit inflation is dead...buying transports now is absolutely devastating. Buffett does not understand the financial system and thinks his buddies at the Fed and Treasury will provide enough cushion. The reality is they are not in control. This buy of Burlington may provide some lingering strength for the Equity markets...which will, no doubt, be a great bearish opportunity.

I saw Cramer last night, he has officially lost his mind and should be fired immediately. He is championing good news. Good news comes at a top...he should know that already. CNBS is continuing in their quest to reduce their view ship to Zero.

As long as the dollar is strong...sell rallies IMO.

Warren Buffett approves of Bernake Re-appointment

Warren Buffett the oracle of Omaha and the Berkshire Hathaway CEO was asked by Bloomberg about Ben Bernanke and the FED  he said that he supports the FED and what Ben Bernanke have done also a renomination of Ben Bernanke , he was also asked by CNBC on June 24 wether he thinks Ben Bernanke should be appointed for a second term he answered: 


watch the video interview here

"I don't see how you could do better. Yeah. He has taken decisive action at a time when really decisive action was needed, and extraordinary action, things that we hadn't done before. If he hadn't of done -- I give the Bush administration credit on this. (Former Treasury Secretary) Hank Paulson. They don't do everything perfectly. Nobody does. And we were getting balls thrown at your head by the hour. You're going to make some mistakes. But they got us through a period that, if we had different people in those jobs, I'm not so sure we would have gotten through."

Just watch what happens next...and lets see if Bernake and company caused it, made it worse, or softened the effect...I suspect it will be highly clear that a guy who thinks publicly he prevented the great depression II exactly at the start of the next leg down is not going to be viewed with any credibility. What has Mr, Buffett been smoking...i thought they did not allow that stuff in Omaha.

Warren Buffett - the ultimate bull-market manifestation

Warren Buffett is not an expert at value. Value is non-rational and relative. Nobody is an expert at value since it does not exist. (just look at the 150 pe for the SP500 as an example...is that value now? is it value at 7? Either answer is equally inaccurate since they are both totally arbitrary.)

Warren Buffett is not an expert at  derivatives trading.  He sold billions of dollars of puts on the SP500, FTSE, Nikkei and Stoxx indexes right near the top of the market. There is a difference between being right and lucky. And though my view is that Buffet has more skill than just luck...he has primarily been the beneficiary of luck not skill.

He has written $37.1 billion worth of puts on four stock markets, he has sold SP500 puts (US market), FTSE 100 (UK market), Nikkei 225 (Japanese market), and the Euro Stoxx 50. Some of the contracts come due in 15 years and others in 20 years. They are all European style, they cannot be exercised before expiration. The reckoning is when they expire.

As an example, BRK-A may have written $1 billion on the SP500 when it was at 1300 and received $100 million - $150 million in premium to use for the next 15 years. If in 15 years the index is at 1170, down 10%, BRK-A would have to pay $100 million. If it is above 1300, they pay nothing.

Buffett continues to rationalize his holdings and trades. He continues to play out his own psychological patterns. And most important, he is now a victim of societies psychological patterns in that his decisions seemingly leave him no choice but to try to rationalize his actions and thesis rather than do something about them.

Certainly, his assumptions can not be made viable or rationalized based on the action of the markets. There has to be some other explanation or causality doesn't there? But isn't it the same story all the time, whenever the gig is up - people always resort to "...but its different this time, its not what it seems, everything will be ok". Well, i never thought I would be saying this about Buffet - but that's exactly the prism he is using to rationalize his situation.

Methadone anyone?

In my book, lucky is being on the right side of the credit-inflation story and playing the fiat game well on the way up. What is not lucky is trying to play that same game when the fiat system is dissolving before your eyes. But success via fiat is a high very much like, I guess, heroin or crack...great when you have some - but terrible when you don't. Buffett is addicted to the fiat system and his high is just starting to dissipate. Soon, he will be looking for replacement therapy. Methadone anyone?

Berkshire Hathaway can not sell its assets - too big to fail?

Buffett/Berkshire Hathaway can not sell assets since that would set off a panic before they were even out of 10% of them. Buffett can not back out of his puts because he thinks that using the billions in premiums that he has collected will allow him to survive the loss. What happens when he can not do either? Is Berkshire too big to fail too?

So, what is Mr. Buffett's current investment technique? 

He's become a promoter and a prop for the fiat money system. Masquerading as the last remaining real Bull-market success-story cheerleader, he's trying to convince everyone who will listen of marvelous and imaginative stories. For example, that his old ways (yes the lucky ones he used in the past) are the best choices, that the dollar is going to go in the tank, that holding cash for the last 8 years decreased your purchasing power. Much better to promote your own bubble manifestations like Well's Fargo, Bank of America, Conoco Phillips, GE and Moody's.

What I find truly sad and disingenuous is that he has resorted to promoting himself and his distortions via a structured public relations campaign. Specifically he:

1. has been used as a prop by Bernake and Paulson - obviously for his own benefit. 
2. is directly lying to people through his Op-ed and interview efforts. 

What's more, he most likely is keenly aware of these facts. The only difference is that he has to lie in order to save his empire. If you were in his position you would most likely try to do something too rather than just watch the whole thing fall apart - even if it were crossing the line a bit. If Buffett tries to exit stage left he becomes a victim of his own bull-market demagogue status...everyone will try to exit with him. If he lies...he can simply say he was wrong but tried.  (I think Barney Frank uses that technique a lot - but maybe its just most politicians)

I wish the man no ill will, but when he is advertising that the worst possible investment is Treasuries or cash for the future and that if you held cash or Treasuries over the last 8 years you lost purchasing power - there is no simpler or bigger manipulation of the facts or truth. What's more Mr, Buffett knows it.

Holding cash without getting interest from Treasuries entitles you to nearly double the purchasing power that you had 6 to 8 years ago. Holding stocks which he flatly states is/was the correct strategy has decreased your relative purchasing power by around 20%. This is a net difference of 70% and my numbers are conservative...How could Buffett be that bad at math and run an insurance company - isn't all they do basically fudging with numbers? The answer is he is promoting a scam and he knows it. Why? Because he is likely a victim of that scam if it fails and can not get out if it does. If our currency system is a ponzi scheme (which it is) then Buffet has bought in hook line an sinker and will promote the fraud all the way down even if he has to lie and distort to do it.

What a down it will be for Berkshire and Buffett. A high climb becomes a long fall. People remember the fall much more than the climb when judging history - especially when they have no money left.

Dollar in the tank
The thesis that the dollar will go into the tank is a credit-inflation manifestation. The dollar is already in the tank - its down over 96% since the Fed took over managing inflation (if you want to call it that)...i mean protecting the dollar. But isn't it ironic, people are sure the dollar will go in the tank when it only has a few percent to go to get to zero. I am sorry to inform Mr Buffett - the dollar is already in the tank and maybe it wants to go up now for a few years. 38% retracement anyone?