Warren Buffett’s Berkshire dumps most of Goldman Sachs stake

https://www.ft.com/content/bc7816bb-fbff-4b68-89f5-b186ad2e7ee8

by yarapavan • 6 years ago

144 86 6 years ago

Speaking somewhat anecdotally, Goldman Sachs in 2020 does not resemble Goldman circa 1998 or even 2008. A lot of brain trust was lost following the post-crisis de-risking and vilification. The move into retail finance, to me, solidifies its mystique shedding.

drawkbox• 6 years ago

move into retail finance

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1].

Commercial real-estate was already going to absolutely hammered.

Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.
Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).
Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.
ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.
It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

Exact same trick as last time, just last time residential and this time commercial.

Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.

Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now.

The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc.

Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem.

The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas.

[1] https://www.propublica.org/article/whistleblower-wall-street...

logicchains• 6 years ago

Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.

More like time to stop propping them up. If the government hadn't stepped in to save them during the last crisis, a bunch of those banks would have gone the way of Lehman Brothers.

arcticbull2• 6 years ago

So this was a solved problem with the Glass–Steagall Act (1933) brought in after the, you guessed it, great depression [1]. It was of course repealed (by Bill Clinton), as we'd learned our lesson thoroughly and completely. This led to 2008. And 2020.

So naturally, given the broad-based success of the repeal, there's no interest in reviving it.

[1] https://en.wikipedia.org/wiki/Glass–Steagall_legislation

cowsandmilk• 6 years ago

Not sure why 1998 is relevant to a stake Berkshire bought in 2008.

rmrfstar2• 6 years ago

Because GS has never been about having a "brain trust". It is about proximity to power.

That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.

voldacar3• 6 years ago

Fun fact: The CEO of Goldman also makes pretty bad EDM music

https://soundcloud.com/djdsolmusic

fxtentacle• 6 years ago

Apparently, there are not enough groupies for CEOs ;)

malux85• 6 years ago

Oh this is terrible.

I love it

puranjay• 6 years ago

Maybe it's because I'm an amateur musician and hear some truly awful music, but by EDM standards, that's at least mediocre, not "bad".

koheripbal2• 6 years ago

The only thing you're missing is the requirement to hate anything a banking CEO produces, no matter the quality.

He could cure cancer, and angry people online will complain he contributed to overpopulation.

voldacar3• 6 years ago

Well by bad I meant flavorless, generic, forgettable, so maybe mediocre would be the better term :)

swyx• 6 years ago

honestly i like that he doesnt take him self too seriously and puts himself out there

eganist• 6 years ago

Sounds pretty standard for the genre honestly. Give him a few years though and he'll start to experiment.

Or not. Who knows. My guess is this is a hobby for him.

paulcole• 6 years ago

My guess is this is a hobby for him.

I’m not sure what would give you that idea.

He’s said in interviews he expects that when the EDM thing takes off he’ll transition out of his role at Goldman. Apparently he had to cancel a couple weeks of shows in Ibiza after COVID hit.

hawaiian• 6 years ago

The first ~25 minutes of D-Sol Mix October 2018 aren't bad.

Disclaimer: I listen to a lot of underground EDM semi-professionally so my tolerance might be too high.

coronadisaster• 6 years ago

looks like he is just mixing, and most of the time with the help of another DJ?

dredmorbius2• 6 years ago

http://archive.is/b7h3A

(fo, li, md, vn, ph, and today are alt TLDs: https://en.m.wikipedia.org/wiki/Archive.today)

blackrock3• 6 years ago

What does he know that we don’t?

He just dumped most of his airline holdings, after losing some $5 billion dollars.

It seems he might be going into cash, and sitting things out, until a true correction hits, and then he’ll go back in and pick up companies for pennies on the dollar.

mam22• 6 years ago

He was not so wise on the airlines...

H8crilA• 6 years ago

That really remains to be seen.

Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.

blackrock3• 6 years ago

The $5 billion loss is likely pocket change to him.

But he might be onto something. Which means, does he know some insider knowledge that we don’t?

The airlines industry is practically about tourism. Yes, there is business travel, but tourism is an important part of it. But, there is unlikely to be any significant tourism in the years ahead, until some kind of vaccine comes out.

So, does he know about some insider knowledge here. He doesn’t take strategic positions like this on a whim, and he clearly operates on fringe insider knowledge.

Maybe his buddies are telling him, that here will likely never be a vaccine? Now, that is an interesting and possibly tradable thesis. Short the airline companies.

mxschumacher6• 6 years ago

because he didn't predict a global pandemic and a government ban on flying?

Selling at a loss is hard, Kudos to Berkshire for understanding that the world has changed and acting accordingly, most investors are going to try to sit this out and might well lose everything in the process.

Slartie• 6 years ago

He lost a huge pile on Kraft Heinz, and that was pre-Corona. Didn't yet realize those losses AFAIK.

He lost a pile on the airlines and even decided to realize those losses.

He lost a pile on that petroleum company that I forgot the name of, but which crashed and burned recently due to oil prices plunging.

He hesitated a long time with tech stocks and lost a lot of money in the last decade due to opportunity cost. His only good bet in that area was Apple, and admittedly that paid off nicely, but even his big stake doesn't compensate for missing out on basically all other tech stocks. Especially since the size of his Apple investment suggests that he played a significant part in raising the Apple stock value, which means that he probably can't pull that out again without depressing the stock price.

Bottom line: I think Warren Buffett is overrated. He fails, just like anyone else.

ohashi• 6 years ago

Didn't he make that bet essentially by saying index funds would beat hedge funds?

tguedes• 6 years ago

Warren Buffet is currently overrated because he doesn't invest in a lot of tech stocks because he claims to not have a complete understanding of the business.If you look at his record from the 70s-90s, you will realize he is the greatest investor ever. We all have our strengths and weaknesses, don't judge a fish on its ability to fly.

I think its great that he doesn't invest that much into tech and is very public about it. It influences other people to not invest in every little thing that is popular if they don't understand the business mechanics behind it.

mxschumacher6• 6 years ago

I believe you would do well in studying the details of the deals you have mentioned before concluding they are failures.

Berkshire financed Occidental Petroleum's acquisition of Anadarco by giving $10 bn in cash. In return, BRK received:

- $10bn wort of perpetual cumulative preferred shares with a coupon of 8% (e.g. $800m a year). OXY can choose to pay in common shares instead of cash, but in this case Berkshire will get a discount. They have done this for the most recent quarterly dividend payment, since OXY's share price is so depressed, the $200m add up to a sizable position in OXY. If OXY doesn't pay the dividend, the coupon rises to 9% and has to be paid latter. OXY can redeem these shares at 105% of the nominal value in about 10 years.

- warrants to purchase 80m common shares until 2030, the strike price is $62.5, so this option is far out of the money. But given the extremely long duration (11 years) it is quite possible that those warrants become extremely valuable over time.

Let's wait for a few years and see how Berkshire does on the OXY trade.

drumhead• 6 years ago

No, I dont think he's overated at all. See the article linked. https://www.barrons.com/articles/berkshire-hathaways-investi...

valuearb8• 6 years ago

During the period of all the failures you mention Berkshire is only up around 50%.

dilandau2• 6 years ago

Many in finance think we're headed for deflation. If that's the case, dumping equities for cash is a sensible move. He may be expecting chaos in the banking sector as bankruptcies roll in, and these mortgage fund fraud allegations gain traction.

It's going to be a wild decade. Watch the government use this to vastly expand surveillance powers, too. Not going to be good for the average American.

mxschumacher6• 6 years ago

The positions in GS and WFC have been reduced over the last few quarters, these sales should not be interpreted as "dumping equity" - besides the large private holdings (insurance, rail, energy, lots of manufacturing, retail etc), Berkshire still holds $200bn worth of equity.

dilandau2• 6 years ago

Thanks for clarifying

valuearb8• 6 years ago

Wasn’t the WFC reduction you keep BRK under the 10% limit for banks?

gruez• 6 years ago

Many in finance think we're headed for deflation

Is that really a problem, considering it can be combated with money printing?

magicsmoke• 6 years ago

Isn't the Fed supposed to print as much money as necessary to ensure positive inflation?

MiroF2• 6 years ago

Many in finance think we're headed for deflation

Pshh - not as long as we have a central bank.

altmind• 6 years ago

Many in finance think we're headed for deflation.

More in the firnance think we're headed for inflation. as soon as money leave equities/deriv markets.

ineedasername2• 6 years ago

He doesn't seem to be picking up stakes elsewhere, which makes these moves seem like a flight to safety, seeing few investments worth the risk. Of course he could have deals in the works: he hasn't personally told me anything yet.

lonelappde4• 6 years ago

That's 5% of GS shares. Did it push the price down?

raincom• 6 years ago

Buffett's Berkshire Hathaway owns a range of companies, giving him an insight into the fundamentals of economy. However, retail investors and many hedge funds just focus on the market psychology, and hence, momentum. So, Buffett knows something that other don't know.

valuearb8• 6 years ago

His returns were far better before he owned any companies.

Warren Buffett’s Berkshire dumps most of Goldman Sachs stake

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