GO
Loading...

WSJ on How "Warren Buffett Can Make a Lot of Money from Fear"

Warren Buffett is again the subject of the Wall Street Journal's widely-followed 'Heard on the Street' column.

(The motivation for his PetroChina sales was pondered in a 'Heard' column just over one month ago. It appeared to lean toward the view that the sales were at least partly a statement against China's involvement with Sudan/Darfur. Buffett later said politics had nothing to do with his decision to sell.)

Today the Journal's Karen Richardson looks at how Buffett could use Berkshire Hathaway's $45 billion in cash and sterling triple-A credit rating to "cash in from the turmoil sweeping the credit markets."

How? By throwing troubled bond insurers like Ambac Financial Group and MBIA a "lifeline." Their stock prices have been plunging and their credit ratings threatened amid fears the subprime credit crisis could take a larger-than-expected toll on the bonds and other credit securities they've insured.

Berkshire, says the Journal, could provide reinsurance at "hefty" premiums, with Buffett "betting that investors are overestimating the risks" in the credit markets. That reinsurance could help restore confidence in the bond insurers for both the markets and the credit-rating agencies.

The Journal also quotes "people familiar with the matter" as saying Berkshire could "get into the bond-insurance business itself. Those same "people" tell the Journal that "in recent weeks, every major bond insurer has reached out to Berkshire ... as a source of capital relief while their financial strength comes under scrutiny by ratings firms and investors."

As Glenn Tongue of the Berkshire-owning hedge fund T2 Partners tells the Journal, "Fear has moved away from the hurricanes and is now moving into the financial markets. Warren Buffett can make a lot of money from fear."

You'll notice I highlighted the word could in the paragraphs above. The Journal and the "familiar people" it quotes are not saying Buffett will come to the aid of the bond reinsurers. They're saying he could. It sounds a lot like speculation to me. It could even be wishful thinking on the part of all those bond reinsurers who have "reached out" to Buffett. Given Buffett's strong preference for keeping his future plans confidential, it strikes me as unlikely the "familiar people" are working at 1440 Kiewit Plaza in Omaha.

WARREN COMES TO WASHINGTON TOMORROW (WEDNESDAY)

Mr. Buffett will be leaving his beloved Omaha again, but the trip won't be nearly as far as his voyage to Asia with CNBC's Becky Quick late last month.

As I highlighted in the previous WBW post, Buffett is coming to Capitol Hill to testify in favor or retaining the nation's estate tax. It's the latest offensive in his 'make the rich, including me, pay more taxes' campaign.

CNBC.com will carry a live stream of the hearing and I plan to be in the hearing room to provide real-time "live blogging" of the event here on Warren Buffett Watch.

Questions? Comments? Email me at buffettwatch@cnbc.com

Featured