Warren Buffett's Berkshire Hathaway reports $1.532 billion in after-tax derivatives gains during its second quarter, helping to bring the company's net back into the black.
Most of the "paper" gains for Berkshire's derivatives are the result of rallies by the quartet of stock indexes covered by its "long duration equity index put options contracts."
The contracts are essentially insurance policies against long-term stock market drops. Their current value rises and falls along with the stock indexes they cover, and has to be included in net earnings, according to accounting rules.
Berkshire points out that the mark-to-market accounting produces "extreme volatility in our periodic reported earnings." While Buffett has consistently remained optimistic the contracts will make Berkshire a lot of money years from now, the market hasn't been so sure, and that's helped put pressure on BRK shares, and Buffett's reputation. (It was only a few days ago that Berkshire shares went back above $100,000 for the first time since January.)
This quarter's derivatives gains contributed to an overall net after-tax profit of $3.295 billion dollars for the quarter ($2123 per class A share.) That's up 14.4 percent from $2.880 billion in the second quarter of 2008.
It's also a return to profitability for Berkshire, after it reported a net loss of $1.5 billion in this year's first quarter.