Bailout or Buffett: Which Offers the Better Return?
Web Editor, "Mad Money"
Cramer had a eureka moment on Monday: He realized that the US government and Warren Buffett’s Berkshire Hathaway manage very similar portfolios. Check out their holdings:
The US owns General Motors and Chrysler, Buffett owns a Chinese energy-efficient car company. The US controls most of AIG – and as a result of its deal with MetLife, a significant chunk of that company, too – while Buffett has Geico and General Re. And among the housing-related plays, the feds have Fannie Mae , Freddie Mac and Citigroup , and Buffett runs some carpet and furniture companies as well as Clayton Homes.
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Of course, the main difference here is that Buffett is building his portfolio while the government is in the process of divesting. But the US positions hold “more hidden value than people think,” Cramer said. In fact, “I bet that Warren Buffett wouldn’t mind cherry-picking some divisions, including the one that AIG still has to sell.”
Speaking of those AIG subsidiaries, Cramer said the US government is finally starting to realize the value of its holdings because those AIG assets have accrued in value of the past year. He recommended that Washington do an offering the next time the stock spikes in order to get more money back.
Cramer also thinks the MetLife deal is a winner. And while Chrysler might not offer any returns, GM could if we get the 11 million autos sold that the industry has predicted. This company in particular would interest Buffett, Cramer said, because GM commands the biggest market share in China, home of Berkshire-owned BYD electric cars.
Even more exciting, though, might be the cash generated by Fannie and Freddie’s transactions fees. Granted, the mortgage portfolios owned by these two companies are “nightmarish,” Cramer said, but the government could sell off the various fee-based businesses – to Berkshire, whose insurance firms throw off similar cash.
In short, the US government right now is running a “poor man’s Berkshire Hathaway,” Cramer said. And the holdings are so spot on that you might think the feds bought these stocks on purpose rather than through historic bailouts. The government might consider setting up a holding company to dispose of all of these holdings just to get the best prices possible.
“In fact,” Cramer said, “the government owes it to the taxpayers to do just that.”
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