Warren Buffett’s Berkshire dumps most of Goldman Sachs stake
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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...
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
The repeal passed the Senate on a near party line vote (R over D), sponsored by 3 Republicans, and passed the House will nearly all R and 2/3 of D.
Clinton could have vetoed it, though, since the Senate didn't have a two-thirds majority.
https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93...
Of course, looking to the future from the future, a veto would likely be irrelevant since Bush took over a year and a half later.
Here's a snippet from his signing speech.
>You heard Senator Gramm characterize this bill as a victory for freedom and free markets. And Congressman LaFalce characterized this bill as a victory for consumer protection. And both of them are right. And I have always believed that one required the other. It is true that the Glass-Steagall law is no longer appropriate for the economy in which we live.
https://www.treasury.gov/press-center/press-releases/Pages/l...
Indeed, what I meant to say was "under" and not "by". My bad. Too late to edit.
You might want to do a little reading on the repeal of sections of Dodd Frank.
>The measure’s framework is expected to eventually pass the Senate thanks to a dozen finance-friendly and swing-state Democrats who have openly announced their co-sponsorship. With Republicans in control of the House, the bill seems destined to reach President Donald Trump’s desk this year.
https://newrepublic.com/article/147247/democrats-helping-tru...
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.
The issue comes back to foreign competition. As much as Glass-Steagall made sense to some, it was repealed because US banks faced increasing competition from European banks that were able to bundle advisory with retail bank deposits. Unless everyone takes similar position globally (or we block foreign bank access to our markets) it’s hard to justify a handicap on the home team.
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.
Michele Sindona (Italian: [miˈkɛːle sinˈdoːna]; May 8, 1920 – March 22, 1986) was an Italian banker and convicted felon. Known in banking circles as "The Shark", Sindona was a member of Propaganda Due (#0501),[1] a secret lodge of Italian Freemasonry, and had clear connections to the Sicilian Mafia. He was fatally poisoned in prison while serving a life sentence for the murder of lawyer Giorgio Ambrosoli.
GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s.
And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.
Having gone to a GS recruitment event, that was basically what I came away with. I’m sure they’re doing technically interesting things, but I honestly cannot sort it from the bullshit.
...so you, they were arrogant. Maybe some portion of that was earned?
I know a few people (5-7?) from both high school and undergrad who went to work at Goldman Sachs. 2 in NYC, at least one in both of London and HK. All of them were pretty middle of the road in terms of academic achievement, smarts, leadership etc. The smartest people I know from back then are mostly working at NGOs or academia.
The one thing that all the GS people had in common is that they cared a lot about having a high salary. The kind of guys who like to buy expensive champagne at the club, is embarrassed if they don't make it to Bali for spring break. That kind of thing. Absolutely no moral judgement on my part, this is just what I noticed.
(2) LTCM employed a Nobel winning economist too. Was that "brain trust" the source of PnL, or was it cheap leverage?
Fun fact on LTCM and GS and 1998: according to Lowenstein's account, the GS banker who came to diligence LTCM during the fed-forced bailout was seen furtively reviewing a laptop in a corner. The next day, all the positions recorded in that laptop moved sharply against LTCM... surely this was a coincidence. Great culture they have over there at Vampire Squid, Inc.
He could cure cancer, and angry people online will complain he contributed to overpopulation.
Disclaimer: I listen to a lot of underground EDM semi-professionally so my tolerance might be too high.
Or not. Who knows. 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.
I love it
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.
More in the firnance think we're headed for inflation. as soon as money leave equities/deriv markets.
Is that really a problem, considering it can be combated with money printing?
Pshh - not as long as we have a central bank.
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.
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.
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.
Maybe in the past there was lots of deep-value out there, but now we have analysts working every strategy.
Or squeeze a percent or two of efficiency by taking companies private under 1 umbrella. On average it works out, but it doesn't take many mistakes to sour it.
The source of Berkshire's strong performance was a combination of very good investments (buying American express in 1964) and insurance float, a great credit facility with negative interest rates.
Given the size of the private businesses Berkshire owns, it is quite naive to assess the firm purely on stock-picking performance of Buffett. The operating results really matter, producing $25bn+ of operating profits per year isn't too shabby.
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.
He's also overrated because of all the insider trading he engages in....he would be a lot poorer if the SEC had the resources/will to investigate his moves.
I don't think you know Buffetts track record.
His track record and methods are an open book. And have never included insider trading.
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.
I suppose that few people predicted that this crisis would hit America so hard
Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.
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.
More likely, he’s just thinking about the same facts differently than others. Buffett tends to be quite cautious with regards to potential catastrophic failures, so he’s probably more focused on all of the ways that airlines, banks, etc. might lose a ton of money rather than worrying about missing out on the recovery.
As an analogy, public health experts suggest we should do away with shaking hands in the future. It may well be that social norms such as travelling, shaking hands, etc will permanently change.
This means that AirBnB is dead. And all those people that bought multiple houses, with multiple mortgages, which they can no longer service, are going to go bankrupt. Good riddance.
You can’t short AirBnB, but what other companies can you short? The loan processing companies? Zillow? BofA?
Avis Budget, a car rental company, does 2/3 of their rentals at airports and they carry a huge amount of debt. The car rental space is extremely competitive as it is and new ride sharing offers don't make things easier. Hertz is already very close to bankruptcy
[0] Berkshire Hathaway Chairman's Letter (2001)
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