Buffet Slams Derivatives Markets

[The Greeks]

http://www.fool.com/investing/value...-final-questions-from-the-annual-meeting.aspx

You've gotta love good ol' Warren! He's never been a huge fan of derivatives, and he certainly isn't shy about speaking his mind when he has an opinion on a subject.

Of course, this isn't the first time that he's run off at the mouth about derivatives causing doomsday...

http://www.telegraph.co.uk/money/ma...ff04.xml&sSheet=/money/2003/03/04/ixcity.html

Seems to be a familiar refrain for him...

 

[El OchoCinco]

Also hypocritical given the enormous notional value of derivatives he holds directly and indirectly...

 

[S2007S]

im way ahead of Buffet...


S2007S


Registered: Aug 2006
Posts: 3369


03-19-07 04:38 PM

Anyone know when this will start to unwind???


Along with the private equity sector...

I think this is the next huge problem that is going to be more serious than the dot.com bust and the subprime mortgage fallout combined.

Too many are over-leveraged.

Edit/Delete • Quote • Complain

 

[virgin]

Quote from S2007S:

im way ahead of Buffet...


S2007S


Registered: Aug 2006
Posts: 3369


03-19-07 04:38 PM

Anyone know when this will start to unwind???


Along with the private equity sector...

I think this is the next huge problem that is going to be more serious than the dot.com bust and the subprime mortgage fallout combined.

Too many are over-leveraged.

Edit/Delete • Quote • Complain

The Warren Buffet of ET

 

[maxpi]

The 1929 crash involved some horrendous over leveraging. From what I read people could buy some stock with lots of leverage, take physical possession of the certificates and deposit them in a bank, then borrow on them to buy more stock with leverage.

The Orange County California treasury and Barings Bank were both damaged by derivative investments that went way wrong, there may be other examples.

There may be an overall saving grace in that derivatives are uncorrelated.

 

[Cache Landing]

Buffet's last statement regarding derivatives:

I hold 65 options positions and manage them all personally.

Or something to that effect. I'll try to find it.

 

[atticus]

Quote from S2007S:

im way ahead of Buffet...


S2007S


Registered: Aug 2006
Posts: 3369


03-19-07 04:38 PM

Anyone know when this will start to unwind???


Along with the private equity sector...

I think this is the next huge problem that is going to be more serious than the dot.com bust and the subprime mortgage fallout combined.

Too many are over-leveraged.

Edit/Delete • Quote • Complain

Looks like a question to me.

 

[atticus]

Quote from maxpi:

The 1929 crash involved some horrendous over leveraging. From what I read people could buy some stock with lots of leverage, take physical possession of the certificates and deposit them in a bank, then borrow on them to buy more stock with leverage.

There may be an overall saving grace in that derivatives are uncorrelated.

Right, it was an unsecured repo.

 

[Arnie]

Quote from maxpi:

The 1929 crash involved some horrendous over leveraging. From what I read people could buy some stock with lots of leverage, take physical possession of the certificates and deposit them in a bank, then borrow on them to buy more stock with leverage.

The Orange County California treasury and Barings Bank were both damaged by derivative investments that went way wrong, there may be other examples.

There may be an overall saving grace in that derivatives are uncorrelated.

Don't count on it. They may not be correlated, but in a big downturn ALL asset classes could drop.

 

[JamesVU2000]

The counterparty risk is the huge problem. Look at the investors who took the other (winning) side of the subprime cds market. It hard to be a crisis hunter as Taleb would say when you can't collect. No wonder everyone wants to write insurance.