Buffett admits some Berkshire derivatives will lose money

[Daal]

"“I would expect those contracts to show a loss before investment income, and perhaps after investment income.”
http://ftalphaville.ft.com/blog/2009/05/04/55418/the-sage-of-omaha-loses-some-of-his-sheen/

If the US goes japanese he gets clobbered in equity derivatives as well. He said he shortened the maturity of some equity derivatives from 20y to 11y in exchange to lowering the strike price

 

[atticus]

Quote from Daal:

"“I would expect those contracts to show a loss before investment income, and perhaps after investment income.”
http://ftalphaville.ft.com/blog/2009/05/04/55418/the-sage-of-omaha-loses-some-of-his-sheen/

If the US goes japanese he gets clobbered in equity derivatives as well. He said he shortened the maturity of some equity derivatives from 20y to 11y in exchange to lowering the strike price

Yeah, and he did it <800 on SPX.

 

[Rodney King]

Quote from atticus:

Yeah,

I'd imagine that among its many insurance holdings BRK has much greater potential blackholes than its equity-puts position -- but to fully appreciate their subtleties would require a deep understanding of the insurance business -- which is not a typical e'trader skillset -- hence the preponderance of chatter about the equity puts.

 

[atticus]

Quote from Rodney King:

I'd imagine that among its many insurance holdings BRK has much greater potential blackholes than its equity-puts position -- but to fully appreciate their subtleties would require a deep understanding of the insurance business -- which is not a typical e'trader skillset -- hence the preponderance of chatter about the equity puts.

Well, the reinsurance business isn't exactly protein-folding, and more to the point, it's what was made public in the AR. Recall that Buffett won't be involved in anything that requires a calculator. What a monumental hypocritical POS to even think it, let alone offering that pile of self-deprecating "regular guy" BS to the shareholders and the press. He's either incompetent for not knowing or a liar for stating otherwise.

AFAIK, he is not mark to market on the ~1500-strike binary put loss. He sold a ~50/100 put marked to 95 and "no comment". There isn't any variation margin on the position, but the loss is in the billions.

But yeah, I would assume it's the tip of the iceberg, but the insurance contracts are not exactly line-item on the AR.

 

[Rodney King]

Quote from atticus:

insurance contracts are not exactly line-item on the AR.

Exactly. If you were Buffett and you had a hornet's nest of potential liabilities, wouldn't you be pleased to have the media (and the media-driven, media-regurgitating chatroom crowd) focused on the puts, which might be among the smaller and better-contained of your risks?

 

[Corelio]

Quote from Rodney King:

Exactly. If you were Buffett and you had a hornet's nest of potential liabilities, wouldn't you be pleased to have the media (and the media-driven, media-regurgitating chatroom crowd) focused on the puts, which might be among the smaller and better-contained of your risks?

The puts are just the tip of the iceberg.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_XX1k9rMDnQ

Is it any wonder that Munger is now advocating a complete ban of CDSs?

 

[Greg Richards]

Quote from Daal:

"“I would expect those contracts to show a loss before investment income, and perhaps after investment income.”
http://ftalphaville.ft.com/blog/2009/05/04/55418/the-sage-of-omaha-loses-some-of-his-sheen/

If the US goes japanese he gets clobbered in equity derivatives as well. He said he shortened the maturity of some equity derivatives from 20y to 11y in exchange to lowering the strike price

Earlier he said he wished he had done the puts at lower market levels. At the meeting he said he modified two contracts in the previous week. Shortened the maturity to 10 years and lowered the strikes from 1514 to 994 (reduced from 18 years) for no cost.