Getting Margin Called Sucks...Poor Buffet!

J

jbenko_IHB

New member
<a href="http://blogs.moneycentral.msn.com/topstocks/archive/2009/02/24/is-buffett-getting-margin-calls.aspx">Buffet getting Margin Calls?</a>



<blockquote>Perhaps it is nothing more than wild speculation at this point, but rumors are popping up on the street that Warren Buffett may have received margin calls related to derivative/option investments. Yes, these are the same type of investment that Mr. Buffett has termed, ?financial weapons of mass destruction.? As crazy as this may sound, there is obviously something going badly wrong as Berkshire Hathaway (BRK.A) is down over 20% in 2009 and many of the individual positions within the portfolio have been outright devastated.



To add insult to injury, Mr. Buffett has recently made many ill-timed investments that are wreaking havoc within his portfolio, which is down a whopping 45% over the past 12 months. If you recall, back in May 2008, Mr. Buffett was convinced that the credit crisis was coming to an end when he proclaimed to the world on Bloomberg Television, ?`The worst of the crisis in Wall Street is over.? Unfortunately, he put his money where his mouth was and decided to add positions to the portfolio and several have dropped more than 50% since. That is not the only problem though.</blockquote>


I think he is getting margin calls too. At first, I didn't think so since it's my understanding he sold puts 15-30 years out. Giving him access to an additional 5B or so in capital.



However, what I'm not clear on is if he sold naked puts. If he did...then in that case it makes total sense that he is getting margin calls. The people that gave him 5B in additional funds aren't going to watch their cash burn forever.



You play with fire, you will eventually get burned.
 
[quote author="BlackVault CM" date=1235544514]<a href="http://blogs.moneycentral.msn.com/topstocks/archive/2009/02/24/is-buffett-getting-margin-calls.aspx">Buffet getting Margin Calls?</a>



<blockquote>Perhaps it is nothing more than wild speculation at this point, but rumors are popping up on the street that Warren Buffett may have received margin calls related to derivative/option investments. Yes, these are the same type of investment that Mr. Buffett has termed, ?financial weapons of mass destruction.? As crazy as this may sound, there is obviously something going badly wrong as Berkshire Hathaway (BRK.A) is down over 20% in 2009 and many of the individual positions within the portfolio have been outright devastated.



To add insult to injury, Mr. Buffett has recently made many ill-timed investments that are wreaking havoc within his portfolio, which is down a whopping 45% over the past 12 months. If you recall, back in May 2008, Mr. Buffett was convinced that the credit crisis was coming to an end when he proclaimed to the world on Bloomberg Television, ?`The worst of the crisis in Wall Street is over.? Unfortunately, he put his money where his mouth was and decided to add positions to the portfolio and several have dropped more than 50% since. That is not the only problem though.</blockquote>


I think he is getting margin calls too. At first, I didn't think so since it's my understanding he sold puts 15-30 years out. Giving him access to an additional 5B or so in capital.



However, what I'm not clear on is if he sold naked puts. If he did...then in that case it makes total sense that he is getting margin calls. The people that gave him 5B in additional funds aren't going to watch their cash burn forever.



You play with fire, you will eventually get burned.</blockquote>


You asked for signs of a bottom in another thread. I believe that Buffett getting margin calls would have to qualify as a true sign of a bottom.
 
<a href="http://www.google.com/finance?chdnp=0&chdd=0&chds=1&chdv=1&chvs=Linear&chdeh=0&chdet=1235518561803&chddm=99314&q=NYSE:BRK.A&ntsp=0">It's not like he's broke.</a>
 
[quote author="WINEX" date=1235546713][quote author="BlackVault CM" date=1235544514]<a href="http://blogs.moneycentral.msn.com/topstocks/archive/2009/02/24/is-buffett-getting-margin-calls.aspx">Buffet getting Margin Calls?</a>



<blockquote>Perhaps it is nothing more than wild speculation at this point, but rumors are popping up on the street that Warren Buffett may have received margin calls related to derivative/option investments. Yes, these are the same type of investment that Mr. Buffett has termed, ?financial weapons of mass destruction.? As crazy as this may sound, there is obviously something going badly wrong as Berkshire Hathaway (BRK.A) is down over 20% in 2009 and many of the individual positions within the portfolio have been outright devastated.



To add insult to injury, Mr. Buffett has recently made many ill-timed investments that are wreaking havoc within his portfolio, which is down a whopping 45% over the past 12 months. If you recall, back in May 2008, Mr. Buffett was convinced that the credit crisis was coming to an end when he proclaimed to the world on Bloomberg Television, ?`The worst of the crisis in Wall Street is over.? Unfortunately, he put his money where his mouth was and decided to add positions to the portfolio and several have dropped more than 50% since. That is not the only problem though.</blockquote>


I think he is getting margin calls too. At first, I didn't think so since it's my understanding he sold puts 15-30 years out. Giving him access to an additional 5B or so in capital.



However, what I'm not clear on is if he sold naked puts. If he did...then in that case it makes total sense that he is getting margin calls. The people that gave him 5B in additional funds aren't going to watch their cash burn forever.



You play with fire, you will eventually get burned.</blockquote>


You asked for signs of a bottom in another thread. I believe that Buffett getting margin calls would have to qualify as a true sign of a bottom.</blockquote>


Why?
 
[quote author="awgee" date=1235548575][quote author="WINEX" date=1235546713][quote author="BlackVault CM" date=1235544514]<a href="http://blogs.moneycentral.msn.com/topstocks/archive/2009/02/24/is-buffett-getting-margin-calls.aspx">Buffet getting Margin Calls?</a>



<blockquote>Perhaps it is nothing more than wild speculation at this point, but rumors are popping up on the street that Warren Buffett may have received margin calls related to derivative/option investments. Yes, these are the same type of investment that Mr. Buffett has termed, ?financial weapons of mass destruction.? As crazy as this may sound, there is obviously something going badly wrong as Berkshire Hathaway (BRK.A) is down over 20% in 2009 and many of the individual positions within the portfolio have been outright devastated.



To add insult to injury, Mr. Buffett has recently made many ill-timed investments that are wreaking havoc within his portfolio, which is down a whopping 45% over the past 12 months. If you recall, back in May 2008, Mr. Buffett was convinced that the credit crisis was coming to an end when he proclaimed to the world on Bloomberg Television, ?`The worst of the crisis in Wall Street is over.? Unfortunately, he put his money where his mouth was and decided to add positions to the portfolio and several have dropped more than 50% since. That is not the only problem though.</blockquote>


I think he is getting margin calls too. At first, I didn't think so since it's my understanding he sold puts 15-30 years out. Giving him access to an additional 5B or so in capital.



However, what I'm not clear on is if he sold naked puts. If he did...then in that case it makes total sense that he is getting margin calls. The people that gave him 5B in additional funds aren't going to watch their cash burn forever.



You play with fire, you will eventually get burned.</blockquote>


You asked for signs of a bottom in another thread. I believe that Buffett getting margin calls would have to qualify as a true sign of a bottom.</blockquote>


Why?</blockquote>


Extreme things tend to happen at major market turning points.



I've long felt that the housing sector couldn't bottom without several major builders going bankrupt. We certainly have had that happen in the financial sector.



To paraphrase Buffett himself, finding out that when the tide rolled back that Buffett was swimming naked would be the kind of extreme event that tends to mark a turning point.
 
[quote author="zovall" date=1235558717]Margin calls are the suck. I learned my lesson a decade ago and will never make that mistake again!</blockquote>


Haha... learned that lesson also. Thankfully it didn't sting that badly.... I'm sure he can cover it... This is not like a few dollars here.

-bix
 
This is ridiculous, Buffet's got over $50B in cash and he doesn't buy on margin. This might be the dumbest posting in blogging history. You could have just bought his stock at $2300 yesterday instead of spreading false rumors, unless that was your game, try and tank Berkshire.
 
[quote author="norcaljeff" date=1235560842]This is ridiculous, Buffet's got over $50B in cash and he doesn't buy on margin. This might be the dumbest posting in blogging history. You could have just bought his stock at $2300 yesterday instead of spreading false rumors, unless that was your game, try and tank Berkshire.</blockquote>


Not sure what the intent was of that post, but Buffet did sell an enormous amount of puts I believe 30 years out. That part is true. Now the part I'm not sure on is if he sold them against his current holdings which doesn't require margin as the stock is the collateral or if he sold naked. If he sold naked...you better believe he used margin.



I'll do some research and find out.



How can I be so stupid...first I found plenty of posts about WB selling puts. But main point as to why I'm stupid is I just remembered that the only way you don't have to have margin when selling puts is if you are short the stock. WB didn't do that. He owns stock and is selling the puts against it. see Burlington Northern.



If the stock goes up, he profits on the stock and on the puts. if the stock declines, he loses on the stock and the put. It's a double win or a double loss. Which is quite opposite from having stock and selling calls. You lose on one end and win on the other. They somewhat absorb one another.



So you can't NOT have a margin account and sell puts. Now his margin might not be what mine and yours is, where your broker automatically nukes your position. Didn't he strike a deal with a couple of insurance companies to sell puts 30 years out on the S&P. That would mean not only does he have S&P stock, but he is selling puts against it. Naked.



Now you can argue that he has plenty of stock in various companies where their combined st. dev is equivelant to the S&Ps; so that might be enough. But, I bet in the deal he had with the insurance companies on the S&P puts had some type of a check point where if the market continues to decline (which it did) he would have to front up some capital/collateral.



Thus that would explain why he dumped 5M shares of JNJ just recently which he held for years and years, which was baffling to everybody.
 
[quote author="BlackVault CM" date=1235561075][quote author="norcaljeff" date=1235560842]This is ridiculous, Buffet's got over $50B in cash and he doesn't buy on margin. This might be the dumbest posting in blogging history. You could have just bought his stock at $2300 yesterday instead of spreading false rumors, unless that was your game, try and tank Berkshire.</blockquote>


Not sure what the intent was of that post, but Buffet did sell an enormous amount of puts I believe 30 years out. That part is true. Now the part I'm not sure on is if he sold them against his current holdings which doesn't require margin as the stock is the collateral or if he sold naked. If he sold naked...you better believe he used margin.



I'll do some research and find out.</blockquote>


Actually all they aren't 30 years out. <a href="http://seekingalpha.com/article/66967-warren-buffett-also-a-put-seller">Some expire between now and 2013</a>
 
[quote author="WINEX" date=1235561801][quote author="BlackVault CM" date=1235561075][quote author="norcaljeff" date=1235560842]This is ridiculous, Buffet's got over $50B in cash and he doesn't buy on margin. This might be the dumbest posting in blogging history. You could have just bought his stock at $2300 yesterday instead of spreading false rumors, unless that was your game, try and tank Berkshire.</blockquote>


Not sure what the intent was of that post, but Buffet did sell an enormous amount of puts I believe 30 years out. That part is true. Now the part I'm not sure on is if he sold them against his current holdings which doesn't require margin as the stock is the collateral or if he sold naked. If he sold naked...you better believe he used margin.



I'll do some research and find out.</blockquote>


Actually all they aren't 30 years out. <a href="http://seekingalpha.com/article/66967-warren-buffett-also-a-put-seller">Some expire between now and 2013</a></blockquote>


Thank you thank you! That article explains what I was searching for. I was rattling on top of my head, but in fact he took out 7.7B not 5B and some do expire earlier.
 
[quote author="BlackVault CM" date=1235562001][quote author="WINEX" date=1235561801][quote author="BlackVault CM" date=1235561075][quote author="norcaljeff" date=1235560842]This is ridiculous, Buffet's got over $50B in cash and he doesn't buy on margin. This might be the dumbest posting in blogging history. You could have just bought his stock at $2300 yesterday instead of spreading false rumors, unless that was your game, try and tank Berkshire.</blockquote>


Not sure what the intent was of that post, but Buffet did sell an enormous amount of puts I believe 30 years out. That part is true. Now the part I'm not sure on is if he sold them against his current holdings which doesn't require margin as the stock is the collateral or if he sold naked. If he sold naked...you better believe he used margin.



I'll do some research and find out.</blockquote>


Actually all they aren't 30 years out. <a href="http://seekingalpha.com/article/66967-warren-buffett-also-a-put-seller">Some expire between now and 2013</a></blockquote>


Thank you thank you! That article explains what I was searching for. I was rattling on top of my head, but in fact he took out 7.7B not 5B and some do expire earlier.</blockquote>


De nada.
 
[quote author="awgee" date=1235564543]Ok. Buffett may have a margin call. He will cover it. And he will make money on every put he sold.</blockquote>


I don't know what to think about this.



I do know that he used a lot of the cash hoard that Berkshire Hathaway accumulated through the years by putting money into Goldman Sachs, GE and Harley Davidson (plus assorted buys of non-public companies over the past couple years)



I also know that he raised a lot of cash by selling large portions of his positions in Johnson and Johnson and American Express.



But I just find it hard to believe that Buffett actually did have a margin call. (This will test your memory, but a few months back in "Ask Fleck", I asked a question that was published about Buffett's New York Times article and it being time to buy America. I questioned whether or not he could be talking his own book because of the large derivatives position that he has.)
 
[quote author="WINEX" date=1235564823][quote author="awgee" date=1235564543]Ok. Buffett may have a margin call. He will cover it. And he will make money on every put he sold.</blockquote>


I don't know what to think about this.



I do know that he used a lot of the cash hoard that Berkshire Hathaway accumulated through the years by putting money into Goldman Sachs, GE and Harley Davidson (plus assorted buys of non-public companies over the past couple years)



I also know that he raised a lot of cash by selling large portions of his positions in Johnson and Johnson and American Express.



But I just find it hard to believe that Buffett actually did have a margin call. (This will test your memory, but a few months back in "Ask Fleck", I asked a question that was published about Buffett's New York Times article and it being time to buy America. I questioned whether or not he could be talking his own book because of the large derivatives position that he has.)</blockquote>


He was wrong on his timing. And he will make money in the long run.
 
Time is on his side. Unlike the rest of us he has a few years the least and couple of decades the most to make money on this. Last I checked I can't sell puts 20 years out. Only thing that might be pressuring him is the fact that he did sell puts on Burlington Northern 2 months out back in October and has been selling them since. I think that portion went bust on him. Oh well, just thought the whole thing was kinda interesting. Not that I really care that Buffet loses a couple of billion from the pile of billions he has.
 
Maybe it is a "capital call" and not a "margin call"? Think AIG, and since he has an insurance business, and if that business wrote insurance on MBS, CMBS, corporate bonds (Lehman) they would have capital calls if the ratings on those securities dropped, or his insurance company ratings have dropped. I dunno if this could be true, but it is the thought that came to my mind. People in the MSM wouldn't know there difference between a capital call and a margin call any more than the difference between a dog and a cat.
 
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