Buffet Buys GS, Everybody Relieved, Bottom Now Past?

Discussion in 'Trading' started by gnome, Sep 23, 2008.

  1. Haven't seen the facts on this yet, but my understanding is he bought some converts @10% coupon... ??

    1. That's an OK yield for him.

    2. With the bailout money behind GS, he's got NO chance of being defaulted upon.

    3. Significant upside potential with conversion price of $115?

    So.... even if things don't work out, he's covered for the return of his investment + 10% per year.

    Maybe his arm was twisted to make the deal... "good show to restore confidence" and all that. You know, "if Buffet's onboard, everything must be OK now".

    Maybe his buying GS has no meaning other than he "went along with it.. to support the effort... his sacrifice to the common good".. ??

    Suggest not being too wide-eyed about it. OK to chase if you're given to that... just don't forget your stops.
  2. cszulc


    Buying was orchestrated by the PPT and Fed of course.

    We may rally to the 1320 as I expect, and possibly further, but we will revisit the lows and break them. IMO
  3. His an investor.

    What better time to make investments than when there is panic on the streets and everything is on fire sale?

    GS is the best of the breed.
    Fed has their back .

    Buffet got a pretty sweet deal.

    So no conspiracies ... its just business.

    Good business at that.
  4. gs took buffet's liquidity injection and is seeking another 2.5 billion.
    This is the closest we've seen/heard of gs being near a liquidity crisis.
    That fact, in and of itself, is unsettling to me. Hopefully, buffet's actions "saved the day" for gs.
    I just don't know if we're ready to call a bottom. We still need to see what's going to happen once the SEC lifts short ban.
    That could be a great price equalizer for gs, and could strip out lots of premium from their old/disfunct. business model.

    Now they're just a fancy bank, and will be priced as such.
  5. Higher open, lower close? We'll see! :cool:
  6. Let's hope this isn't a bad omen a la Buffet's investment in Salomon Brothers

    "Salomon To Sell 12% To Buffett"
    Published: September 28, 1987

  7. Adobian


    GS is going down. Buffet is throwing a smoke bomb. He needs stabilization in the financial sector, so he throwing out a small amount of his pocket money to deceive people. This has nothing to do with GS fundamentals.
  8. bottom line,the s & p futures were up over 20 last night when the deal was first annouced. they are now up only 3.
  9. From http://bigpicture.typepad.com/

    Tonight's Goldman Sachs/Warren Buffett deal is a classic example of our post 2001 news: Looks good as a headline, is godawful underneath. Of course, futures popped on the announcement.

    The WSJ subhead read "Move by Famed Investor Amid Crisis Seen as Vote of Confidence in Banking System."


    Vote of confidence? Hardly. Doubtful. It is merely an opportunistic deal, and probably a damn good one, for Berkshire Hathaway (BRK). On the other hand, for Goldman Sachs, it is a very expensive deal. If you delve beneath the headlines, you see that Warren is not so much making a vote of confidence as he is extracting pound of flesh (and then some).

    Verily, let's look at the details to figure out just how much GS is paying for this capital:

    • Goldman Sachs pays a fat dividend to Berkshire Hathaway of 10% on $5 Billion dollars -- that's $500 million per year. And, since this is a preferred, it gets paid out of net income in after tax dollars dollars. Ouch.

    • Goldman gets the right to call the preferred at any time at a 10 percent premium. Ouch again.

    • Buffett gets $5 billion worth of warrants with a strike price of $115, or about 43.47 million shares. The warrants are good for only 5 years.

    If Buffett were to go to the Street earlier today to buy 44 million calls with a $115 strike price (circa 2010), they would have cost him about $1.5 billion dollars. With GS now trading at $135, Buffett’s $5 billion investment is more like $3.5B, in terms of net cost to him. Hence, the 10% interest is more like 14%.

    Doug Kass thinks its an even better deal for Berkshire -- goes further than I do, putting an intrinsic value on the warrants of about $2 billion. That makes Buffet's net cost $3B -- so the effective yield is closer to 17%. (Ouch)
  10. Daal


    well this guy is only partly right. buffett already said he liked the business and how it was run
    #10     Sep 24, 2008