So B & G are short the what?

Discussion in 'Wall St. News' started by ElectricSavant, Aug 8, 2006.

  1. I have read that Buffet & Gates have been short the dollar for quite some time and used forwards to accomplish this. No leverage.

    This is old news and I have read various reasons and comments as to why.

    Isn't it like this? Warren & Buffet obviously needed to hedge their overseas investments. I could speculate that the Forwards protect them from a weakening USD tool.

    Thoughts comments?

    Surely they were not speculating, as they were way to early.

    Michael B.
  2. Too early? You're too late. Buffet was short the dollar five years ago. It's been a very profitable trade.

  3. So Buffet was speculating? really? It had nothing to do with hedging his balance sheet? wasn't the USD trade... insurance?

    honest question.

  4. tomcole


    I have read that Buffet & Gates have been short the dollar for quite some time and used forwards to accomplish this. No leverage.
    -->>Forwards terms are negotiated between counterparties and tend to be balance sheet trades, eg, usually no initial margin and some form of margin if the trade P&L gets too one-sided. With the cash they have I would guess their holdings make the banks comfortable and the P&L would have to be drastic to trigger some sort of settlement.

    Read Buffett's comments/balance sheet footnotes to see the net effect of this position. He may not be the greatest investor of all times.

    These forwards dont really protect against overseas holdings unless they intend to repatriate holdings/earnings which usually instituional investors dont do as they want they exposure they have and any cashflow from the investment tends to be minimal relative to their balance sheet.

    Long term investors with a five to ten year horizon have very different goals than small specs .
  5. You're right, his stated goal was not to speculate on currencies, but rather to hedge what he considered the risk to Berkshire's value from the poor fundamentals of the dollar. This is laid out in detail in a letter to shareholders a few years ago.

    However, since Berkshire's balance sheet is denominated in dollars, in accounting terms, this is a speculation rather than a hedge. The gain or loss from his dollar short goes straight to the bottom line with no offsetting position.

    Furthermore, Buffet going short the dollar definitely represents an opinion on the direction of the dollar, not just a risk mitigation policy. Buffet does not always hedge his dollar exposure. He chose to do it at a certain time because he perceived an acute financial risk. And, needless to say, he was right.

  6. skepticaltrader

    skepticaltrader Guest

    Didn't Buffet lose a billion dollars shorting the USD?

    Does he still have short positions with the USD?

    If so, I guess if he holds onto it long enough he'll be profitable unless he dies first.
  7. Here's Buffett's own words, from the March 2004 letter to shareholders:

    "And, again, our usual caveat: macro-economics is a tough game in which few people, Charlie and I included, have demonstrated skill. We may well turn out to be wrong in our currency judgements. (Indeed, the fact that so many pundits now predict weakness for the dollar makes us uneasy.) If so, our mistake will be very public. The irony is that if we chose the opposite course, leaving all of Berkshire's assets in dollars even as they declined significantly in value, no one would notice our mistake."

  8. 1. I would expect a moderator, with 9900 posts, to be able to spell names IF he's going to be a name dropper. That is, unless he's really referring to an all-you-can-eat diner in a northen suburb of Detroit.

    2. BRK class A peaked in 1998 at $84,000. Presently it's $92,900. After 8 years, that corresponds to 1.2668% per annum for a gentleman that advocates a buy and hold approach and has roughly 40% of his personal net worth in BRK, which pays no dividend. BRK's bookvalue increases from cash thrown off by Geico and a host of private companies under BRK's umbrella rather than buying and holding Coca Cola, McDonald's and Disney.

    3. Published sources indicate Warren, via BRK, lost about $900 million before unwinding a quarter of a 40 billion foreign currency posture (which included options essence derivatives).

    4. IF I want to read folklore, I can go to the kiddie section of the public library and check out books about Paul Bunyon, Daniel Boone, or Davey Crockett. Pssst, there's also two "T's" in the latter.
  9. Bullshit.

    Berkshire made $1.95 billion dollars shorting the dollar between 2002, when they entered the position, and the end of 2005.

    Gains on foriegn currency forward contracts (pretax, millions), directly from Berkshire's annual reports:

    2005: -955
    2004: 1,839
    2003: 825
    2002: 297
  10. that one T or two?

    #10     Aug 9, 2006