WEB:The Oracle of Omaha- Warren Buffett

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Top 152. Jul 8, 2002 6:01 AM

» Kirk - BRKA buys Level3 Debt

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Level3 is up nearly double in pre market activity.
http://quotes.nasdaq.com/quote.dll?page=...

Interesting that Warren Buffett is one of the buyers of its bonds.
http://finance.yahoo.com/mp#lvlt

6:40AM Level 3 sells debt to investors including Buffett's Berkshire (LVLT) 2.89: Enters an agreement to sell $500 mln of its 9% junior convertible subordinated notes to three institutions: Longleaf Partners Funds ($300 mln), Berkshire Hathaway ($100 mln), and Legg Mason ($100 mln). Level 3 plans to use the funds for general corporate purposes, including potential acquisitions relating to industry consolidation opportunities.

Monday July 8, 4:26 am Eastern Time
Reuters Company News

Level 3 to sell $500 million in convertible debt

NEW YORK, July 8 (Reuters) - Level 3 Communications Inc. (NasdaqNM:LVLT - News) said Monday it had signed an agreement to sell $500 million of 10-year convertible notes yielding nine percent to three institutions.

The buyers are Longleaf Partners Funds (Nasdaq:LLPFX - News), which will buy $300 million, Berkshire Hathaway Inc (NYSE:BRKa - News)., controlled by billionaire investor Warren Buffett, which will purchase $100 million, and Legg Mason Inc. also buying $100 million.

The notes are convertible into common stock at the option of the holder. The transaction is expected to close today.

Level 3 said in a press release it will use the funds for potential acquisitions, capital expenditures and working capital.

-- posted by Kirk

Top 153. Aug 5, 2002 6:00 AM

» Kirk - Buffett buys while assets are cheap

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Posted on Mon, Aug. 05, 2002 in San Jose Mercury News

Buffett buys while assets are cheap
By Joe Ruff
Associated Press

OMAHA, Neb. - It's feeding time for billionaire investor Warren Buffett.

The Oracle of Omaha is gobbling up assets on the cheap while many in the investment world are retreating or frozen with fear.

``When people are scared, he wants to be buying, and when they are greedy he will sell back to you,'' said Andy Kilpatrick, a stockbroker in Birmingham, Ala., and author of ``Of Permanent Value, the Story of Warren Buffett.''

Buffett has taken a particular interest of late in the severely beaten-down telecom and energy sectors.

Thursday, Buffett's Berkshire Hathaway and Lehman Brothers Holdings gave troubled energy company Williams Cos. a $900 million loan. The collateral: substantially all of Williams' oil and gas interests at Barrett Resources, which Williams acquired last year in a deal valued at about $2.6 billion.

Earlier last week, Buffett's MidAmerican Energy Holdings agreed to buy struggling Dynegy's 16,600-mile Northern Natural Gas Pipeline for $928 million in cash. Analysts said Dynegy prized the pipeline as a moneymaker for the future, but the company's financial problems forced the sale.

That was the second pipeline acquisition by Buffett this year. MidAmerican bought Williams' Kern River Gas Transmission for $450 million in March.

In the telecom sector, where overcapacity from the 1990s boom has laid waste to dozens of companies and forced several to seek bankruptcy protection, Buffett invested $100 million last month in struggling fiber-optic cable company Level 3 Communications of Broomfield, Colo. The transaction, made in conjunction with a $400 million investment by two other investors, immediately boosted Level 3 stock more than 50 percent on the day of the announcement.

There also were rumors that Buffett was interested in the bonds of struggling telecommunications company Qwest Communications International, Kilpatrick said.

``This is classic bargain basement,'' Kilpatrick said of Buffett's recent moves. ``He's buying them from a distressed seller and he's sitting on a lot of money.''

Buying at low prices into well-known, solid companies like Coca-Cola and American Express, Buffett built Omaha-based Berkshire into a huge conglomerate with a market value of more than $80 billion that owns insurance, restaurant, furniture and shoe companies.

Buffett, who declined a request for an interview, generally avoids high-tech companies, arguing he cannot tell which will be usurped by advances in technology.

That drew criticism from shareholders the last few years as they watched high-tech stocks soar, but with the collapse of the Internet sector, many thanked him at this year's annual meeting for holding to his convictions.

Still, he's not always right on the money.

Buffett's Berkshire lost book value last year for the first time in its history, largely because of insurance losses stemming from the Sept. 11 attacks. Its $3.77 billion loss in net worth in 2001 was a 6.2 percent drop in per-share book value from the year before.

Nevertheless, Berkshire made $795 million, or $521 a share, and outperformed the Standard & Poor's 500, which showed an 11.9 percent loss in per-share book value.

Berkshire shares continue to hold up better than the broader market. For 2002, Berkshire shares are down 7 percent, compared with the 25 percent decline in the S&P.

That track record has created somewhat of a following.

Buffett, who is worth an estimated $35 billion and is the second-richest person in the world behind Microsoft's Bill Gates, routinely requests to seal portions of quarterly filing reports with regulators, who have increasingly been reluctant to grant the request.

Analysts warned of the risk trying to shadow Buffett's latest moves.

The pipeline deals give Buffett solid assets, Kilpatrick said, something stocks cannot.

Telecommunications companies face a tough road, and analysts warn investors should be wary because of a glut of fiber-optic cable used to transfer data and voice communications and accounting scandals at WorldCom, Global Crossing and Qwest.

-- posted by Kirk

Top 154. Mar 3, 2003 10:00 AM

» KLR - Re: Buffett buys while assets are cheap

In response to message posted by Kirk:

Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us. That dismal fact is testimony to the insanity of valuations reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge.

The aversion to equities that Charlie and I exhibit today is far from congenital. We love owning common stocks--if they can be purchased at attractive prices. In my 61 years of investing, 50 or so years have offered that kind of opportunity. There will be years like that again.

Unless, however, we see a very high probability of at least 10% pretax returns (which translate to 6% to 7% after corporate tax), we will sit on the sidelines.

With short-term money returning less than 1% after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity.

[...But, It looks as if Warren likes junk bonds!]

...Last year we were ... able to make sensible investments in a few "junk" bonds and loans. Overall, our commitments in this sector sextupled, reaching $8.3 billion by year-end.

From the Fortune Mar. 17, 2003 Issue

-- posted by KLR

http://biz.yahoo.com/fool/030303/1046712...

Top 155. Mar 3, 2003 3:07 PM

» SteveT - Re: Re: Buffett buys while assets are cheap

In response to message posted by KLR:

Motley Fool
Buffett's Words of Wisdom
Monday March 3, 12:36 pm ET
By Bill Mann

It's the best investment education you can get. Best of all, it's free.

Each year for the last 27, Berkshire Hathaway (NYSE: BRK.A - News) Chairman Warren Buffett pens a "state of the company" letter to Berkshire shareholders that delves into investing issues, economic issues, and what Mr. Buffett perceives to be a coarsening of standards among American public company executives. For the first time, he allowed Fortune magazine, employer of long-time Buffett Letter editor Carol Loomis, to print advance excerpts from the letter.

This year's major lesson is on derivatives -- their accounting, the threat they pose both to corporations and economies in general, and why Berkshire Hathaway is in the process of getting out of a derivatives business it acquired along with reinsurer General Re.

Buffett warns that no central authorities offer protection to the stronger counterparties in derivative transactions in case of default by weaker ones -- a situation that could cause a wholesale collapse of the market, should an event of certain magnitude align circumstances that seem unrelated (another Long Term Capital Management fiasco writ large).

He also says he has made few investments in stocks in the past year, and he still hasn't found many compelling values. Though he believes that things are much better for investors now than they've been in the past three years, the fact that he is not active in stocks, he says, points to "the insanity of valuations reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge."

Buffett reaffirms that his general preference is to own common stocks -- he hasn't changed his overall bias toward them, but he would prefer for money to sit in cash than to chase inferior opportunities.

The rest of the letter comes out on Saturday on the Berkshire website. If these tastes are any indication, it's going to be a barn burner.

Bill Mann owns shares of Berkshire Hathaway.

-- posted by SteveT

Top 156. Mar 4, 2003 5:31 AM

» lcha - Buffett warns ...

March 3, 2003, 9:52PM

Buffett warns of a world of danger in derivatives
Reuters News Service
NEW YORK -- Warren Buffett, the world's second-richest man, warned that the rapidly expanding derivatives market is a threat to both the parties that deal in them and the economy.

The chief executive of investment company Berkshire Hathaway also said that stocks are still too expensive, and that he has stepped up investments in "junk" bonds and loans, according to excerpts of Berkshire Hathaway's annual letter to shareholders published on Fortune's Web site, (www.fortune.com).

A call to the company for further comment was not returned.

In the excerpts, Buffett mainly addressed the dangers posed by derivatives. Buffett said he and and his partner, Charlie Munger, believe that derivatives are "financial weapons of mass destruction" and pose a "mega-catastrophic risk."

Derivatives contracts involve a wide range of securities that typically involve a payout pegged to variables like stock prices, interest rates or currency values.

The market has exploded as investment banks devise new instruments to both hedge against market risk and profit from swings in securities markets and interest rates.

Shares in investment banks that trade in derivatives were mixed. J.P. Morgan Chase rose by 0.6 percent to $22.79 in trading on the New York Stock Exchange, while Goldman Sachs Group declined by 2.2 percent to $67.94.

For institutions that invest in them, derivatives can be difficult to exit, Buffett said. Derivatives contracts also invite erroneous accounting because they are often valued on assumptions that can be wildly inaccurate, he said.

The marking errors almost invariably "favor either the trader who was eyeing a multimillion-dollar bonus, or the CEO who wanted to report impressive `earnings,' " he said.

Furthermore, the problem could become systemic because large amounts of market risk have become concentrated in the hands of a few derivatives dealers.

The dangers have already been exposed in the electricity and gas businesses, he said, where derivatives activities have diminished substantially. However, other derivatives businesses continue to go unchecked, he said.

Regarding the stock market, Buffett said that despite three years of falling prices, relatively few stocks are attractive.

"Unfortunately, the hangover may prove to be proportional to the binge," he said.

Berkshire Hathaway was able "to make sensible investments" in junk bonds and loans, he said. Its investments in those sectors have sextupled, reaching $8.3 billion by year-end, he said.

-- posted by lcha

Top 157. Mar 4, 2003 6:05 AM

» JeffChristy - Re: Buffett warns ...

In response to message posted by lcha:

lcha

Ron Insana was just on Imus this morning. Imus ask him if Buffet was buying anything. He said the only thing he was aware of was companies that have natural gas properties.

-- posted by JeffChristy

Top 158. Mar 4, 2003 6:28 AM

» lcha - Re: Re: Buffett warns ...

In response to message posted by JeffChristy:

Natural gas properties huh? So Warren and I have at least ONE thing in common. smile

-- posted by lcha

Top 159. Mar 4, 2003 8:21 PM

» Hu - Re: Re: Re: Buffett warns ...

In response to message posted by lcha:

How interesting. I guess any remaining BOWG holders now have at least one thing in common with the sage. Anybody see the latest news release? Ha! Go bowgy, go. We's a natural gas play... and a damn good one at that! Wonder if ole' man Buffet's got as good a NG play as we have here in BOWG now?

Tomorrow will be interesting. Keep your eyes on BOWG!

-- posted by Hu

Top 160. Mar 6, 2003 9:32 AM

» Kirk - Greenspan, Buffett Divided on Derivatives

Greenspan, Buffett Divided on Derivatives
http://www.washingtonpost.com/wp-dyn/art...

Greenspan, Buffett at Odds on Risks of the Financial Instruments

When billionaire investor Warren Buffett warned bluntly this week that the growing use of the esoteric financial instruments known as derivatives poses a threat to the stability of world markets, he put himself directly at odds with another financial sage, Federal Reserve Chairman Alan Greenspan.

"Derivatives are financial weapons of mass destruction," Buffett said in his annual letter to shareholders of Berkshire Hathaway Inc., of which he is chairman. "The dangers are now latent -- but they could be lethal."

Greenspan, on the other hand, believes the spread of derivatives has reduced rather than increased the risk that a wave of losses in some markets could trigger a financial crisis.

"These increasingly complex financial instruments have especially contributed, particularly over the past couple of stressful years, to the development of a far more flexible, efficient and resilient financial system than existed just a quarter-century ago," Greenspan said late last year.

Derivatives, essentially contracts whose value depends on an underlying asset, such as the value of a currency or a bushel of corn, have been controversial for years, especially as they have exploded in popularity. That's because they are basically unregulated and have played a role in several financial scandals, from the fall of Barings Bank in Britain in 1995 and the collapse in 1998 of the huge New England-based hedge fund Long-Term Capital Management to the more recent demise of Enron Corp.

The use of derivatives has grown exponentially in recent years. The total value of all unregulated derivatives is estimated to be $127 trillion -- up from $3 trillion 1990. J.P. Morgan Chase & Co. is the world's largest derivatives trader, with contracts on its books totaling more than $27 trillion. Most of those contracts are designed to offset each other, so the actual amount of bank capital at risk is supposed to be a small fraction of that amount.

Previous efforts to increase federal oversight of the derivatives market have failed, including one during the Clinton administration when the industry, with support from Greenspan and other regulators, beat back an effort by Brooksley Born, the chief futures contracts' regulator. Sen. Dianne Feinstein (D-Calif.) has introduced a bill to regulate energy derivatives because of her belief that Enron used them to manipulate prices during the California energy crisis, but no immediate congressional action is expected.

Randall Dodd, director of the Derivatives Study Center, a Washington think tank, said both Buffett and Greenspan are right -- unregulated derivatives are essential tools, but also potentially very risky. Dodd believes more oversight is needed to reduce that inherent risk.

"It's a double-edged sword," he said. "Derivatives are extremely useful for risk management, but they also create a host of new risks that expose the entire economy to potential financial market disruptions."

Buffett has no problem with simpler derivatives, such as futures contracts in commodities that are traded on organized exchanges, which are regulated. For instance, a farmer growing corn can protect himself against a drop in prices before he sells his crop by buying a futures contract that would pay off if the price fell. In essence, derivatives are used to spread the risk of loss to someone else who is willing to take it on -- at a price.

Buffett's concern about more complex derivatives has increased since Berkshire Hathaway purchased General Re Corp., a reinsurance company, with a subsidiary that is a derivatives dealer. Buffett and his partner, Charles T. Munger, judged that business "to be too dangerous."

Because many of the subsidiary's derivatives involve long-term commitments, "it will be a great many years before we are totally out of this operation," Buffett wrote in the letter, which was excerpted on the Fortune magazine Web site. The full text of the letter will be available on Berkshire Hathaway's Web site on Saturday. "In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit."

One derivatives expert said several of General Re's contracts probably involved credit risk swaps with lenders in which General Re had agreed to pay off a loan if a borrower -- perhaps a telecommunications company -- were to default. In testimony last year, Greenspan singled out the case of telecom companies, which had defaulted on a significant portion of about $1 trillion in loans. The defaults, the Fed chairman said, had strained financial markets, but because much of the risk had been "swapped" to others -- such as insurance companies, hedge funds and pension funds -- the defaults did not cause a wave of financial-institution bankruptcies.

"Many people argue that derivatives reduce systemic problems, in that participants who can't bear certain risks are able to transfer them to stronger hands," Buffett acknowledged. "These people believe that derivatives act to stabilize the economy, facilitate trade and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies."

But then Buffett added: "The macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one another. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by nondealer counterparties," some of whom are linked in such a way that many of them could run into problems simultaneously and set off a cascade of defaults.

Susan M. Phillips, dean of the George Washington University School of Business and Public Management, who is a former member of both the Federal Reserve Board and the Commodity Futures Trading Commission, said she believes Buffett "overstated the danger" of the use of derivatives to financial markets.

"In many ways, derivatives provide stability to our markets, but they are instruments only for people who want to be in that business and have the expertise to do the valuations," Phillips said. "We have seen a lot of volatility in markets recently, and if this had happened 15 or 20 years ago, we would have seen a lot of bank failures and failures of brokerages. The use of derivatives has helped shore up the financial system."

At least at banks, Phillips said, losses on derivatives have been very small. "That's not where they lose money. It's the old-fashioned way: bad loans," she said.

E. Gerald Corrigan of Goldman Sachs Group Inc., who had extensive experience dealing with derivatives issues when he was president of the New York Federal Reserve Bank, said he believes the risk of a financial market crisis has been reduced by the widespread use of derivatives. In addition, he said, "risk management is better, supervision is better and the capital position of major financial institutions is better" than it was 10 years ago.

"What is not so clear, on the other side of the ledger, is, has the complexity [of derivatives and other new financial instruments] left the potential damage quotient higher?" Corrigan asked. The issue, he said, is whether "the use of credit derivatives left risk in the hands of people who may not understand the risk, and has the sheer growth of derivatives" increased the potential damage from a crisis should one occur.

Corrigan said he is not sure of the answer, and added, "I really do think that all of us should go back and take a look at some of these questions again."

-- posted by Kirk