By Markos N. Kaminis
One rating agency already has, and Standard & Poor’s said Wednesday that it would have to as well if things got any worse. So if the greatest investor of all-time took such a hit through this bloody mess of a bear market, does it make your losses more bearable? We’re sure his annual letter would serve that purpose, as Buffet warmly reminds us that America has faced greater challenges than this, and overcome them… those being the Great Depression and World War II.
Who would dare downgrade Warren Buffet, or his operating vehicle, Berkshire Hathaway (NYSE: BRK-B, NYSE: BRK-A)? How about that same brazen bunch of rating agencies now actively cutting the sovereign ratings of tough ex-Soviet states like Lithuania OR EU kingpins like Greece! How about that wildly unpopular trio…
Late Tuesday evening, Standard & Poor’s, a subsidiary of McGraw-Hill (NYSE: MHP), warned that Buffet’s Berkshire Hathaway could lose its “AAA” credit rating within a year if its capital levels or equity share value decline much further. S&P lowered its “outlook” on Berkshire to “negative” from “stable.” S&P didn’t break ground on this Buffet busting change though, as it followed Fitch’s more aggressive March 12 rating cut to “AA-plus” from “AAA.” Moody’s (NYSE: MCO) still holds a “Aaa” rating with a “stable” outlook. God bless their soul.
We’re guessing Warren gets the benefit of the doubt where regular folks might get cut down by the knees. He deserves it though doesn’t he? After all, he is the greatest investor of all-time for Graham’s sake! Either mercy or guilt seemed evident by the words of the Fitch analyst as he justified his cut, noting the “inconsistency” of Berkshire’s capital levels with the normal stability seen at the standard “AAA” rated firm. The S&P analyst also seemed apologetic for the move.
You know what I say, judge not lest you be judged. We’re still waiting to see if the rating agencies themselves ever get any real punishment for their failing to properly measure risk, and playing such a significant role in wealth destruction on the grandest of scales.
What Had Happened Was…
Berkshire, heavily tied to the housing market, posted 96% lower profits in Q4. The results were significantly impacted by unrealized losses in derivative securities, necessarily marked-to-market. Buffet is not throwing in the towel on those securities though. Still, he felt so responsible to his shareholders for this latest report and year that he dedicated five pages of his annual letter explaining the investments and his decisions. The full-year was reportedly his worst on record, not hard to believe. We’ve broken many record lows over the past few months.
We just want to say that as long as “The Greek” is scribbling away, if we think Grandpa isn’t up to repaying a debt, we still won’t downgrade him. As a matter of fact, if there ever was a bet worth doubling down on, it’s Warren. What I would do is… I would buy him a stogie, pat him on the back and say don’t sweat it buddy. We would head over to the racetrack or baseball field and talk about the Brooklyn Dodgers all afternoon. Gosh, that would be a priceless day wouldn’t it… God bless you grandpa, you’re still an inspiration to me.