Berkshire May Post "Blockbuster" Result by CEO's Gauge (Excerpt)
Bloomberg News - August 6, 2009
by Erik Holm

“Some of the stocks had a remarkable turnaround,” said Janet Tavakoli, author of Dear Mr. Buffett and founder of Chicago based advisory firm Tavakoli Structured Finance.

Buffett transformed Berkshire over four decades into a $160 billion company by using proceeds from his investments to buy businesses ranging from homebuidling and jewelry stores to jet-leasing and disaster insurance. Many of those businesses have posted lower results amid the recession, and likely did so again in the second quarter, Tavakoli said.

"There might be a further reduction there, but it's already slowed down quite a bit [in first quarter], so it won't be orders of magnitude worse," she said. '"And I think there's going to be plenty of money around to mop up the losses [on an accounting basis]."

End of Excerpt

JT Note: Gains and losses on stocks that are marked-to-market on the balance sheet and mark-to-market gains (or losses in previous quarters) on equity derivatives positions have little practical analytical value. Some of Berkshire Hathaway’s stock holdings have benefited from government bailouts including TARP funds and ongoing guarantees and funding support including Wells Fargo, Goldman Sachs, General Electric, US Bankcorp, M&T Bank, Bank of America, Suntrust, and American Express. One should look at insurance revenues and the operating business which may look weak relative to prior years. If Berkshire Hathaway isn’t writing insurance business, someone else is probably doing it at the wrong price, which positions BH better in the future. Many of the operating business such as Clayton Homes with its mortgage financing unit, furniture, and jewelry may be better indicators of the overall health of the economy, and those numbers may look weak relative to prior years. But Mr. Market loves to focus on the cosmetics of quarterly reports.

Warren Buffett has also made public pronouncements that Wall Street still owes America. My own view on this issue is that Wall Street’s profits should be attached in an ongoing way and risk incentives should be changed. We currently have massive amounts of hidden leverage disguised by “fair value” accounting, correlation trading, derivatives, consumer lending programs, and other structured financial products.

Disclosure: I own shares of BRKA.

Janet Tavakoli's book on the causes of the global financial meltdown (and how to fix it) is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley, January 2009)

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008), and Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley, 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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