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Berkshire's Credit Risk Soars on $37 Billion Bet

Discussion in 'The Economy' started by Tropo, 19th Nov, 2008.

  1. Tropo

    Tropo Well-Known Member

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    Berkshire's Credit Risk Soars on $37 Billion Bet

    Nov. 18 (Bloomberg) -- The cost of protecting against default by Warren Buffett's AAA rated Berkshire Hathaway Inc. has almost tripled in two months, a sign of just how skittish investors have become amid the global financial crisis.
    The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk.

    The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values more than a decade from now.
    more .....
    Bloomberg.com: Worldwide
     
  2. try anything once

    try anything once Well-Known Member

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    Interesting article - thanks

    So, if I am reading this correctly, Berkshire's is a bit of a booky. They have taken a bet that certain indeces will be above today's level 10-11 years from now. If they are right they keep the $4.85B, if they are wrong they have to pay up to US$37B..

    Assuming a 7% CAGR, the $4.85B will have doubled in 10-11 years to $9.7B or about 25% of the amount they may need to pay.

    So basically Berkshire are offering about 4 to 1 odds on the markets not exceeding todays levels by 10-11 years time.

    I'm not surprised the guy is so wealthy......
     
  3. Sacko

    Sacko Well-Known Member

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    How old is Buffett? Is he likely to be around to care in 10 / 11 years time?
     
  4. crc_error

    crc_error The Rule of 72

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    he may be.. and he will get a letter form the queen lol
     
  5. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Mid 70's from memory.

    Mark
     
  6. pthm

    pthm Well-Known Member

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    Warren Buffet is 78 years old.
     
  7. Sacko

    Sacko Well-Known Member

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    So does anybody think he will he really care what happens to the $37bn in 10- 11 years time? :cool:
     
  8. Chris C

    Chris C Well-Known Member

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    Considering he is a man that has amassed the fortune he has and is still wheeling and dealing well into his 70's I'm quietly confident that achieving the best results he can is in his nature and throwing it all away in his old age would be a very hard pill to swallow.

    So, yes I think he will care.
     
  9. Sacko

    Sacko Well-Known Member

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    I certainly hope you are right, as I bought into a 5 year fund in June that has a 1/3 of its capital in Berkshire! :eek: