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The Frisky Buffett


We often say that the leaders coming out of a crisis are never the same as those that enter it. Warren Buffett begs to differ.

There's little debate that Warren Buffett is the greatest investor of our generation. He's a class act; someone very good at what he does and seemingly better at who he is.

Heck, he even signed our famous Minyanville All-Star guitar, which was auctioned off by The Ruby Peck Foundation for Children's education to help rebuild libraries in the Gulf Coast following Hurricane Katrina.

I have no ax to grind with the man; In fact, I, like so many others, have absorbed tremendous amounts of his wisdom through the year.

Warren Buffet once said "In the business world, the rearview mirror is always clearer than the windshield." With that in mind, let's take a look back as we edge ahead.

The Oracle of Omaha plunked down the largest bet of his career yesterday on Burlington Northern Sante Fe (BNI), offering "It's an all-in wager on the economic future of the United States."

Now, I love my country. I dig apple pie, rock & rock and October baseball in the Bronx. Like most of you, I stand to gain from a sustainable prosperity that puts the financial crisis in the history books where it belongs. As "public opinion is no substitute for thought," I wanted to quickly take a step back and a closer look.

In September 2008, as the financial crisis arrived with a crash, Mr. Buffett deftly stepped in and bought billions of dollars worth of perpetual preferred stock and warrants in Goldman Sachs (GS) and General Electric (GE). As he famously said, "Be fearful when others are greedy and greedy when others are fearful." That was textbook Warren Buffett; the only buyer in town extracting advantageous terms and shoring up public psychology.

Unbeknownst to Main Street, however, was the complexity of the derivative machination and the counter-party risk that existed for Berkshire Hathaway (BRK-A).

In Mr. Buffett's own words, "Derivatives are financial weapons of mass destruction" and his company -- nor his legacy -- would not have been immune. If the wheels fell off the financial wagon, any corporation with a finance-based operation -- a pretty extensive list -- would have been sucked into a vortex of despair.

Yes, it was a savvy purchase; but it was also very much an act of self-preservation.

Fast-forward to yesterday's transaction, which caught many by surprise given the scope, structure and timing.

Mr. Buffett paid a 30% premium for a stock that had rallied 50% from the March lows, partially funded by Berkshire stock -- a departure from his traditional approach -- and partially funded by cash, depleting much of his cash cushion.

He also announced a 50-1 split for his stock, which is sure to usher in a new era of volatility as traders replace the investors he so often said he covets.

On the plus side, the new found liquidity of Berkshire should make it a shoe-in to be included in the S&P, which would boost demand from index funds.

And there's the question of his legacy, perhaps his most prized possession, as well it should be. My grandfather taught me that all a man has is his name and his word; ideals are shared by the Oracle of Omaha.

We often say that the leaders coming out of a crisis are never the same as those that enter it. Warren Buffett is one of the few -- if not the only -- gentleman swimming against that stream.

This, however, isn't about one man or one trade. It's about the ripple effect on the investment environment and the potential that this bear market will continue to litter the landscape with false hope and empty promises.

In his own words, "I've never gone to bed with an ugly woman, but I've sure woke up with a few."

Given the widespread audience of this latest acquisition, I sincerely hope he found himself a keeper.


Hoofy and Boo reflect on the economic implications while exploring their more... sensitive... sides in "Buffett's Big Bailout."

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