Did you ever hear the saying "when a pendulum swings too far one way, it then swings too far the other"?. This is your textbook example. Tonight Fitch has downgraded Berkshire Hathaway (BRK.A, Financial)
Below is the action from Fitch (hat tip to Zero Hedge for finding it).
BUT, to find out what this is really all about one need only read one paragraph in the whole document.
As you read the document, the reasoning is ...bizarre, for lack of a better word.
Berkshire was downgraded because:
1- There can be no AAA rated "holdings companies of financial oriented enterprises".
2- Warren Buffett is old (they actually take pain to say "this is not age related") Well, what else could it be? Berkshire's corporate structure has not changed in 44 years and in reality, Berkshire now has a succession plan in place that was not there 4 years ago so the "risk" for anything other than age is less. But, Fitch says having the arguably the single best capital allocator in history at the helm is "too risky". They would apparently prefer two mediocre ones?
3- Actually, there is no #3, just those two....
Here is what it is NOT due to:
1- Equity Index Puts
2- Derivative Contracts
3- Equity investment losses in 2008
4- Operating businesses
5- Insurance results
In other words, some legitimate reasons one would think a downgrade might be warranted.
After years of lumping BBB- mortgages together and then telling people they are now AAA and selling them as such only to watch them behave like, well CCC loans, Fitch is now telling us no AAA will be given to Co's. with "financial oriented enterprises". Let's not forget, Fitch at one time told us AIG (AIG, Financial) was a AAA company. So, you know, we should take what they say "to the bank".
For those who do not know about AIG, they are this cute little company that almost brought down the entire US financial system last year. It's bailout will eventually cost US taxpayers well in excess of $100 billion. But, hey, they had a much younger guy running things over there so AAA was entirely warranted.
It matters not that Berkshire maintains at .25 debt to equity. It matters not that the roughly $9 billion in notes downgraded Warren could write a check for tomorrow and pay off without any impairment in Berkshire operations. It matter not also that Berkshire's insurance operation generate $35 billion of float for Warren to invest for free......free....
Nope, we now have blanket rules at Fitch..
This decision flies in the face of all reason, logic and is not in the least based on operating results at Berkshire. It makes no sense...
Well, given what the ratings agencies have done for the last decade, I guess them making yet another decision that undermines the investing community's faith in anything they say does make perfect sense...
Todd Sullivan
valueplays.blogspot.com
Below is the action from Fitch (hat tip to Zero Hedge for finding it).
BUT, to find out what this is really all about one need only read one paragraph in the whole document.
As you read the document, the reasoning is ...bizarre, for lack of a better word.
Berkshire was downgraded because:
1- There can be no AAA rated "holdings companies of financial oriented enterprises".
2- Warren Buffett is old (they actually take pain to say "this is not age related") Well, what else could it be? Berkshire's corporate structure has not changed in 44 years and in reality, Berkshire now has a succession plan in place that was not there 4 years ago so the "risk" for anything other than age is less. But, Fitch says having the arguably the single best capital allocator in history at the helm is "too risky". They would apparently prefer two mediocre ones?
3- Actually, there is no #3, just those two....
Here is what it is NOT due to:
1- Equity Index Puts
2- Derivative Contracts
3- Equity investment losses in 2008
4- Operating businesses
5- Insurance results
In other words, some legitimate reasons one would think a downgrade might be warranted.
After years of lumping BBB- mortgages together and then telling people they are now AAA and selling them as such only to watch them behave like, well CCC loans, Fitch is now telling us no AAA will be given to Co's. with "financial oriented enterprises". Let's not forget, Fitch at one time told us AIG (AIG, Financial) was a AAA company. So, you know, we should take what they say "to the bank".
For those who do not know about AIG, they are this cute little company that almost brought down the entire US financial system last year. It's bailout will eventually cost US taxpayers well in excess of $100 billion. But, hey, they had a much younger guy running things over there so AAA was entirely warranted.
It matters not that Berkshire maintains at .25 debt to equity. It matters not that the roughly $9 billion in notes downgraded Warren could write a check for tomorrow and pay off without any impairment in Berkshire operations. It matter not also that Berkshire's insurance operation generate $35 billion of float for Warren to invest for free......free....
Nope, we now have blanket rules at Fitch..
This decision flies in the face of all reason, logic and is not in the least based on operating results at Berkshire. It makes no sense...
Well, given what the ratings agencies have done for the last decade, I guess them making yet another decision that undermines the investing community's faith in anything they say does make perfect sense...
Todd Sullivan
valueplays.blogspot.com
