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Warren Buffett’s Berkshire dumps most of Goldman Sachs stake (ft.com)
144 points by yarapavan 84 days ago | hide | past | favorite | 86 comments

Speaking somewhat anecdotally, Goldman Sachs in 2020 does not resemble Goldman circa 1998 or even 2008. A lot of brain trust was lost following the post-crisis de-risking and vilification. The move into retail finance, to me, solidifies its mystique shedding.

> move into retail finance

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1].

Commercial real-estate was already going to absolutely hammered.

> Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.

> Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).

> Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.

> ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

> It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

Exact same trick as last time, just last time residential and this time commercial.

Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.

Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now.

The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc.

Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem.

The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas.

[1] https://www.propublica.org/article/whistleblower-wall-street...

So this was a solved problem with the Glass–Steagall Act (1933) brought in after the, you guessed it, great depression [1]. It was of course repealed (by Bill Clinton), as we'd learned our lesson thoroughly and completely. This led to 2008. And 2020.

So naturally, given the broad-based success of the repeal, there's no interest in reviving it.

[1] https://en.wikipedia.org/wiki/Glass–Steagall_legislation

Congress passes laws, not the President.

The repeal passed the Senate on a near party line vote (R over D), sponsored by 3 Republicans, and passed the House will nearly all R and 2/3 of D.

Clinton could have vetoed it, though, since the Senate didn't have a two-thirds majority.


Of course, looking to the future from the future, a veto would likely be irrelevant since Bush took over a year and a half later.

Clinton did not oppose the repeal at all. He was a cheerleader for the process.

Here's a snippet from his signing speech.

>You heard Senator Gramm characterize this bill as a victory for freedom and free markets. And Congressman LaFalce characterized this bill as a victory for consumer protection. And both of them are right. And I have always believed that one required the other. It is true that the Glass-Steagall law is no longer appropriate for the economy in which we live.


> Congress passes laws, not the President.

Indeed, what I meant to say was "under" and not "by". My bad. Too late to edit.

The repeal of the Glass-Steagall Act had bi-partisan support. Following 2008, Dodd-Frank Act was passed by Democrats, opposed by Republicans, signed into law by Obama in 2010. After multiple attempts by Republicans to repeal it, they succeeded in 2017 and 2018, without bi-partisan support, both partial repeals signed into law by Trump.

>they succeeded in 2017 and 2018,without bi-partisan support

You might want to do a little reading on the repeal of sections of Dodd Frank.

>The measure’s framework is expected to eventually pass the Senate thanks to a dozen finance-friendly and swing-state Democrats who have openly announced their co-sponsorship. With Republicans in control of the House, the bill seems destined to reach President Donald Trump’s desk this year.


>Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.

More like time to stop propping them up. If the government hadn't stepped in to save them during the last crisis, a bunch of those banks would have gone the way of Lehman Brothers.

I think the parent post is recommending an orderly breakup as opposed to a collapse where society is left to pick up the pieces.

The issue comes back to foreign competition. As much as Glass-Steagall made sense to some, it was repealed because US banks faced increasing competition from European banks that were able to bundle advisory with retail bank deposits. Unless everyone takes similar position globally (or we block foreign bank access to our markets) it’s hard to justify a handicap on the home team.

Banking is a sector where it's easy to win on a short term (10year) horizon and lose everything on a 20 year horizon. Ultimately if the taxpayer is going to foot the bill on the 20 year horizon then they should be able to ensure that only players obeying the guardrails are allowed to play.

Not sure why 1998 is relevant to a stake Berkshire bought in 2008.

Because GS has never been about having a "brain trust". It is about proximity to power.

That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.

Maybe the big names at Goldman aren't as big as they had been in 1998, but it's all still just a collection collection of social connections and who knows who and inroads into various power structures. And that's not just Goldman, that's banking and finance at a high level writ large.

It’s amazing how far a few kilos of cocaine will get one in those circles. Maybe the prohibition needs to be repealed to prevent cartels from running the markets.

As far as I can tell, only one of those people (Rubin) was substantially GS affiliated. Still, pretty bad.

But finance is always about connections, said Michele Sindona.


Michele Sindona (Italian: [miˈkɛːle sinˈdoːna]; May 8, 1920 – March 22, 1986) was an Italian banker and convicted felon. Known in banking circles as "The Shark", Sindona was a member of Propaganda Due (#0501),[1] a secret lodge of Italian Freemasonry, and had clear connections to the Sicilian Mafia. He was fatally poisoned in prison while serving a life sentence for the murder of lawyer Giorgio Ambrosoli.


This is nonsense.

GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s.

And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.

Cant say I agree. I worked for various European and US IB's pre 08, then have for the better part of the last decade been a client of them. IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart, which when viewed from the outside it makes one laugh. All US IB's these days are largely just commodity balance sheets. None of them have any tangible edge over each other in the bigger picture.

I've worked with several ex-GS people, all of whom were convinced they were the smartest person in the room, none of whom were even close. Some of the 'GS do it this way' ideas were so terrible we wondered if part of Goldman's strategy was to seed their competition with them as part of a sabotage effort.

I’ve made the same observation. The point is, though, if they were any good they wouldn’t be ex-GS people.

> IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart

Having gone to a GS recruitment event, that was basically what I came away with. I’m sure they’re doing technically interesting things, but I honestly cannot sort it from the bullshit.

...and yet it was always extremely difficult to get a job there, and they paid the best. ...that's literally how you attract the best talent.

...so you, they were arrogant. Maybe some portion of that was earned?

They were talented but the talents were theft, fraud, and self-dealing, not capital allocation.

I can assure you not much in high finance is "earned".

If you didn’t work there you didn’t see how the machine works. It was genuinely world class: they’re pulling right from the top to make you the best you can be, and the best get rewarded.

Totally anecdotal:

I know a few people (5-7?) from both high school and undergrad who went to work at Goldman Sachs. 2 in NYC, at least one in both of London and HK. All of them were pretty middle of the road in terms of academic achievement, smarts, leadership etc. The smartest people I know from back then are mostly working at NGOs or academia.

The one thing that all the GS people had in common is that they cared a lot about having a high salary. The kind of guys who like to buy expensive champagne at the club, is embarrassed if they don't make it to Bali for spring break. That kind of thing. Absolutely no moral judgement on my part, this is just what I noticed.

(1) Black-Litterman is literally the only useful thing to come out of GS ever.

(2) LTCM employed a Nobel winning economist too. Was that "brain trust" the source of PnL, or was it cheap leverage?

Fun fact on LTCM and GS and 1998: according to Lowenstein's account, the GS banker who came to diligence LTCM during the fed-forced bailout was seen furtively reviewing a laptop in a corner. The next day, all the positions recorded in that laptop moved sharply against LTCM... surely this was a coincidence. Great culture they have over there at Vampire Squid, Inc.

True, the culture at GS is/was by far the best.

Did you mean to type “most corrupt” instead?

Fun fact: The CEO of Goldman also makes pretty bad EDM music


Maybe it's because I'm an amateur musician and hear some truly awful music, but by EDM standards, that's at least mediocre, not "bad".

The only thing you're missing is the requirement to hate anything a banking CEO produces, no matter the quality.

He could cure cancer, and angry people online will complain he contributed to overpopulation.

Oh I have nothing against the fact that he's a bank CEO, I just thought his music was pretty bland and generic. Maybe I was too harsh. You would think that bank CEOs would be the kind of person to not really have any hobbies or interests outside of work, so I guess it's kind of cool that he's putting himself out there like this

Well by bad I meant flavorless, generic, forgettable, so maybe mediocre would be the better term :)

honestly i like that he doesnt take him self too seriously and puts himself out there

The first ~25 minutes of D-Sol Mix October 2018 aren't bad.

Disclaimer: I listen to a lot of underground EDM semi-professionally so my tolerance might be too high.

Sounds pretty standard for the genre honestly. Give him a few years though and he'll start to experiment.

Or not. Who knows. My guess is this is a hobby for him.

> My guess is this is a hobby for him.

I’m not sure what would give you that idea.

He’s said in interviews he expects that when the EDM thing takes off he’ll transition out of his role at Goldman. Apparently he had to cancel a couple weeks of shows in Ibiza after COVID hit.

Apparently, there are not enough groupies for CEOs ;)

looks like he is just mixing, and most of the time with the help of another DJ?

Oh this is terrible.

I love it

Many in finance think we're headed for deflation. If that's the case, dumping equities for cash is a sensible move. He may be expecting chaos in the banking sector as bankruptcies roll in, and these mortgage fund fraud allegations gain traction.

It's going to be a wild decade. Watch the government use this to vastly expand surveillance powers, too. Not going to be good for the average American.

> Many in finance think we're headed for deflation.

More in the firnance think we're headed for inflation. as soon as money leave equities/deriv markets.

The positions in GS and WFC have been reduced over the last few quarters, these sales should not be interpreted as "dumping equity" - besides the large private holdings (insurance, rail, energy, lots of manufacturing, retail etc), Berkshire still holds $200bn worth of equity.

Wasn’t the WFC reduction you keep BRK under the 10% limit for banks?

Thanks for clarifying

>Many in finance think we're headed for deflation

Is that really a problem, considering it can be combated with money printing?

> Many in finance think we're headed for deflation

Pshh - not as long as we have a central bank.

Isn't the Fed supposed to print as much money as necessary to ensure positive inflation?

What does he know that we don’t?

He just dumped most of his airline holdings, after losing some $5 billion dollars.

It seems he might be going into cash, and sitting things out, until a true correction hits, and then he’ll go back in and pick up companies for pennies on the dollar.

He lost a huge pile on Kraft Heinz, and that was pre-Corona. Didn't yet realize those losses AFAIK.

He lost a pile on the airlines and even decided to realize those losses.

He lost a pile on that petroleum company that I forgot the name of, but which crashed and burned recently due to oil prices plunging.

He hesitated a long time with tech stocks and lost a lot of money in the last decade due to opportunity cost. His only good bet in that area was Apple, and admittedly that paid off nicely, but even his big stake doesn't compensate for missing out on basically all other tech stocks. Especially since the size of his Apple investment suggests that he played a significant part in raising the Apple stock value, which means that he probably can't pull that out again without depressing the stock price.

Bottom line: I think Warren Buffett is overrated. He fails, just like anyone else.

I believe you would do well in studying the details of the deals you have mentioned before concluding they are failures.

Berkshire financed Occidental Petroleum's acquisition of Anadarco by giving $10 bn in cash. In return, BRK received:

- $10bn wort of perpetual cumulative preferred shares with a coupon of 8% (e.g. $800m a year). OXY can choose to pay in common shares instead of cash, but in this case Berkshire will get a discount. They have done this for the most recent quarterly dividend payment, since OXY's share price is so depressed, the $200m add up to a sizable position in OXY. If OXY doesn't pay the dividend, the coupon rises to 9% and has to be paid latter. OXY can redeem these shares at 105% of the nominal value in about 10 years.

- warrants to purchase 80m common shares until 2030, the strike price is $62.5, so this option is far out of the money. But given the extremely long duration (11 years) it is quite possible that those warrants become extremely valuable over time.

Let's wait for a few years and see how Berkshire does on the OXY trade.

Ya, IMO, when he beats the market, it's his access to deals that the public can't get and then stamping your celebrity endorsement on it.

Maybe in the past there was lots of deep-value out there, but now we have analysts working every strategy.

Or squeeze a percent or two of efficiency by taking companies private under 1 umbrella. On average it works out, but it doesn't take many mistakes to sour it.

When Buffett cut cheques to Goldman, GE and Bank of America in the financial crisis of 2009/2010 there were not many other players willing or able to invest billions of dollars. Berkshire might have the most solid balance sheet in the world - they are strong when others are losing their shirt.

The source of Berkshire's strong performance was a combination of very good investments (buying American express in 1964) and insurance float, a great credit facility with negative interest rates.

Given the size of the private businesses Berkshire owns, it is quite naive to assess the firm purely on stock-picking performance of Buffett. The operating results really matter, producing $25bn+ of operating profits per year isn't too shabby.

Warren Buffet is currently overrated because he doesn't invest in a lot of tech stocks because he claims to not have a complete understanding of the business.If you look at his record from the 70s-90s, you will realize he is the greatest investor ever. We all have our strengths and weaknesses, don't judge a fish on its ability to fly.

I think its great that he doesn't invest that much into tech and is very public about it. It influences other people to not invest in every little thing that is popular if they don't understand the business mechanics behind it.

At this point in his life, it seems meaningless to debate whether he's still a good investor. He won't have to live with the consequences of today's choices in twenty years. Neither money nor anything else can benefit him. With no incentives, it doesn't even matter if his ability is intact. In twenty years, his successors will either have run BRK into the ground or overshadowed him and nobody will look back to his final investments. Which he must know.

> Warren Buffet is currently overrated because he doesn't invest in a lot of tech stocks...

He's also overrated because of all the insider trading he engages in....he would be a lot poorer if the SEC had the resources/will to investigate his moves.

Lol, that’s clearly untrue. There is zero evidence he has done any insider trading ever.

>Lol, that’s clearly untrue

I don't think you know Buffetts track record.

I know more than you. Have you read both his biographies, his annual investor letters back to mid 70s, and have copies of all his Buffett Partnership letters from the 50s and 60s?

His track record and methods are an open book. And have never included insider trading.

Didn't he make that bet essentially by saying index funds would beat hedge funds?

He won that bet handily, index funds had roughly 4 times higher returns than the hedge funds.

No, I dont think he's overated at all. See the article linked. https://www.barrons.com/articles/berkshire-hathaways-investi...

During the period of all the failures you mention Berkshire is only up around 50%.

He was not so wise on the airlines...

because he didn't predict a global pandemic and a government ban on flying?

Selling at a loss is hard, Kudos to Berkshire for understanding that the world has changed and acting accordingly, most investors are going to try to sit this out and might well lose everything in the process.

Why couldn't he predict it in February?

If you know more than people managing hundreds of billions of dollars, you should consider getting into finance. Shorting the market before February 19th 2020 was quite brilliant.

I suppose that few people predicted that this crisis would hit America so hard

Half of the people managing hundreds of millions of dollars fail to outperform the market once they start managing those hundreds of millions of dollars.

Half of wallstreetbets made milions on shorting the maket on the coronavirus. That was not really so hard and he just fucked up.

Half of Wall Street bets made photoshop money. Few there actually makes the trades they claim.

That really remains to be seen.

Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.

The $5 billion loss is likely pocket change to him.

But he might be onto something. Which means, does he know some insider knowledge that we don’t?

The airlines industry is practically about tourism. Yes, there is business travel, but tourism is an important part of it. But, there is unlikely to be any significant tourism in the years ahead, until some kind of vaccine comes out.

So, does he know about some insider knowledge here. He doesn’t take strategic positions like this on a whim, and he clearly operates on fringe insider knowledge.

Maybe his buddies are telling him, that here will likely never be a vaccine? Now, that is an interesting and possibly tradable thesis. Short the airline companies.

I doubt that he has any special knowledge that provides an edge; nobody knows what the fallout will be from all of this or when/if a vaccine will be developed.

More likely, he’s just thinking about the same facts differently than others. Buffett tends to be quite cautious with regards to potential catastrophic failures, so he’s probably more focused on all of the ways that airlines, banks, etc. might lose a ton of money rather than worrying about missing out on the recovery.

I would suspect that even after a vaccine comes out travelling of all sorts will be depressed; maybe to the point of permanently moving the needle.

As an analogy, public health experts suggest we should do away with shaking hands in the future. It may well be that social norms such as travelling, shaking hands, etc will permanently change.

Depressed travelling has some interesting plays here.

This means that AirBnB is dead. And all those people that bought multiple houses, with multiple mortgages, which they can no longer service, are going to go bankrupt. Good riddance.

You can’t short AirBnB, but what other companies can you short? The loan processing companies? Zillow? BofA?

that the tourist sector is in trouble isn't exactly a secret at this point, so additional shorts seem risky.

Avis Budget, a car rental company, does 2/3 of their rentals at airports and they carry a huge amount of debt. The car rental space is extremely competitive as it is and new ride sharing offers don't make things easier. Hertz is already very close to bankruptcy

And completing the circle Warren Buffet has a relatively famous saying, "After all, you only find out who is swimming naked when the tide goes out."[0]

[0] Berkshire Hathaway Chairman's Letter (2001)

He doesn't seem to be picking up stakes elsewhere, which makes these moves seem like a flight to safety, seeing few investments worth the risk. Of course he could have deals in the works: he hasn't personally told me anything yet.


(fo, li, md, vn, ph, and today are alt TLDs: https://en.m.wikipedia.org/wiki/Archive.today)

Buffett's Berkshire Hathaway owns a range of companies, giving him an insight into the fundamentals of economy. However, retail investors and many hedge funds just focus on the market psychology, and hence, momentum. So, Buffett knows something that other don't know.

His returns were far better before he owned any companies.

That's 5% of GS shares. Did it push the price down?

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