Strictly: Drilling

[Croesus I]

To:Frank Pembleton who started this subject
From: George S. Cole Saturday, Jun 8, 2002 2:00 PM
Respond to of 14095

Warren Buffett and Bear Markets
"Unless you are involved in the arcane trivia of the markets, you may
not have noticed that Warren Buffett just sold a remarkable piece of
paper. Dennis Gartman (of the exceptionally well-written Gartman
Letter) tells us: "It is a convertible debt issue, carrying a 3%
coupon, with an attached warrant that will allow the buyer to "call"
from Berkshire shares at approximately 12.5$ above the level that
Berkshire "A" shares sold at two weeks ago. In order to keep the
warrant alive, however, the buyer will pay to Berkshire an annual
fee of 3.75%. In other words, Berkshire has sold debt with an annual
negative interest rate of .75%...retaining the right to sell shares
at a substantive premium to today's price! We can only recall the
Swiss government having been able to make such a grand debt issue,
doing so back sometime in the late 70's or early 80's to the best of
our knowledge, when money was flowing to Switzerland as a safe haven
and the Swiss tried to stem that tide by offering a negative
coupon."

Think about that. Supposedly sane institutional investors are going
to pay Buffett for the right to take their money. Berkshire is such
a proxy for the stock market that you have to be a major bull to
enter into such a transaction.

I for one cannot figure out why anyone in their right mind would do
this. There are certain rules in life: you don't play poker with
guys called Blackie, you don't shoot pool with fat guys called Slim,
and you don't take the opposite bet against Buffett.

Berkshire has all the money it needs. Why would Buffet risk serious
dilution of his shares by selling these relatively cheap options if
he really thought his stock was going to rise? I think he decided to
take advantage of a few optimists and add to his bank account. He
has got to be chuckling to himself late at night over this one.

The obvious implication is that he thinks we are in for a prolonged bear market."

John Mauldin