November 20, 2008
– Comments (2) |
RELATED TICKERS: BRK-A
Berkshire Hathaway (NYSE: BRK-A) shares fell 12% yesterday, and today marks the ninth consecutive day of price declines. Equity investors appear to be fixated on [more]
Alex Dumortier (XMFMarathonMan)
I'll give this a go. First they are a victim of the market like all. Second their reinsurance business has suffered huge losses. Third is the derivitive trade, which I had a heated debate about some time ago with a fellow fool. The sale of the puts on the US and foreign indexes was a cash in advance sale with no future proceeds for Berkshire. The accounting is done on a monthy basis. There is no actual loss until such time that the puts expire in the money, but along the way there can be a huge paper loss, and there is now. If the markets continue to fall this loss will grow, and be accounted for as such. It is possible that if the markets fall far enough, the cost to borrow would become prohibitive.
You would think that Bershire has bought futher out of the money puts as a hedge.
If these are unhedged, they ultimately could be devastating.
There is really no scenario under which these puts could be 'devastating'.
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