Man Without Qualities

Tuesday, June 14, 2005

Big Loser In Omaha And Laguna? II

As noted in a prior post,the biggest individual short-term loser from the ongoing near-crisis in the EU may by Warren Buffett. As Forbes has reported:

Warren Buffett['s] ... Berkshire Hathaway has a $20 billion bet in favor of the euro, the pound and six other foreign currencies.... [H]e is not about to cover his short position on the dollar. Buffett said that he began buying foreign currency forward contracts when the euro was worth 86 U.S. cents, and kept buying until the price reached $1.20. ... Buffett said he is not adding new positions now but has been rolling over contracts as they mature.... Now some of [his] assets are antidollar assets. Example: In 2002 he bought bonds of Level 3, a telecom company, that were denominated in euros. In 2000 Berkshire picked up MidAmerican Energy, a gas pipeline company. ... But here's a long-term perspective. He says he may hold foreign currencies "for years and years."

If Mr. Buffett was "rolling over" his positions prior to the French rejection of the EU Constitution, then he must have acquired euro positions for prices far beyond $1.20. And those older $0.86 positions expired a long, long time ago - or were rolled over into much pricier positions. And he says that he has acquired no cover for those short positions.

Now today there's this from the Financial Times:
“Any kind of shift in direction from the ECB is important because they have been extremely reluctant to acknowledge any possibility of an easing move,” said Jens Nordvig at Goldman Sachs, which on Monday revised its euro forecast downwards for the second time in two weeks, putting the euro at $1.15 in three months’ time.

Dear me. At anywhere near $1.15 and without any cover, the euro may deliver to Berkshire-Hathaway the biggest quarterly loss the company has ever seen.

That should get some attention.

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