Berkshire Hathaway
$24 billion

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By gdefelice
August 11, 2003

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I'm on vacation right now and just got online for the first time since Tuesday.

What a great vacation...I think I just paid for it. Well, Warren did.

I think both bond moves...the junk bond move and the treasury move were masterful. Of course, that's just my opinion...but that's what we're all here for. Moving such an enormous horde of bonds for such a large profit and just ahead of a disastrous sell-off was pretty smooth. I figured he sold half but basically all of 'em. Damn.

However, I have yet to see any commentary regarding what $24 billion in cash actually means. Though, I think it amounts to more money than our major reinsurance competitors have in equity...combined, or close.

Isn't the ever-growing cash hoard also a statement about the equity market as well? He's willing to sit on cash...more and more and more of it going on 5 years and still he waits for the fat pitch in equities. At least, I think he is waiting for equities...other analysts disagree and have suggested he will never really return. I disagree with them. I believe they have trouble understanding this kind of patience and so they confuse it for abandonment.

If he is waiting, then this ever-growing cash hoard is making quite a large statement about his opinion of equity valuations. Many have convinced me -- a bit -- that his circle of potential equity investments is so small now that such waiting cannot really be considered a comment on the valuation of the market at large. I accept and can agree with that. However, it is not as if he won't make smallish commitments when buying entire companies (or some equities as well)...witness CTB or Albecca or XTRA...all fairly small when we're looking for $20 billion buys. If he thought he could pick a few $200 million or $300 million equity plays -- like HRB or Moody's, etc., I believe he would.

Yet, almost nothing is done on the equity front. Maybe one could argue that he'll move back into long-term bonds after the recent sell-off. I'd have trouble making that case. He says he expects 10% after tax...long bonds certainly don't offer anything close to that right now.

He continues to wait. Wonder what he sees coming.

He has said that it was always obvious to him what would happen in the markets just not when. Well, he appears to be solving the "when" problem simply by waiting with cash...more and more and more of it piles up...but, he doesn't pay a dividend. Wonder why.

Meanwhile, at the latest WESCO meeting Munger commented that he didn't think "we" (the world) would see extremely cheap equities again in his or Warren's lifetime. Was that tongue in cheek? Where did that comment come from? I had assumed that it was about the Bernanke/Greenspan bailout plan...but the market appears to have put the lie to that one...and it appears Warren never fell for it in the first place, as he sold the long bonds before Greenspan suggested they really couldn't or wouldn't support the long end. And, of course, the bond rout started the day he made those comments...just as the bond move up started right around the time Bernanke suggested the FED would do everything in its power to support bond and equity prices (what they call avoiding deflation).

These are strange times.

Now, this commentary is not meant to suggest that those working with smaller sums cannot always find attractive opportunities. I believe they can. But, that said, it wouldn't surprise me one bit to see equities much cheaper than they are today within the next two years.

Buffett has been waiting some 5 years now and $24 billion appears to answer the "what" of the market's future price level so all that is left is the when...eventually "when" will be today.

Time for a 100-year storm...a real one.

Hey, do we still have that if that thing pans out (pun intended), we can all agree it will have been masterful.


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