Readings: Berkshire’s credit risk, John Paulson, India CRE slump
The cost of protecting against default by Warren Buffett’s AAA rated Berkshire Hathaway Inc. has almost tripled in two months.
The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody’s Investors Service, one level above junk. The price may have risen on concern that the billionaire’s firm could lose a $37 billion bet on world stock market values more than a decade from now.
2019! Heck, given Buffett’s probabilistic thinking, he has considered the (slim) chances that he’ll still be around in 2019 when (and if) these payments come due. 
- Pensions & Investments: Excellent timing: Face to Face with John Paulson (July 2007)
Watch the downside, the upside will take care of itself. That’s been a very important guiding philosophy for me. Our goal is to preserve principal, not to lose money. Our investors will forgive us if our returns don’t beat the S&P in a given year, but we are not forgiven if we have significant drawdowns.
The other saying really drives the same point from a different angle: Risk arbitrage is not about making money, it’s about not losing money. If you can minimize the downside, you get to keep all your earnings and that helps performance.
The performance of these subprime pools will not be decided over one month or two months. They will be decided over the next three years. Our investment (commitment is not based on) looking at what these bonds trade at today or tomorrow, but what the losses in these pools will be two or three years from now. Our estimates are that the losses will be well in excess of 6% or 7% and that as time goes on and these losses are realized, the bonds will be downgraded and they will fall much further.
- Express India: Bought for a fortune, stuck in realty slump
. . . according to information from the International Property Consultants (IPC), clients such as Reliance Mutual Funds and Aditya Birla Group, which have only signed letters of intent, are now demanding renegotiations on the lease rent. The last deal transacted was as long back as April.
Banga concedes that the rates have come down from Rs 275 per sq ft per month, but only up to Rs 225-250. IPC, however, says that even at Rs 195, there are no takers today.
Bought over by DLF at Rs 704 crore, the 17-acre plot stands testimony to the country’s costliest land deal till then. Since its moment of glory, the changing market dynamics has forced the Delhi-based realty player to go back to the drawing board more than once. Plans for a business hotel, mall and multiplex were modified to make way for an IT park. For more than a year now, the massive cranes on site have been at rest and work has not proceeded beyond the basement.
Still in denial.
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