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I wonder if that means Berkshire's recent bond offering was a mistake: https://www.fool.com/investing/2020/04/12/this-warren-buffett-strategy-could-bring-you-su

I wonder if that means Berkshire's recent bond offering was a mistake: https://www.fool.com/investing/2020/04/12/this-warren-buffett-strategy-could-bring-you-succe.aspx https://www.fool.com/investing/2020/04/12/this-warren-buffet... Berkshire has always held a ton of cash for just such an occasion. They can just buy up equity on the open market and take substantial control of a company. But, did they need even more money?

toomuchtodo 7y ago
It was the right decision at the time. It's unlikely anyone could've predicted the Federal Reserve and the Treasury Dept would've stepped in with unlimited support before the recent self-imposed economic collapse.
- pmiller2 7y ago
  They announced their intention to offer bonds in late March, well after it was generally known that the government intended to step in.
  - deleted 7y ago
    [deleted]
  - toomuchtodo 7y ago
    I don't believe it was until early April when the full force of support was evident. https://news.ycombinator.com/item?id=22822869 https://news.ycombinator.com/item?id=22822869
    - whatok 7y ago
      The recent Fed announcements mostly served to reopen the high yield primary market and the investment grade markets were wide open well before that; especially for a strong issuer like BRK.
aguyfromnb 7y ago
>Berkshire has always held a ton of cash for just such an occasion. Perhaps the occasion hasn't presented itself yet...
CapriciousCptl 7y ago
It's Yen-denominated debt-- mostly useful to Berkshire so they can make Yen-denominated investments without currency risk. It's at less than 1% a year, which costs virtually nothing given the options it opens up for Berkshire. And you'll note that that debt makes up less than 1% of its total cash position, it's really just there so Berkshire can buy something quickly in Yen if an opportunity shows up.
- algo_trader 7y ago
  oh man. nothing you have said make any kind of sense. if they have yen-denominated debt, then they have added currency risk if it is 1% of their cash position, they can just use some cash and buy yens and have those yens available. if they have hedged the bond currency risk, then they might as well have hedged it after buying yens in the open market if it's 1% interest, it is still probably more than the interest they earn on their cash position. just saying... (MAYBE, maybe, its a tax issue)
  - CapriciousCptl 7y ago
    You're coming at this from a "hedging" perspective-- Instead, think in terms of what the bond gives him-- a lot of Yen. That's opportunities to invest. The increased "risk" in this sense is miniscule-- since the cost of the oppurtunity is less than 1% Yen a year, even a 200% rise in Yen/USD only actually costs Berkshire 2%. And, my bet is Buffett knows of some companies he could deploy that Yen in right now to cover the interest anyway. He's just lying in wait for better oppurtunities. Now, there could be some other thing going on-- but taxes-wise in general U.S. companies issue US-denominated bonds to repatriate funds so I'm sure where you're going with that. My bet would be if it's not just for the opportunity, it may for their re-insurance reserves.
    - whatok 7y ago
      This doesn't make any sense. Issuers don't need to pre-fund acquisitions before making offers so BRK wouldn't need any JPY before acting and in the event of an acquisition closing, they would easily be able to issuer in any currency on earth. Don't know the name well at all but BRK issued in JPY last year as well so I'm guessing they have some recurring JPY liabilities.
whatok 7y ago
BRK issues regularly at the insurance company level. I wouldn't overthink it. Even with the recently issued USD bonds much wider, they're still yielding around the same at issue with rates much lower. Strong issuers like BRK should be taking advantage of much lower rates and extreme demand for investment grade bonds right now to refinance higher coupon debt.

toomuchtodo 7y ago

It was the right decision at the time. It's unlikely anyone could've predicted the Federal Reserve and the Treasury Dept would've stepped in with unlimited support before the recent self-imposed economic collapse.

pmiller2 7y ago
They announced their intention to offer bonds in late March, well after it was generally known that the government intended to step in.
- deleted 7y ago
  [deleted]
- toomuchtodo 7y ago
  I don't believe it was until early April when the full force of support was evident. https://news.ycombinator.com/item?id=22822869 https://news.ycombinator.com/item?id=22822869
  - whatok 7y ago
    The recent Fed announcements mostly served to reopen the high yield primary market and the investment grade markets were wide open well before that; especially for a strong issuer like BRK.

aguyfromnb 7y ago

>Berkshire has always held a ton of cash for just such an occasion. Perhaps the occasion hasn't presented itself yet...

CapriciousCptl 7y ago

It's Yen-denominated debt-- mostly useful to Berkshire so they can make Yen-denominated investments without currency risk. It's at less than 1% a year, which costs virtually nothing given the options it opens up for Berkshire. And you'll note that that debt makes up less than 1% of its total cash position, it's really just there so Berkshire can buy something quickly in Yen if an opportunity shows up.

algo_trader 7y ago
oh man. nothing you have said make any kind of sense. if they have yen-denominated debt, then they have added currency risk if it is 1% of their cash position, they can just use some cash and buy yens and have those yens available. if they have hedged the bond currency risk, then they might as well have hedged it after buying yens in the open market if it's 1% interest, it is still probably more than the interest they earn on their cash position. just saying... (MAYBE, maybe, its a tax issue)
- CapriciousCptl 7y ago
  You're coming at this from a "hedging" perspective-- Instead, think in terms of what the bond gives him-- a lot of Yen. That's opportunities to invest. The increased "risk" in this sense is miniscule-- since the cost of the oppurtunity is less than 1% Yen a year, even a 200% rise in Yen/USD only actually costs Berkshire 2%. And, my bet is Buffett knows of some companies he could deploy that Yen in right now to cover the interest anyway. He's just lying in wait for better oppurtunities. Now, there could be some other thing going on-- but taxes-wise in general U.S. companies issue US-denominated bonds to repatriate funds so I'm sure where you're going with that. My bet would be if it's not just for the opportunity, it may for their re-insurance reserves.
  - whatok 7y ago
    This doesn't make any sense. Issuers don't need to pre-fund acquisitions before making offers so BRK wouldn't need any JPY before acting and in the event of an acquisition closing, they would easily be able to issuer in any currency on earth. Don't know the name well at all but BRK issued in JPY last year as well so I'm guessing they have some recurring JPY liabilities.

whatok 7y ago

BRK issues regularly at the insurance company level. I wouldn't overthink it. Even with the recently issued USD bonds much wider, they're still yielding around the same at issue with rates much lower. Strong issuers like BRK should be taking advantage of much lower rates and extreme demand for investment grade bonds right now to refinance higher coupon debt.