10 ms·

Warren Buffett’s Berkshire dumps most of Goldman Sachs stake

144 points by yarapavan 6y ago

JumpCrisscross 6y ago
Speaking somewhat anecdotally, Goldman Sachs in 2020 does not resemble Goldman circa 1998 or even 2008. A lot of brain trust was lost following the post-crisis de-risking and vilification. The move into retail finance, to me, solidifies its mystique shedding.
- drawkbox 6y ago
  > move into retail finance Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1]. Commercial real-estate was already going to absolutely hammered. > Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year. > Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities). > Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser. > ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change. > It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.” Exact same trick as last time, just last time residential and this time commercial. Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets. Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now. The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc. Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem. The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas. [1] https://www.propublica.org/article/whistleblower-wall-street-has-engaged-in-widespread-manipulation-of-mortgage-funds https://www.propublica.org/article/whistleblower-wall-street...
  - logicchains 6y ago
    >Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets. More like time to stop propping them up. If the government hadn't stepped in to save them during the last crisis, a bunch of those banks would have gone the way of Lehman Brothers.
    - lefstathiou 6y ago
      I think the parent post is recommending an orderly breakup as opposed to a collapse where society is left to pick up the pieces. The issue comes back to foreign competition. As much as Glass-Steagall made sense to some, it was repealed because US banks faced increasing competition from European banks that were able to bundle advisory with retail bank deposits. Unless everyone takes similar position globally (or we block foreign bank access to our markets) it’s hard to justify a handicap on the home team.
      - lumost 6y ago
        Banking is a sector where it's easy to win on a short term (10year) horizon and lose everything on a 20 year horizon. Ultimately if the taxpayer is going to foot the bill on the 20 year horizon then they should be able to ensure that only players obeying the guardrails are allowed to play.
  - arcticbull 6y ago
    So this was a solved problem with the Glass–Steagall Act (1933) brought in after the, you guessed it, great depression [1]. It was of course repealed (by Bill Clinton), as we'd learned our lesson thoroughly and completely. This led to 2008. And 2020. So naturally, given the broad-based success of the repeal, there's no interest in reviving it. [1] https://en.wikipedia.org/wiki/Glass–Steagall_legislation https://en.wikipedia.org/wiki/Glass–Steagall_legislation
    - lonelappde 6y ago
      Congress passes laws, not the President. The repeal passed the Senate on a near party line vote (R over D), sponsored by 3 Republicans, and passed the House will nearly all R and 2/3 of D. Clinton could have vetoed it, though, since the Senate didn't have a two-thirds majority. https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93... Of course, looking to the future from the future, a veto would likely be irrelevant since Bush took over a year and a half later.
- cowsandmilk 6y ago
  Not sure why 1998 is relevant to a stake Berkshire bought in 2008.
  - rmrfstar 6y ago
    Because GS has never been about having a "brain trust". It is about proximity to power. That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.
    - jmeister 6y ago
      This is nonsense. GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s. And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.
      - rmrfstar 6y ago
        (1) Black-Litterman is literally the only useful thing to come out of GS ever. (2) LTCM employed a Nobel winning economist too. Was that "brain trust" the source of PnL, or was it cheap leverage? Fun fact on LTCM and GS and 1998: according to Lowenstein's account, the GS banker who came to diligence LTCM during the fed-forced bailout was seen furtively reviewing a laptop in a corner. The next day, all the positions recorded in that laptop moved sharply against LTCM... surely this was a coincidence. Great culture they have over there at Vampire Squid, Inc.
      - phyalow 6y ago
        Cant say I agree. I worked for various European and US IB's pre 08, then have for the better part of the last decade been a client of them. IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart, which when viewed from the outside it makes one laugh. All US IB's these days are largely just commodity balance sheets. None of them have any tangible edge over each other in the bigger picture.
voldacar 6y ago
Fun fact: The CEO of Goldman also makes pretty bad EDM music https://soundcloud.com/djdsolmusic https://soundcloud.com/djdsolmusic
- fxtentacle 6y ago
  Apparently, there are not enough groupies for CEOs ;)
- malux85 6y ago
  Oh this is terrible. I love it
- puranjay 6y ago
  Maybe it's because I'm an amateur musician and hear some truly awful music, but by EDM standards, that's at least mediocre, not "bad".
  - koheripbal 6y ago
    The only thing you're missing is the requirement to hate anything a banking CEO produces, no matter the quality. He could cure cancer, and angry people online will complain he contributed to overpopulation.
    - voldacar 6y ago
      Oh I have nothing against the fact that he's a bank CEO, I just thought his music was pretty bland and generic. Maybe I was too harsh. You would think that bank CEOs would be the kind of person to not really have any hobbies or interests outside of work, so I guess it's kind of cool that he's putting himself out there like this
  - voldacar 6y ago
    Well by bad I meant flavorless, generic, forgettable, so maybe mediocre would be the better term :)
- swyx 6y ago
dredmorbius 6y ago
http://archive.is/b7h3A http://archive.is/b7h3A (fo, li, md, vn, ph, and today are alt TLDs: https://en.m.wikipedia.org/wiki/Archive.today https://en.m.wikipedia.org/wiki/Archive.today)
blackrock 6y ago
What does he know that we don’t? He just dumped most of his airline holdings, after losing some $5 billion dollars. It seems he might be going into cash, and sitting things out, until a true correction hits, and then he’ll go back in and pick up companies for pennies on the dollar.
- mam2 6y ago
  He was not so wise on the airlines...
  - H8crilA 6y ago
    That really remains to be seen. Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.
  - blackrock 6y ago
    The $5 billion loss is likely pocket change to him. But he might be onto something. Which means, does he know some insider knowledge that we don’t? The airlines industry is practically about tourism. Yes, there is business travel, but tourism is an important part of it. But, there is unlikely to be any significant tourism in the years ahead, until some kind of vaccine comes out. So, does he know about some insider knowledge here. He doesn’t take strategic positions like this on a whim, and he clearly operates on fringe insider knowledge. Maybe his buddies are telling him, that here will likely never be a vaccine? Now, that is an interesting and possibly tradable thesis. Short the airline companies.
    - tankenmate 6y ago
      I would suspect that even after a vaccine comes out travelling of all sorts will be depressed; maybe to the point of permanently moving the needle. As an analogy, public health experts suggest we should do away with shaking hands in the future. It may well be that social norms such as travelling, shaking hands, etc will permanently change.
dilandau 6y ago
Many in finance think we're headed for deflation. If that's the case, dumping equities for cash is a sensible move. He may be expecting chaos in the banking sector as bankruptcies roll in, and these mortgage fund fraud allegations gain traction. It's going to be a wild decade. Watch the government use this to vastly expand surveillance powers, too. Not going to be good for the average American.
- mxschumacher 6y ago
  The positions in GS and WFC have been reduced over the last few quarters, these sales should not be interpreted as "dumping equity" - besides the large private holdings (insurance, rail, energy, lots of manufacturing, retail etc), Berkshire still holds $200bn worth of equity.
  - dilandau 6y ago
    Thanks for clarifying
  - valuearb 6y ago
    Wasn’t the WFC reduction you keep BRK under the 10% limit for banks?
- gruez 6y ago
  >Many in finance think we're headed for deflation Is that really a problem, considering it can be combated with money printing?
- magicsmoke 6y ago
  Isn't the Fed supposed to print as much money as necessary to ensure positive inflation?
- MiroF 6y ago
  > Many in finance think we're headed for deflation Pshh - not as long as we have a central bank.
- altmind 6y ago
ineedasername 6y ago
He doesn't seem to be picking up stakes elsewhere, which makes these moves seem like a flight to safety, seeing few investments worth the risk. Of course he could have deals in the works: he hasn't personally told me anything yet.
lonelappde 6y ago
That's 5% of GS shares. Did it push the price down?
raincom 6y ago
Buffett's Berkshire Hathaway owns a range of companies, giving him an insight into the fundamentals of economy. However, retail investors and many hedge funds just focus on the market psychology, and hence, momentum. So, Buffett knows something that other don't know.
- valuearb 6y ago
  His returns were far better before he owned any companies.

144 points by yarapavan 6y ago

Speaking somewhat anecdotally, Goldman Sachs in 2020 does not resemble Goldman circa 1998 or even 2008. A lot of brain trust was lost following the post-crisis de-risking and vilification. The move into retail finance, to me, solidifies its mystique shedding.

drawkbox 6y ago
> move into retail finance Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1]. Commercial real-estate was already going to absolutely hammered. > Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year. > Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities). > Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser. > ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change. > It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.” Exact same trick as last time, just last time residential and this time commercial. Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets. Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now. The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc. Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem. The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas. [1] https://www.propublica.org/article/whistleblower-wall-street-has-engaged-in-widespread-manipulation-of-mortgage-funds https://www.propublica.org/article/whistleblower-wall-street...
- logicchains 6y ago
  >Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets. More like time to stop propping them up. If the government hadn't stepped in to save them during the last crisis, a bunch of those banks would have gone the way of Lehman Brothers.
  - lefstathiou 6y ago
    I think the parent post is recommending an orderly breakup as opposed to a collapse where society is left to pick up the pieces. The issue comes back to foreign competition. As much as Glass-Steagall made sense to some, it was repealed because US banks faced increasing competition from European banks that were able to bundle advisory with retail bank deposits. Unless everyone takes similar position globally (or we block foreign bank access to our markets) it’s hard to justify a handicap on the home team.
    - lumost 6y ago
      Banking is a sector where it's easy to win on a short term (10year) horizon and lose everything on a 20 year horizon. Ultimately if the taxpayer is going to foot the bill on the 20 year horizon then they should be able to ensure that only players obeying the guardrails are allowed to play.
- arcticbull 6y ago
  So this was a solved problem with the Glass–Steagall Act (1933) brought in after the, you guessed it, great depression [1]. It was of course repealed (by Bill Clinton), as we'd learned our lesson thoroughly and completely. This led to 2008. And 2020. So naturally, given the broad-based success of the repeal, there's no interest in reviving it. [1] https://en.wikipedia.org/wiki/Glass–Steagall_legislation https://en.wikipedia.org/wiki/Glass–Steagall_legislation
  - lonelappde 6y ago
    Congress passes laws, not the President. The repeal passed the Senate on a near party line vote (R over D), sponsored by 3 Republicans, and passed the House will nearly all R and 2/3 of D. Clinton could have vetoed it, though, since the Senate didn't have a two-thirds majority. https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93... Of course, looking to the future from the future, a veto would likely be irrelevant since Bush took over a year and a half later.
cowsandmilk 6y ago
Not sure why 1998 is relevant to a stake Berkshire bought in 2008.
- rmrfstar 6y ago
  Because GS has never been about having a "brain trust". It is about proximity to power. That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.
  - jmeister 6y ago
    This is nonsense. GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s. And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.
    - rmrfstar 6y ago
      (1) Black-Litterman is literally the only useful thing to come out of GS ever. (2) LTCM employed a Nobel winning economist too. Was that "brain trust" the source of PnL, or was it cheap leverage? Fun fact on LTCM and GS and 1998: according to Lowenstein's account, the GS banker who came to diligence LTCM during the fed-forced bailout was seen furtively reviewing a laptop in a corner. The next day, all the positions recorded in that laptop moved sharply against LTCM... surely this was a coincidence. Great culture they have over there at Vampire Squid, Inc.
    - phyalow 6y ago
      Cant say I agree. I worked for various European and US IB's pre 08, then have for the better part of the last decade been a client of them. IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart, which when viewed from the outside it makes one laugh. All US IB's these days are largely just commodity balance sheets. None of them have any tangible edge over each other in the bigger picture.

voldacar 6y ago

Fun fact: The CEO of Goldman also makes pretty bad EDM music https://soundcloud.com/djdsolmusic https://soundcloud.com/djdsolmusic

fxtentacle 6y ago
Apparently, there are not enough groupies for CEOs ;)
malux85 6y ago
Oh this is terrible. I love it
puranjay 6y ago
Maybe it's because I'm an amateur musician and hear some truly awful music, but by EDM standards, that's at least mediocre, not "bad".
- koheripbal 6y ago
  The only thing you're missing is the requirement to hate anything a banking CEO produces, no matter the quality. He could cure cancer, and angry people online will complain he contributed to overpopulation.
  - voldacar 6y ago
    Oh I have nothing against the fact that he's a bank CEO, I just thought his music was pretty bland and generic. Maybe I was too harsh. You would think that bank CEOs would be the kind of person to not really have any hobbies or interests outside of work, so I guess it's kind of cool that he's putting himself out there like this
- voldacar 6y ago
  Well by bad I meant flavorless, generic, forgettable, so maybe mediocre would be the better term :)
swyx 6y ago

dredmorbius 6y ago

http://archive.is/b7h3A http://archive.is/b7h3A (fo, li, md, vn, ph, and today are alt TLDs: https://en.m.wikipedia.org/wiki/Archive.today https://en.m.wikipedia.org/wiki/Archive.today)

blackrock 6y ago

What does he know that we don’t? He just dumped most of his airline holdings, after losing some $5 billion dollars. It seems he might be going into cash, and sitting things out, until a true correction hits, and then he’ll go back in and pick up companies for pennies on the dollar.

mam2 6y ago
He was not so wise on the airlines...
- H8crilA 6y ago
  That really remains to be seen. Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.
- blackrock 6y ago
  The $5 billion loss is likely pocket change to him. But he might be onto something. Which means, does he know some insider knowledge that we don’t? The airlines industry is practically about tourism. Yes, there is business travel, but tourism is an important part of it. But, there is unlikely to be any significant tourism in the years ahead, until some kind of vaccine comes out. So, does he know about some insider knowledge here. He doesn’t take strategic positions like this on a whim, and he clearly operates on fringe insider knowledge. Maybe his buddies are telling him, that here will likely never be a vaccine? Now, that is an interesting and possibly tradable thesis. Short the airline companies.
  - tankenmate 6y ago
    I would suspect that even after a vaccine comes out travelling of all sorts will be depressed; maybe to the point of permanently moving the needle. As an analogy, public health experts suggest we should do away with shaking hands in the future. It may well be that social norms such as travelling, shaking hands, etc will permanently change.

dilandau 6y ago

Many in finance think we're headed for deflation. If that's the case, dumping equities for cash is a sensible move. He may be expecting chaos in the banking sector as bankruptcies roll in, and these mortgage fund fraud allegations gain traction. It's going to be a wild decade. Watch the government use this to vastly expand surveillance powers, too. Not going to be good for the average American.

mxschumacher 6y ago
The positions in GS and WFC have been reduced over the last few quarters, these sales should not be interpreted as "dumping equity" - besides the large private holdings (insurance, rail, energy, lots of manufacturing, retail etc), Berkshire still holds $200bn worth of equity.
- dilandau 6y ago
  Thanks for clarifying
- valuearb 6y ago
  Wasn’t the WFC reduction you keep BRK under the 10% limit for banks?
gruez 6y ago
>Many in finance think we're headed for deflation Is that really a problem, considering it can be combated with money printing?
magicsmoke 6y ago
Isn't the Fed supposed to print as much money as necessary to ensure positive inflation?
MiroF 6y ago
> Many in finance think we're headed for deflation Pshh - not as long as we have a central bank.
altmind 6y ago

ineedasername 6y ago

He doesn't seem to be picking up stakes elsewhere, which makes these moves seem like a flight to safety, seeing few investments worth the risk. Of course he could have deals in the works: he hasn't personally told me anything yet.

lonelappde 6y ago

That's 5% of GS shares. Did it push the price down?

raincom 6y ago

Buffett's Berkshire Hathaway owns a range of companies, giving him an insight into the fundamentals of economy. However, retail investors and many hedge funds just focus on the market psychology, and hence, momentum. So, Buffett knows something that other don't know.

valuearb 6y ago
His returns were far better before he owned any companies.