Kass: Buffett Brought Down to Earth

This blog post originally appeared on RealMoney Silver on Jan. 23 at 8:14 a.m. EST.

"It's never paid to bet against America.... We come through things, but it's not always a smooth ride....This is an economic Pearl Harbor."

-- Warren Buffett, "Dateline" interview on NBC (Jan. 18, 2009)

On Sunday evening, Warren Buffett sat down with NBC's Tom Brokaw for a marvelous and straightforward interview. (Here is the complete transcript.)

Early in 2008, I took a controversial and negative view on Berkshire Hathaway's (BRK.A Quote) stock. During the late summer, I profitably covered a short I put on Berkshire at approximately $140,000 per share.

Based on the recent deterioration of Berkshire's investments, I might have been premature. (Berkshire's common now trades for under $89,000 a share.)

In the last 60 days, Berkshire's investment portfolio has plummeted in value. Buffett has lost over $4.5 billion alone on his 300-million-share investment in Wells Fargo (WFC Quote) since Dec. 1, 2008, and another $1 billion loss on U.S. Bancorp's (USB Quote) shares; both stocks have been halved in less than two months. His most recent investments in Burlington Northern Santa Fe (BNI Quote), General Electric (GE Quote) and Goldman Sachs (GS Quote) have deteriorated markedly in value from his cost basis.

Equally important, I have repeatedly uttered the notion that Berkshire's large derivative position -- namely, short puts on the S&P 500 -- was evidence of investment style drift. Regardless of that view, Berkshire has now likely recorded a nonrealized loss in excess of a $10 billion on the index short put position. A loss on that scale, whether realized or unrealized, is large even for Warren Buffett.

In 2008 and (so far) 2009, The Oracle of Omaha has been wrong; it has paid to bet against America.

Moreover, the U.S. "economic Pearl Harbor" has humanized and brought down to earth many of the smartest investors in the world (e.g., Warren Buffett), as well as the entire private equity universe, many well-regarded hedge funds and investors (e.g., Marty Whitman and Bill Miller), and some masters of the universe in residential and nonresidential real estate, among others. Many industrialists, including Aubrey Kerr McClendon, Kerkor "Kirk" Kerkorian, Sheldon Adelson and Sumner Redstone, have been thrown under Mr. Market's bus, as have financiers Dick Fuld, James Cayne, John Thain and even Bank of America's (BAC Quote) Ken Lewis.