(Berkshire Hathaway article updated with news of Berkshire's loss of its AAA credit rating.)
OMAHA, Neb. (
) -- Thursday has been a tough day for Warren Buffett's
, beyond Berkshire shares selling off along with the whole markets on the unexpectedly weak job data.
Berkshire revealed that it has cut approximately 3,000 jobs since December, and on Thursday, lost its last-remaining AAA rating, a point of pride for Warren Buffett.
In an SEC filing on Thursday related to the issuance of $8 billion in senior notes to help finance the Berkshire Hathaway acquisition of
, Berkshire noted that it and its subsidiaries employ about 222,000 people.
The 222,000 employee level is 1.3% less than the figure that
Berkshire Hathaway reported six weeks ago , and almost 10% below the 246,083 disclosed in the company's 2008 annual report, according to
Many of the Berkshire operating subsidiaries, such as housing company
and carpet maker
, are intricately linked in performance to a cyclical rebound in housing and a sustained recovery in the U.S. economy. Buffett has recently made comments to the effect that operating subsidiaries that are tied to a broad and sustained recovery in the U.S. economy and consumer spending continue to see lower order volume.
Berkshire has more than 70 wholly owned operating subsidiaries, and in addition to the home and carpet industry stocks, Berkshire owns brick-maker
Acme Building Brands
as well as insulation and roofing materials company
There was no indication from Berkshire that further staff reductions came specifically from these U.S. cyclical stocks.
Still, many retail investors are having their first look at Berkshire Hathaway as a result of the recent stock split in the B shares and news of its addition to the S&P 500. This is the first Berkshire Hathaway earnings season that is significant for the retail investor public, especially as the index funds that so many retail investors own are bulking up on Buffett shares to mirror its S&P position.
What's more, there is a good deal of support for
the argument that Berkshire Hathaway shares are undervalued, as the cyclical nature of many of its underlying U.S. subsidiary holdings like Clayton and Shaw, and its insurance-heavy portfolio, have been out of favor among investors.
Yet U.S. unemployment continues to plague the market -- again on Thursday the markets sold off on an unexpected rise in jobless claims -- and investors interested in Berkshire Hathaway as a value play are making at least a partial bet on the recovery of stocks like Clayton and Shaw Industries.
Berkshire has already made up substantial ground in its discount versus the S&P 500, also. Berkshire had only gained 30% from a March low up to its stock split in late January, while the S&P had gained 60% during that same time period. However, since the Berkshire Hathaway stock split and S&P 500 news, the gap between Berkshire Hathaway and S&P 500 performance since March low points has narrowed to 47% for Berkshire and 52% for the S&P, through last week.
Unlike last week,
when Berkshire Hathaway gained during days when the broad markets were down, this week Berkshire is moving closely with the broader markets. On Thursday afternoon, Berkshire was down 2.8% while the S&P 500 was down 2.3%.
So far this week,
Berkshire Hathaway has given back a good part of the gains that it made last week, however, the trading community believes that as long as Berkshire Hathaway shares remain above $70, that is the key share-price threshold.
The Berkshire Hathaway operating subsidiaries do not report individually, but there are public companies within the Berkshire portfolio that have reported recently -- though to be fair, any one public stock in the Berkshire portfolio has a very small impact on overall financial performance.
The most recent Berkshire public holding to report was
, on Thursday morning. Buffett has actually been shedding his position in Moody's in the most recent reporting periods, and based on Thursday's earnings, it looks like a good decision.
Moody's was down 5.5% on Thursday after guiding below 2010 street estimates.
Berkshire Hathaway's earnings are expected at the beginning of March.
While a good deal of the recent excitement about Berkshire Hathaway has been linked to its inclusion in the S&P 500 index, Standard & Poor's also delivered bad news for Berkshire Hathaway on Thursday, in the form of an anticipated credit rating downgrade.
S&P has lowered the rating of Berkshire Hathaway in response to the acquisition of
, including Thursday's issuance of $8 billion senior notes as part of the transaction.
S&P already had Berkshire Hathaway on CreditWatch since the acquisition of Burlington Northern was first proposed. Berkshire's long-term counterparty credit rating has been cut to 'AA+' from 'AAA,' and the financial strength ratings on Berkshire's core insurance operations was cut to 'AA+' from 'AAA' with a stable outlook.
S&P noted in its Berkshire Hathaway credit downgrade: "We believe that the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity, and that investment risk with sizable concentrations remains very high."
The S&P AAA rating was the last of its kind for Berkshire, as the other major rating agencies already downgraded Berkshire last spring amidst declines in its U.S. cyclicals' operating subsidiaries.
-- Reported by Eric Rosenbaum in New York.
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