Warren Buffett is not an idiot. He has kept his powder dry through all of this madness and suddenly, within one week, he has opened his coffers and picked up not one, but two multi-billion-dollar steals,
These investments are the first sign that someone, some grown-up, is coming in from the sidelines, not because he has been talked into something that he doesn't want to do or understand -- which has been the case in all of the other bank financings -- but because he sees a delicious rate of return that will be hard to take away now that he has put his balance sheet to work, one of the last with any firepower to make a difference.
First, Constellation. Here's a perfectly good utility that, because of its business model, needs capital to work. It made several miscues that brought it to its knees -- a business that is a regular, good generator of income gone bad because of financing. I have no idea how low it would have gone, but as long as it was intact, it was worth a lot more than it was selling for to someone who has financing, and that's what Buffett has in spades. He stole the company.
Now along comes Goldman Sachs, a company with a glorious history of making money in good and bad times -- and believe me, this is a bad time -- and he snaps up a huge chunk of the firm with a preferred deal that gives him a 10% return and a lot of upside, better terms than he could ever get from
, a well-run bank that he has a big position in but that's nowhere near as profitable as Goldman.
Why did he do it? Because, again, like Constellation, the company has a great business and great business model that, unfortunately, needs credit to work and, again, who has credit and its sister, credibility? Just Buffett.
His moniker generates a return in itself, as he is now up about a half a billion on his investment. But what is great about Buffett, unlike so many of the people who have "come to the rescue of banks" during this period, is that he
doesn't want or need the half-billion
. He is not a flipper, he is an investor.
Here's my takeaway on all of this. We have waited and waited for smarter money like Buffett to take advantage of what we all thought were bargains. But he didn't.
As the gloom grew and the asset prices of even the good and the steady collapsed, what happens? Buffett steps up. It is more than ironic that he came in after a multitude of articles that talked about how Goldman is worth
than it was before it became a commercial bank, because the truth is that it is worth far more as a commercial bank because it can do more and have access to more capital and is safer.
The press didn't believe it because the press gets its information from the shorts.
But Buffett did. Perhaps we should be thinking more like Buffett and less like the press.
That is, if we want to make some money. But maybe that's no longer the plan!
At the time of publication, Cramer was long Goldman Sachs.
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