TheStreet.com's Jim Cramer says he at least recognizes value when he sees it. 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, Constellation Energy (NYSE: CEG) (Cramer's Take) and Goldman Sachs (NYSE: GS) (Cramer's Take).
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 Wells Fargo (NYSE: WFC) (Cramer's Take), 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 far less 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!
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RELATED LINKS:
Buffett Takes Goldman Stake
Goldman, Morgan Bank on Confidence Boost
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Goldman Sachs.
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Reader Comments (Page 1 of 1)
9-24-2008 @ 10:33AM
Gerald Bursey said...
History tells us that for the long term we should be bullish.
We should be thinking and acting "long term" for those of us who are unafraid
9-24-2008 @ 10:35AM
Gerald Bursey said...
History tells us that for the long term we should be bullish.
We should be thinking and acting "long term" for those of us who are unafraid
9-24-2008 @ 12:19PM
Rex said...
A careful review of large Buffet deals over the years will reveal that when he takes big action, the bottom is very near.
9-24-2008 @ 12:41PM
James Golm said...
As you know the housing market is dead. Nothing in the proposed buyout will help to stimulate buyers or sellers. Nothing is being done to protect the non-foreclosed (free market) houses. It will do nothing to get the housing market moving again. It will put a lot of government owned foreclosed houses on the market. Unless you have tried to complete a transaction with the government you don’t understand that offers to buy these homes will take weeks or months to complete. Other homes in the neighborhood will suffer. Windows will be boarded in these houses and lawns will be mowed no more than monthly. The market will be focused on these foreclosed houses and houses privately offered will be ignored. I find it hard to understand that the Association of realtors does not see this!
I suggest the following be included in the buyout package: for the next six months, on any privately offered house purchased, the buyer would be able to double his/her mortgage deduction for the next five years. Additionally, the seller would receive a tax credit on the amount proven to be a loss including the cost of sale. Limit the program to homesteads and limit the deductions to median home values in the particular market. So a home purchased in Los Angeles would have a higher deduction possibility then a home in Fort Wayne. If the sellers knew that buyers were on the market again for a short six month period; prices might drop to sell the home and buyers might get some sense of urgency to start looking. If this part is not included these foreclosed homes will so overshadow the free market houses that the free market homes will become the problem very soon!
This is not a bailout; it is not a cheesy rebate check. It does not help the speculative housing market. It does not provide help to the stupid sub-prime lenders who were giving away money. It would cost the government nothing because now with nothing happening there are no tax revenues! All it does is help the common person buy or sell a home.
James L. Golm
9-24-2008 @ 11:08PM
NoInform8tion said...
Buffet knows you can only invest what you can afford to lose. Fortunately he has alot more money invested in a diverse way. Also, he has plenty of cash to be safe.
9-29-2008 @ 12:30AM
Shawn said...
Bottom line...winter is coming, people need utilities to survive, stock price is low, company is devalued at the moment, watch stock price peak to $80+ 2/1/2009.
9-29-2008 @ 3:20PM
scherf.com said...
Cramer has no clue about the markets and he's part of the problem. Warren Buffett is down over 20% this year. Cramer recommended and hyped Wachovia bank over and over for several weeks and today (Sept. 29) the bank failed.
Cramer hailed the FDIC which has just stolend and robbed millions of Americans, stealing private property (Wamu and Wachovia) and they turned around and sold the loot to JP Morgan in the Wamu case for a bargain basement price, ... and the FDIC collected the money from this theft, which makes it a criminal organization, ... and Jim Cramer supports it. And Sheila Bair is the most evil and incompetent person in any government agency, and she's as arrogant as it gets as demonstrated in her "Schadenfreude" interview last Friday (Sept. 26) on CNBC about the Wamu seizure stealing all assets from its owners and selling the loot to JPM. All trust in the U.S. government has been lost, and the U.S. stock markets have been degraded to a super casino where fundamentals are useless and all technical analysis is worthless.