Buffett Sell Signal

Call it revenge of the rumor mongers: So far this year, Warren Buffett has been wrongly named as an acquirer seven times. In five of those instances, the stocks are now lower, with all but one down considerably.

Last week, we noted how unlikely it  was (Buffett to Buy Bear? Bull$%*#) that Buffett would be an acquirer or even a major investor in Bear Stearns (BSC).

False rumors are no basis for an investing strategy — but this pattern, according to Bloomberg’s David Wilson, suggests that Bear Stearns has more downside to come:

"Speculation that Warren Buffett would come to the aid of Bear Stearns Cos., the fifth-largest U.S. securities firm, may be a signal to sell its shares.

Bear Stearns is the seventh company named as a potential target for an investment or acquisition by Buffett’s Berkshire Hathaway Inc. this year, Bloomberg News reports show. There’s no evidence so far that the billionaire investor followed through on any of the others, and the reticence allowed him to avoid losses.

Five of the companies — USG Corp., New York Times Co., Zurich Financial Services AG, Hovnanian Enterprises Inc. and Countrywide Financial Corp., in that order — trade at lower prices now than they were when the speculation surfaced . . ."

These rumored companies have fallen from 7.2% to down 41%:


Company Performance since Buffett Rumor
Zurich Financial Services -2.5%
Countrywide Financial -13%
New York Times -26%
USG Corp. -35%
Hovnanian Enterprises Inc. -41%


Wilson adds: "As the fourth quarter unfolds, Bear Stearns shares may be fated to fall."

Indeed . . .



Buffett Sell Signal, Trading-Only ETF, Starbucks Call
David Wilson
Bloomberg, Sept. 28 2007

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What's been said:

Discussions found on the web:
  1. CrossProfit commented on Oct 1

    As if the news gets better… UBS just announced that it expects to post a third quarter loss of up to $690 million.

    The only caveat about BSC is that the bad news is already priced in. Contrary to Lehman Brothers (LEH) and Goldman Sachs (GS) where the bad news hasn’t really hit yet, Bear Stearns (BSC) was the first to take substantial write-downs on their books. The question is will being first to recognize the losses help or hurt them in the future?

    We honestly don’t know the answer as it all depends how ‘kosher’ the rest of the books are at BSC and competitors. We reprinted an excellent article by Jonathan Weil (Bloomberg) under the title “Make Believe Numbers by the Numbers”. Weil talks about fudging the numbers at Wells Fargo (WFC), however in principle the same could be going on elsewhere.

    Disclosure: No conflicts.

  2. Stuart commented on Oct 1

    As a follow up on the UBS comment, analysts had expected a profit of near $2.8B, now Citi’s earnings are hit, blaming losses within their fixed income component. Alan Greenburg is now saying the worst of the credit crunch may be behind us. Sorry, count me in the cynical camp after he just finished his confessional that he didn’t “get it” in terms of understanding what was unfolding in the mortgage market until very late…..sort of like not being able to catch a beach ball. Perhaps he thinks that now he “gets” what’s unfolding in the credit markets that it must be late in the game.

  3. Philippe commented on Oct 1

    The banks are meeting with their own predicament « no one can prevail himself from his own turpitudes »
    Nine months to discover their losses
    Nine months to reveal a little part of their income statements
    Four more years to amortise their « make to dream statement of assets »
    Non-performing assets requiring more liquidities, movement from off balance sheet to on balance sheet
    Basle 2 ratios to be met on liquidities.
    LBO’s funded liabilities to be either kept in their books or sold at discount.
    Shrinking margins in the traditional lending business and more non-performing assets in the credit cards.
    Many complicities were required to reflect these statements all togather ….THE THIRD QUARTER 2007

  4. wally commented on Oct 1

    Bear could turn a tidy profit shorting itself, but then it would be profitable, so shorting would be a losing bet, but then they’d lose money, so…

  5. michael schumacher commented on Oct 1

    For those of you who STILL think we trade in a free market……..Citi profit down almost 62%, UBS needs to write off almost $3.5 billion……and I’m sure there is one or two others I have missed this morning HOWEVER let’s take an inconsequential merger that affects just about no one on a macro level and sends the market up almost a hundered points.

    What total and utter crap the futures have become. Just a tool to create warm fuzzies on really bad financial news.


  6. michael schumacher commented on Oct 1

    and there’s the record……..

    What a utter and total crapfest…..


  7. michael schumacher commented on Oct 1

    Nice drop of over $10 billion today….

    we have all these “excess tax receipts” and we still have a deficit……go figure.


  8. Eddie commented on Oct 1

    You upset at something there, big guy?

  9. WW commented on Oct 1

    Citi looses 62% profit on their subprime desaster but upgrades homebuilders to buy the same day. And the market takes off. Pretty amazing.

  10. GerryL commented on Oct 1

    If you have a losing position in a stock start a rumor that Buffett is going to take it over.

  11. Costa commented on Oct 1

    MS I always forget to bookmark it, what is the site you find the fed drops again?

  12. Fred commented on Oct 1

    The banks were given a perfect set up coming into a new quarter. Many PM’s broomed them off the holding lists last week so the investors would see no exposure to these “scary” banks. Now, with taking the charges (giving clarity) these names will attract bottom fishers.

    The lows have been made in the group, and the over all market would not be able to rally further without them rallying.

  13. Groty commented on Oct 1

    I wonder how many tech/telcoms only took writedowns in a single quarter after the excesses of the internet bubble? Or how many of the homebuilders? I think CTX was the first homebuilder to take a “one time” charge in 1Q06. After 5 consecutive quarters, they’re still taking them.

    It seems a bit naive to think the money center banks/investment banks have put all the bad news behind them with one quarter of impairments.

    No matter. As Marty Zweig was fond of saying on Wall Street Week with Louis Rukeyser….”don’t fight the FED”.

  14. Oliya Nam commented on Mar 21

    Home-Loans, are becomimg scarcer? No wonder the housing market is dropping, with the banks resricting loans.And the economy edging towards depression. Your article is very interesting and makes good reading,thanks for the info.
    I also found some intersting videos on the web concerning loans and housing loans maybe you want to view them.


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