Crony Capitalist “Uncle” Warren Buffett Drives Company Profits Using Derivatives

As regular readers know all too well, there are few people in these United States that I find more disingenuous than the mainstream media celebrated, crony capitalist extraordinaire Warren Buffett.  The man who used to warn about trade deficits, the U.S. dollar’s vulnerable position and famously called the derivatives “weapons of mass financial destruction,” has become nothing more than a political stooge for the status quo ever since he was bailed out in the financial crisis.  So with the derivatives market bigger and more dangerous than ever, you’d expect “Uncle Warren” to be shouting from the rooftops about how much risk they pose right?  Wrong.  Rather, America’s number one crony is using derivatives to drive earnings at his company, Berkshire Hathaway, and pimping stocks on CNBC like a cheap used car salesman every other day.  From Bloomberg:

Berkshire Hathaway Inc. (BRK/A) said fourth- quarter profit rose 49 percent on gains tied to derivatives wagers made by billionaire Chairman and Chief Executive Officer Warren Buffett.


Net income rose to $4.55 billion, or $2,757 a share, from $3.05 billion, or $1,846, a year earlier, Omaha, Nebraska-based Berkshire said today in a statement. Gains on derivatives surged to $1.4 billion from $163 million.

Buffett, 82, uses index put options to speculate on long- term gains in stock-market indexes in the U.S., Europe and Japan. Those bets added $2 billion to profit in the fourth quarter before taxes as Japan’s Nikkei 225 (NKY) Stock Average rallied.

“The probability of Berkshire ever having to take a loss on these contracts is very low” because they won’t be settled for years, said David Kass, a professor at the University ofMaryland’s Robert H. Smith School of Business, who has taken groups of students to visit Buffett in Omaha.

You’ve gotta love how the one person Bloomberg decides to quote with regard to the wisdom of Buffett’s derivatives strategy is a professor so entrenched in the “Uncle Warren” cult that he takes his students on pilgrimages to Omaha.  Nice journalism guys.

Full article here.

In Liberty,

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  1. There was a great article on ZH that talked about the temporal bounds of Fed printing. NIM going negative for the Fed at 4.5% on Dect 31, 2013, 3.5% on Dec. 2014 etc.

    And that when NIM goes negative for the Fed, they have two choices: print just to print (Zimabawe, Weimar, etc.) or unwind/stop the flow. In the latter case, to stop the print-flow without the mother of all stock market crashes, the Fed needs to convince every individual alive that going all-in on the “wealth’effect” and buying stocks is the way to go. Someone needs to pick up where they leave off–or else.

    The race against time has started for them–and THEY KNOW IT. And it’s why every elite-criminal, crony guy alive (Buffett) continues to sound the virtues for stock ownership. It’s why the stock market has lost almost all volalitily–to train the sheep like Pavlov dogs that it’s finally ALL SAFE and SOUND to go 100% long stocks. In fact, that’s what Blackrock’s Larry Fink has been saying for some time: people should be in “100% stocks.”

    You can’t make this stuff up (STOCKS ARENT EVEN CHEAP). For all these reasons, it’s why I think PM’s will continue to go sideways for another year anyway (trust me, it’s working hard on the emotions of the sheep that stocks never go down and PM’s haven’t gone up for two years). This is also painful for money managers long, overweight PM’s compared to all other managers out there. It’ll keep many of them long stocks/bonds/cash only.

    In other words, YES, Buffett is there to help brainwash everyone alive along with all the other characters and mechanism’s being deployed to pick up where the Fed leaves off. Even Buffett said this morning that there’s a “global hair trigger” on Fed policy unwinding. (But no matter, just buy stocks anyway according to him).

    It will go on until it can’t. It’ll be interesting to see just HOW THEY ARE GOING TO GET THE ANIMAL SPIRITS GOING. They may fail and it ay hit the fan sooner. Tough, tough game folks.

    • I wouldn’t go anywhere near the market. I agree it is all about bringing in the suckers. I think this is why Buffet just invested in a newspaper chain, Brain wash the suckers on every level.

  2. BTW, since the retail sucker has hardly bought back in (net sellers in 2012) and so far some inflows in 2013, at what point does the retail investor buy back in? Dow 17,000? 18,000? No, I’m serious. The longer it takes for the retail sucker to get all giddy and start throwing money at stocks….the more they are going to lose in the end.

    What a nightmare unfolding for everyone. For the longs in PM’s that have to hear day after day the DOW is about to break it’s record high, and the biggest nightmare yet to come in stocks. The only question is when. Bernanke must be really frustrated that they just haven’t been able to juice things like they would have wanted by now by sucker in the greater fools. Which means this rally is all on the Fed so far.

    But don’t worry all if you go way long stocks. Beranke said that he and the Fed “spend quite a bit of time disccussing if any asset bubbles are creeping up anywhere. And according to him, the equity-risk premimium is cheap for stocks.” Too funny, juding stocks by a equity-risk premium with interest rates artifically games to zero is laughable.

    This gets more ridiculous by the day that stocks NEVER/EVER go down.

    • Very right indeed, Nic. If you listened to Bernanke’s testimony last week he didn’t even shutter at the fact that his intentions are for people to buy stocks. Oh, how I miss the Ron Paul moments with him. The Sheeple will plow money at the top as GS, JPM, etc will gladly be selling into them. The stock market may continue to rise and grind higher. For me, once you’ve seen behind the curtain, I cannot get long, especially at these ridiculous levels as I continue to hear pundits on CNBC & BBG claiming that valuations are cheap at these levels. It’s a game of musical chairs and I suspect most people do not realize most of the chairs have been removed and the only ones remaining belong to the banksters, the crony-capitalists and the Fed. I am not playing this game.

  3. Oh they will go down.

  4. Gold is money

  5. Buffet is property of the CFR….in other words Property of the New World Government
    Interesting but if I have this correctly Buffet is booking gains on index put options for trades who’s outcomes are still undetermined?…He cant lose according to Kass because these trades settle long into the future but surprisingly he can still gain in the here and now……this seems how all the bankers and hedge fund cronies have the game rigged these days.
    Nice work if you can get it….phantom earnings

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