No. of Recommendations: 33
I think a lot more unpleasantness will need to be seen before the PE folks' "dry powder" evaporates. Or the appearance of dry powder, anyway: their investors commit to coughing up cash on demand, but can back out with a penalty. Only if that happens will they stop bidding up the prices of anything and everything with an apparent cash flow.
More generally, it has been a very long time since ready cash counted for much. Borrowing has been easy for ages. The assumption is that such a tight liquidity situation will arise again, which seems likely given the long sweep of history, so Berkshire is prepared for it. But that altitude is so far below where we are cruising now in terms of global liquidity that it would be a very unpleasant drop in the global economic situation indeed. It might be just what the doctor ordered for the future high returns from Berkshire, but it won't be fun to live through.
Once again, I'm reminded of the old saw: you make most of your money in bear markets, you just don't appreciate it at the time. This might be generalized to global financial crises, not just bear markets.
Berkshire has a very Victorian bathing suit on, and a very nice strong umbrella for the next rain storm. These looks silly until the tide goes out or it rains. When it happens, as it always does from time to time, just remember not to be too gleeful, as a lot of people suffer and die during crises. As they say, buy at the sound of cannon, sure. But don't celebrate the cannonade.
Anybody see the recent interview with Mr Blankfein?
www.ft.com/content/6f711748-f6ea-4788-a89a-db743c63f137
Lloyd Blankfein has one piece of advice for anyone fearing that a financial reckoning is on the horizon: plan like it is coming.
Blankfein, who led Goldman Sachs during the 2008 financial crisis, said steering the investment bank was about contingency planning and being brutally honest about what assets are worth.
“I would be very aggressively marking to market, making people sell certain things that even if they’re liquid, try just to make sure you could,” he told the FT in an interview at his apartment on New York’s Upper West Side.
The comments from Blankfein, 71, come as concerns mount about the economic disruption from artificial intelligence and the underwriting standards at many non-bank lenders, which have proliferated in the past two decades.
He said the lack of a major “shakeout” since 2008 means people “aren’t as scared” and had “got more complacent”. “The longer it takes between reckonings, there is a potential for a more severe reckoning,” Blankfein said. “I’m not saying it’s going to happen tomorrow or what direction it comes from. But when something goes off you’re going to find all the assets that have been carried at prices that can’t be realised in the market.”
I don't think he's an angel, but I think he gets a little bit of a bad rap. One view is that it's horrendous when a group profits from the misfortunes of others, which is fair in the broadest sense. But another view is that the few people who prepare for foreseeable chaos deserve to do better during the chaos than the other people who just kept dancing.
Jim
No. of Recommendations: 8
"I don't think he's an angel, but I think he gets a little bit of a bad rap. One view is that it's horrendous when a group profits from the misfortunes of others, which is fair in the broadest sense. But another view is that the few people who prepare for foreseeable chaos deserve to do better during the chaos than the other people who just kept dancing."
Quite the conundrum indeed! We can even take it one step further and say that some people (or groups) like that are heroes for warning us before time of problems that are percolating. It is important to note however that not all Cassandra's are the same. There are some that scream fire in a crowded movie theatre to create the chaos they need to profit, and there are some that are really warning that a fire has in fact started.
I like following short sellers for this very reason- for them to be right they usually have to be exactly right and will build and explain their case to the public. To me that is providing a public service and dismissing such people as profiteers is simply shooting the messenger!
No. of Recommendations: 0
Maybe at the margin PE has cost Berkshire some acquisitions but I kind of believe that the family-owned businesses that would want to be acquired by Berkshire wouldn't also consider private equity buyout. Especially if the founder-owner cares about his legacy, employees, customers etc. Rather, I think from the Pilot acquisition Berkshire was somewhat taken advantage of by the family owner and if Pilot had sold to PE they probably wouldn't have gotten as much or had as unique a deal structure.
I certainly don't think that Berkshire will be buying companies that private equity funds are trying to exit. But that could be a possibility if the right asset comes along, Greg does tons of due diligence, and the price is right.
From a recent FT story on private equity logjam
https://giftarticle.ft.com/giftarticle/actions/red..."Private equity groups built up a record backlog of almost $4tn in unsold investments last year, even as dealmaking started to revive after a years-long downturn.
The value of companies sitting in buyout funds increased by 3 per cent to $3.8tn in 2025, according to a report from consultancy Bain & Company, despite more than $700bn of exits during the year."
