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Buffett Strikes Again

Written By Brian Hicks

Posted December 29, 2007


When it comes to investing, Warren Buffett is in a class of his own.

But for the two or three people still left on earth that aren’t so sure, his latest financial move ought to be more than enough to convince them of his genius.

That’s because just yesterday Buffett’s entrepreneurial acumen was on full display again when he turned the growing crisis in the bond world into one of the greatest opportunities of the year.

Buffett sent the bond insurers tumbling again when he announced his plans to start a new business to insure municipal debt.

The move was pure genius and it put the entire tainted bond insurance complex immediately on its deathbed since it only further cutoff the air supply for beleaguered firms like MBIA, Ambac and others. New business will now have a much safer place to insure now thanks Buffett’s new venture.

The key here, of course, is that unlike his "competitors", Buffett’s new business will be completely free of the CDO exposure that will likely kill so many of them off.

And when the dust finally settles from this mess, Buffett will be among the few that are still standing.

Now that really is one smart guy.

Here’s the story:

From Bloomberg by Josh P. Hamilton and Christine Richard entitled: MBIA, Ambac Fall as Buffett Starts Up Bond Insurer

"MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, fell in New York Stock Exchange trading after billionaire investor Warren Buffett said he plans to start a rival company to guarantee municipal debt.

Ambac dropped as much 15 percent, the most in two months, and MBIA fell as much as 17 percent after Buffett’s Berkshire Hathaway Inc. said it plans to insure bonds in New York and at least four other states.

Berkshire, which gets half its profit from insurance, is challenging the bond insurers as they struggle to retain the AAA credit ratings that allow them to guarantee about $1.2 trillion of municipal bonds. MBIA, Ambac and other guarantors are under scrutiny amid concern they don’t have enough capital set aside to cover potential losses on bonds they insure that are linked to subprime mortgages.

“Investors might feel more comfortable investing in bonds insured by Buffett than those backed by an insurer with the legacy of the credit crisis hanging over them,” said Matthew Maxwell, a London-based credit analyst at Calyon, the investment banking unit of Credit Agricole SA. Bond insurers “are hurting, so now is a good time for Buffett to be getting into the market.”

Buffett, 77, said in an interview today on News Corp.’s Fox Business Network that it will be easier to break into the bond insurance market now than it would’ve been a couple of years ago because rivals are facing pressure on their ratings. He told the Wall Street Journal that Berkshire Hathaway Assurance Corp. will also seek permission to operate in California, Puerto Rico, Texas, Illinois and Florida. Jackie Wilson, a spokeswoman for Omaha, Nebraska-based Berkshire, confirmed Buffett’s plans."

“If Berkshire Hathaway Assurance knocks on the door of a municipal official, they all know who Warren Buffett is and they all know that the other major players in this business are suddenly suspect,” said Frank Betz, who helps manage $800 million, including Berkshire shares, at Carret Zane Capital Management in Warren, New Jersey. “It is such vintage Warren Buffett."

Naturally, news of the deal sent the two top bond insurers, MBIA INC. and Ambac Financial Group, Inc., into a free fall.

Check out the 5-day chart:

So are these guys finished? Well not quite yet.

But one thing is for certain, the priest is in the hallway.

Cue the dominoes. It’s about to ugly.