"We try to be alert to any sort of megacatastrophe risk, and that
posture may make us unduly apprehensive about the burgeoning quantities
of long-term derivatives contracts and the massive amount of
uncollateralized receivables that are growing alongside. In our view,
however, derivatives are financial weapons of mass destruction, carrying
dangers that, while now latent, are potentially lethal."
Despite moans about his derivatives business now, Buffet has been unwinding Gen Re positions long before he said he was trying to sell it. Other investments of his could be well served by his widespread derivatives derision. (not unlike Soros who I believe netted a huge windfall talking the Sterling down in the early 90s, while he happened to be short the currency.)
Here's another take:
GLOBAL INVESTING: Scrooge McBuffett's silver in the attic
By John Dizard
Financial Times; Mar 07, 2003
"I know you're not supposed to ask this sort of question of sages, let alone the Sage of Omaha, but is it possible that Warren Buffett is talking his own book? Promoting the value of his own holdings with his free advice to the public?
I'm referring to the doomsday comments the Berkshire Hathaway chairman has been making, most recently in Fortune Magazine, on the risks of derivatives.
In his Fortune piece Mr Buffett said he and his lead partner, Charlie Munger, had decided to dispose as quickly as possible of a derivatives book they had acquired when purchasing Gen Re, their reinsurance company. Ruefully, Mr Buffett admitted it would take years to get rid of it.
However, we know that in other parts of the Berkshire Hathaway attic there is at least one large pile of silver, and - who knows - possibly some gold bullion. (We can be pretty sure that if it exists, it's in the form of of the actual metal, rather than long-dated dealer calls.)
Unlike the Gen Re derivatives book, of which we can be confident that each position is offset by another, negatively correlated contract, the 4,000-tonne Berkshire Hathaway silver hoard is not offset by a short position."
Nomi
