Berkshire's dry powder is sending a message

Several lifetimes ago, I wrote the Market Talk column for Dow Jones Newswires. It was sort of like a live-blog before that was really a thing. One time I wrote a quip about a Warren Buffett op-ed in the New York Times titled "Buy American, I Am." My quip was that every newsroom in America had a Warren Buffett "Buy American" op-ed mounted in a glass case on the wall, and you know things are really bad when the editors break the glass and run it. This was October 2008. Things were bad.

Buffett has been a white knight of sorts for Wall Street for decades now. In the '90s he briefly took over the chairman and CEO jobs at Salomon Brothers, the quintessential '80s Wall Street firm, the place where Michael Lewis learned how to play liar's poker. Buffett has had three things (well, he still has them but he's retired now) that have helped him in this: a laser-sharp understanding of how businesses work, his reputation, and the capital position of Berkshire Hathaway.

The Oracle of Omaha wasn't just spouting off when he said he was buying back in October 2008. Seeing the proverbial blood running in the streets, Buffett made a series of highly profitable investments, including in banks such as Goldman Sachs and Bank of America. In today's market the kids would call that diamond hands. For some time, in fact, Buffett was buying banks. But Warren Buffett isn't running Berkshire Hathaway anymore. At 95, he finally ceded the day-to-day, and another key executive with extensive banking experience left as well. What does that mean for the banking industry? Our Kevin Wack takes a look at the post-Buffett Berkshire Hathaway.

(Here's something I randomly discovered: American Banker must have subscribed to Dow Jones Newswires back in the day, because a number of my old Market Talks are on the website. Here's the head of Bear Stearns' Asia and Europe business saying worries about the credit market are misplaced, seven months before the company collapsed. Here's S&P cutting Lehman Brothers to a sell rating, 13 months before the bank collapsed. Both of those were from August 2007. Fun times.)

Berkshire has been narrowing its exposure to the banking sector in its fresh post-Buffett era, to a degree. It sold stakes in Visa and Mastercard, but still has its big position in American Express and smaller positions in Ally and Capital One. Does that matter? Should the banking industry care what Berkshire does now without its legendary leader? Well, for one thing, the legendary leader says he still goes into the office. And even if he didn't, his advice is Wall Street canon, and certainly Berkshire canon. Be fearful when others are greedy, and greedy when others are fearful. 

Also, Berkshire is sitting on a mountain of money. That's not a good sign (and hasn't been for some time). The company reported it had about $400 billion in cash on its books at the end of the first quarter. That is the largest cash hoard any American company's ever had. How do you interpret that much money not being used for investments by a company that makes money from making investments? Sure, they're just waiting for the right time to deploy it. But knowing what we know about Buffett, the right time for Berkshire is going to be a bad time for the rest of us. I suppose it's comforting though to know that if we need him, Buffett, or at least his company and its cash, will be there to pick up the white knight's reins again.