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The Ultimate "Buffett-Black-Swan" Short

Tyler Durden's picture


We are always on the look-out for low-cost long-vol trades with lots of convexity (large upside, low downside). We think we've found the 'ultimate' black-swan trade. Warren Buffett's Berkshire Hathaway bought Burlington Northern and implicitly assumed its debt which caused the company's CDS to collapse (risk to plunge dramatically as one would expect) to extremely low levels of insurance cost of only 15bps (or only $15,000 per year to protect $10,000,000 of debt - while gaining or losing ~$5,000 per bps shift in BNI's risk). However, as risk has picked up in the last week or so, BNI's CDS has risen by 7bps (just under 50%) to 22bps and looks set to go even wider if Buffett's Big Bullish 'Bernanke' Bet doesn't pay off. Buying BNI protection at 22bps seems like the ultimate cheap expression of the "All aboard the 'I wrote billions of naked puts just before 2008 market crash' train" trade.


Of course this is a very cheap play on a systemic problem in US (and global) equity markets which would implicitly hurt Berkshire Hathaway but we do note that BNI has plenty of debt outstanding (so short-term deliverables are there)...

(h/t Alex Gloy)


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Wed, 05/23/2012 - 15:11 | 2456133 Fortunes Favor
Fortunes Favor's picture


Short BNI sounds good how about Long Gold short AAPL? Apple Top Leads To Market Top As Predicted, So What's Next... An Epic Gold Entry Point


Wed, 05/23/2012 - 15:15 | 2456157 junkyardjack
junkyardjack's picture

Better off waiting for some sort of crossover movement in Gold, its been eating it for a while now

Wed, 05/23/2012 - 15:30 | 2456220 HarryM
HarryM's picture

3:30 nasdaq almost even?

When will it actually be safe to short - looks like fucking never

Wed, 05/23/2012 - 15:37 | 2456249 stocktivity
stocktivity's picture

Shorts are getting their heads handed to them today. It's all Bullshit!  As long as the Fed, ECB, IMF, ect control the casino, I will remain on the sidelines watching this show every day.

Wed, 05/23/2012 - 15:42 | 2456276 HarryM
HarryM's picture

LOL - You Think??? - 

And I thought all the world's problems got fixed in the last 2 hours.

Wed, 05/23/2012 - 15:50 | 2456311 Ms. Erable
Ms. Erable's picture

I was just wondering if Ben, Jamie, et. al., could make their manipulations any more obvious. Today, the apparent answer is Yes They Can.

Wed, 05/23/2012 - 16:48 | 2456557 I am a Man I am...
I am a Man I am Forty's picture

Go long gold if you want but shorting apple will be a disaster.

Wed, 05/23/2012 - 15:12 | 2456141 slaughterer
slaughterer's picture

We'll wait until it recedes back to 12-15bps and then we will lay into this trade.

Wed, 05/23/2012 - 15:12 | 2456145 fonzannoon
fonzannoon's picture

Buffet will call into his special line to the white house from his bathtub.

Golf clap for Bernanke today. Standing golf clap.

Wed, 05/23/2012 - 15:14 | 2456149 CvlDobd
CvlDobd's picture

Good eye Tyler.

I want to invest in the company that makes the ICBM rockets that boilermaker says are used to propel equities higher every fucking day. They seem to have their shit together as US stocks remain in an orbit all on their own.

BAC 3% off the lows? WTF? Whatever.

Wed, 05/23/2012 - 15:29 | 2456212 Muppet Pimp
Muppet Pimp's picture

h/t Alex Gloy

Wed, 05/23/2012 - 19:17 | 2457002 Fedophile
Fedophile's picture

Without LSAP, US equities will follow the European trajectory

Wed, 05/23/2012 - 15:15 | 2456151 Johnk
Johnk's picture

I like the low risk/high potential thinking, but Berkshire could write a check for all of Burlington Northern's debt and still not be overdrawn. 

Nonetheless, not a bad "black swan"-Talebesque sort of idea.

However, who is the counterparty on this trade?  I find it difficult to think of a scenario where Berkshire Hathaway is bankrupt but Goldman and JP Morgan are not.

Wed, 05/23/2012 - 15:14 | 2456152 Sophist Economicus
Sophist Economicus's picture

I dunno know about this.   This is a bet on insolvency coming before a inflationary wipe-out of real debt burdens.    I'm not a timing guy, so I pass...

Wed, 05/23/2012 - 15:16 | 2456155 l1b3rty
l1b3rty's picture

The first 250 people to subscribe to and make five relevant posts receives a silver dime in the mail! 

How to:

1. Register
2. Create a Thread or reply to another
3. repeat 2.
4. repeat 2.
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And then post here in this thread to let us know and we will contact you for shipping instructions!

Hope you like!

Offensive posts, et cetera do not count...

-SLA Admins

Wed, 05/23/2012 - 17:20 | 2456193 fuu
fuu's picture

Here I'll start one: Fuck off!

Why the hell should we trust you with our actual snail mail addresses again?

Wed, 05/23/2012 - 15:33 | 2456232 SqueekyFromm
SqueekyFromm's picture

If I subscribe to the Symbionese Liberation Army (, can I get a signed Patty Hearst photo instead of the silver dime???

Squeeky Fromm, Girl Reporter

Wed, 05/23/2012 - 15:51 | 2456315 Fish Gone Bad
Fish Gone Bad's picture

Patty Hearst is a friend of John (Pink Flamingos) Waters.  He gives lectures from time to time.  You could probably meet him and ask if he could snag a Patty photo for you. 

Wed, 05/23/2012 - 21:35 | 2457391 palmereldritch
palmereldritch's picture

Why didn't you get that autograph earlier?

Wed, 05/23/2012 - 17:48 | 2456755 Grinder74
Grinder74's picture

Here's a shipping address:

175 W. Jackson Boulevard
Suite 900
Chicago, IL 60604

That is, if the folks there aren't too busy with their midget porn to accept delivery.

Wed, 05/23/2012 - 15:21 | 2456162 l1b3rty
l1b3rty's picture

let's serve buffet up on a buffet!

Wed, 05/23/2012 - 15:18 | 2456164 Cognitive Dissonance
Cognitive Dissonance's picture

It's not nice to fool with Father Buffoon Buffett.

But go ahead anyway. I'll just stand over here ----------> and watch.


Wed, 05/23/2012 - 16:21 | 2456456 Drachma
Drachma's picture

Beautiful arc-mode plasma discharge.

"It is the thunderbolt that steers the cosmos."

     - Heraclitus, 5th Century B.C.

Wed, 05/23/2012 - 19:19 | 2457010 AGuy
AGuy's picture

"Buffett's Big Bullish 'Bernanke' Bet doesn't pay off."

When Uncle Warren tells Ben to Jump, he replies: "how far and in which direction"? Buffett can call the shots.



Wed, 05/23/2012 - 15:16 | 2456167 Sudden Debt
Sudden Debt's picture

The dollar is getting to strong, Bernanke will soon act, june is my favorite, to lower the dollar by calling for another QE.

Wed, 05/23/2012 - 15:19 | 2456180 bdc63
bdc63's picture

coordinated global shock and awe, coming soon to a theater near you

Wed, 05/23/2012 - 15:42 | 2456279 clones2
clones2's picture

With 100% shock... and 0% awe...

Wed, 05/23/2012 - 18:08 | 2456814 SPAREPARTS
SPAREPARTS's picture

I think you are right SD, when europe goes they dont want euros. Dollars, Krone, Francs, maybe canadian and PMs

Wed, 05/23/2012 - 15:17 | 2456171 Lost Wages
Lost Wages's picture

We need to make it so Warren can no longer afford to rent Boys Town boys by the hour.

Wed, 05/23/2012 - 15:21 | 2456187 Boilermaker
Boilermaker's picture comes the oh-shit pump this fucker rally into the close.


Wed, 05/23/2012 - 15:23 | 2456195 Conman
Conman's picture

Yup because its normal market action for equities to levitate up on NO Demand. Keep playing that game PPT.

Wed, 05/23/2012 - 15:30 | 2456205 bdc63
bdc63's picture

DOW just down 50 points now with 30 minutes to go ... Maria says the market is coming back "ferociously" ... this just never gets old ...

Wed, 05/23/2012 - 15:34 | 2456241 bdc63
bdc63's picture

Nasdaq just went positive ... unfreakinabeliebable

Wed, 05/23/2012 - 15:37 | 2456253 Chariots of the Feds
Chariots of the Feds's picture

Well, Fox Business News did tell me that the stock market was on sale

Wed, 05/23/2012 - 15:37 | 2456254 midgetrannyporn
midgetrannyporn's picture

her hair looks terrible today.

Wed, 05/23/2012 - 15:39 | 2456263 bdc63
bdc63's picture

Maria: "Huge comeback.  Big win for the bulls"

Wed, 05/23/2012 - 15:49 | 2456305 Dr. Engali
Dr. Engali's picture

She must have been going down on a banker for an exclusive.

Wed, 05/23/2012 - 15:29 | 2456214 junkyardjack
junkyardjack's picture

At some point they will need to stop doing that if they ever want to hit print. Oh wellz...

Wed, 05/23/2012 - 15:22 | 2456191 Rathmullan
Rathmullan's picture

So the NYFed and the primary stealers are drawing the line at 12,400 Dow and 1,300 S&P. Could have figued as whatever nonsense that comes out of Brussels tonight will be spun as positive.

Wed, 05/23/2012 - 15:26 | 2456203 Boilermaker
Boilermaker's picture

Those are psychological numbers for the complete shit for brains still in stocks.

Can it be more fucking blatant and obvious?

How much does it actually cost to 'defend' this shit? Or, have we simply stopped caring about all that eventual cost stuff?

Wed, 05/23/2012 - 15:28 | 2456208 fuu
fuu's picture

320 point round trip in the DOW so far today. Simply amazing!

Wed, 05/23/2012 - 15:33 | 2456238 Muppet Pimp
Muppet Pimp's picture

The fumes from all of the tape painting going on are getting rather strong over here...

Wed, 05/23/2012 - 15:45 | 2456292 fuu
fuu's picture

40 point round trip for S&P?

80 for Nasdaq.

Wed, 05/23/2012 - 15:49 | 2456306 bdc63
bdc63's picture

... and we've got 15 minutes left to go

Wed, 05/23/2012 - 16:08 | 2456394 Paul Atreides
Paul Atreides's picture

Groundhog Day Bichez!

Wed, 05/23/2012 - 15:52 | 2456319 i_call_you_my_base
i_call_you_my_base's picture

Starting to remind me of last fall.

Wed, 05/23/2012 - 15:31 | 2456224 tekhneek
tekhneek's picture

The fuck are you talking about?

Remember, it's free via the wealth effect that's created by propping up the stocks. They're doing it for you.

Wed, 05/23/2012 - 15:52 | 2456321 Dr. Engali
Dr. Engali's picture

I thought they were doing it for the children. Isn't that how they justify everything? "Do it for the children, so people will buy them more cheap Chinese crap"

Wed, 05/23/2012 - 16:11 | 2456412 catacl1sm
catacl1sm's picture

A logical fallacy of appeal to emotion. I hate that one particularly. And then it's backed up with a false dichotomy, "if you aren't for it, then you're anti-children". bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit. bullshit.

Wed, 05/23/2012 - 16:23 | 2456464 Boilermaker
Boilermaker's picture

Don't forget the cripples and gimps.

Wed, 05/23/2012 - 16:18 | 2456437 AnAnonymous
AnAnonymous's picture

They're doing it for you.


US citizens are doing it for humanity. As usual.

Wed, 05/23/2012 - 21:40 | 2457406 palmereldritch
palmereldritch's picture

Would you call this market a bubble, a blob or a blobble?

Wed, 05/23/2012 - 23:21 | 2457689 Ms. Erable
Ms. Erable's picture

Chinese Citizenism shitting for humanity, blobbing up piles on the roadside for export. Chinese economy cannot function without Chinese Shitizensim.

Wed, 05/23/2012 - 15:39 | 2456261 NotApplicable
NotApplicable's picture

Without a meaningful unit of measure, "cost" becomes an unintelligible concept.

Wed, 05/23/2012 - 15:50 | 2456313 Uchtdorf
Uchtdorf's picture

Anybody and everybody (political hacks, elites, banksters, etc.) that can rape the system will continue to rape the system until they can't. "Can't-ness" will occur when karma, in one form or another. catches up with their sorry asses. 

Thu, 05/24/2012 - 02:08 | 2458019 Problem Is
Problem Is's picture

Fallacy of the "Just World Hypothesis"

What goes around doesn't come around... The world is random... Justice vs. getting away with it is simply an equally likely random outcome...

You are just as likely to get what you deserve as Jamie or The Corz...

Wed, 05/23/2012 - 15:28 | 2456209 oceanview76
oceanview76's picture

Which retail investor platforms offer CDS trading?

Wed, 05/23/2012 - 15:33 | 2456210 spastic_colon
spastic_colon's picture

is that you tyler, I mean warren?!

Wed, 05/23/2012 - 15:32 | 2456226 Christoph830
Christoph830's picture

Love this trade, especially if the old man croaks unexpectedly

Wed, 05/23/2012 - 15:33 | 2456237 midgetrannyporn
midgetrannyporn's picture

buffett only needs the s&p to hold 1200 until september if i remember correctly. Between the $14B cash at BRK and the bernank personally guaranteeing the buffett's bet it seems unlikely he will have to pay. calpers probably bought those puts with zero intention of selling anything at all. buffett wins again and grandma loses, again.

Wed, 05/23/2012 - 15:44 | 2456291 NotApplicable
NotApplicable's picture

Which still leaves room for him to survive, AND allows time for an October Surprise collapse.


Wed, 05/23/2012 - 15:36 | 2456244 Boilermaker
Boilermaker's picture


It's another Festivus MIRACLE!

Wed, 05/23/2012 - 15:37 | 2456251 junkyardjack
junkyardjack's picture

S&P Green Shoots!

Wed, 05/23/2012 - 15:51 | 2456314 bdc63
bdc63's picture

... must be "king dollar"

Wed, 05/23/2012 - 15:38 | 2456257 Sutton
Sutton's picture

Who's the counterparty?  If Buffett (BNI) fails, I don't think you will get paid in full, unless the the then Treasury Sec. used to work with you.

Wed, 05/23/2012 - 15:40 | 2456268 SmoothCoolSmoke
SmoothCoolSmoke's picture

Wow.  Really did not see this magnitude of a pump coming this PM.  SP up 21 while the Euro only up 40 PIPS in same timeframe.  WTF?

Wed, 05/23/2012 - 15:40 | 2456272 firstdivision
firstdivision's picture

LOL!  This shit is so fucking hilarious.  Obvious PPT pumping as volume is nowhere to be found.

Wed, 05/23/2012 - 15:42 | 2456277 Jake88
Jake88's picture

ok now we are into short covering. basterds!

Wed, 05/23/2012 - 15:44 | 2456288 q99x2
q99x2's picture

Rumors never seem to lose their power. But that maybe they are launched after the bots are unleashed. Meaning rumor may be a cover for I'll say it "market manipulation."

Wed, 05/23/2012 - 15:45 | 2456293 Nobody For President
Nobody For President's picture

Seventeen minutes to go - DOW goes GREEN! Oh fucking hurah...

Wed, 05/23/2012 - 15:45 | 2456294 SmoothCoolSmoke
SmoothCoolSmoke's picture

TPTB must want Ma and Pa USA to have a happy Memorial Day.  Don't want to give the natives to much to think about over a long weekend.

Wed, 05/23/2012 - 15:50 | 2456309 bdc63
bdc63's picture

... it's only Wednesday ...

Wed, 05/23/2012 - 15:50 | 2456312 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Being honest with myself, about two hours ago I said, "Self, it's time for the market to recover all its losses before closing.  Everything except gold that is..."


Guess we can't be right about everything.

Wed, 05/23/2012 - 16:02 | 2456374 SmoothCoolSmoke
SmoothCoolSmoke's picture

Wow.  Good call.  I, quite frankly thought the 3pm looked like a great spot to go short for the close.  El Wrongo.  Cost me about $1200 of the gains I'd made in the AM.

Wed, 05/23/2012 - 15:53 | 2456324 All Out Of Bubblegum
All Out Of Bubblegum's picture

"The time of the voters is taken up during each campaign with furious debates over all kinds of issues except the most important one, a sound money system. In the meanwhile, presidential candidates are syndicated by the moneyed interests. "

US House of Representatives, 1911

Wed, 05/23/2012 - 16:09 | 2456400 bdc63
bdc63's picture

the DOW closed at -6.66?!  the sign of the beast ... how appropriate.

Wed, 05/23/2012 - 16:10 | 2456404 Ness.
Ness.'s picture




Wed, 05/23/2012 - 16:09 | 2456401 Ness.
Ness.'s picture

DOW settles (6.66)


BBlack birds are circling.

Wed, 05/23/2012 - 18:52 | 2456950 Ratscam
Ratscam's picture

Bullish! sarc off remember the SPX back in 2009 at the low of 666?

Wed, 05/23/2012 - 16:11 | 2456406 Boilermaker
Boilermaker's picture

I have to spend some serious thought to determine where today fits in my "top 10 most blatant intervention pumping days".

This is seriously pitfiul now.  What's even more pathetic is they obviously think it will eventually work.

Wed, 05/23/2012 - 16:15 | 2456423 CvlDobd
CvlDobd's picture

I'm interested in seeing your list.

Long ICBM, brother

Wed, 05/23/2012 - 16:16 | 2456427 catacl1sm
catacl1sm's picture

Have you ever talked to the average American about the economy and they retort with "but the markets are up!". Then realize that at least half of Americans are dumber than this guy. Face, meet Palm.

Wed, 05/23/2012 - 16:35 | 2456512 Boilermaker
Boilermaker's picture

Yes, i know, you mention Federal Reserve and most people think it's a wine or a prison.  One of my employees, a female, once said to me tthat she didn't care about the stock market because she was in mutual funds and not stocks.

I give up.

Wed, 05/23/2012 - 16:13 | 2456415 Rathmullan
Rathmullan's picture

Great News everyone! HP just beat it's bullshit manipulated mind game earnings estimate big time. And even better news, the company will cut 27,000 of its sheeple drones by 2014!

Wed, 05/23/2012 - 16:24 | 2456444 Joe The Plumber
Joe The Plumber's picture


It has been a while since u gave me something tradable

Following the tyler has given me quick thirty percent returns twice and going contrary to the tyler once got me a fifty percent return in two months

I will not discuss my returns fading the tyler in other trades whose names must never be spoken lest I have to hide my head in shame

Wed, 05/23/2012 - 16:25 | 2456469 catladdy
catladdy's picture

ES longs bitch slapped AGAIN, this time with a low risk entry in front of Monday's low & the 200 dma.

BEVIS: " We really cornholed those asswipes today"!

BENHEAD: "Pass me somemore of the chosen-one's slurpy, Bevis. I need to put some on my hair. Oh & let's send that Maria & that Indian girl, yeah yeah, I like her name, I think they call her Seman! That's a good name for a pump & humper!"

Wed, 05/23/2012 - 16:44 | 2456543 KandiRaverHipster
KandiRaverHipster's picture

hmm playing chicken with John Galt himself?  i'll stick to the sidelines on this one

Wed, 05/23/2012 - 17:55 | 2456777 pcrs
pcrs's picture

Buffet made sure that through political connections the keyston pipeline was banned, this causes his burlington railway to be fully booked for the next 4 years with oil transport. No risk if you are well connected.

Now it is just waiting for the Atlas Shrugged oil train wreck. 

Wed, 05/23/2012 - 22:37 | 2457569 Seer
Seer's picture

Been saying it for years, rail wouldn't be the big winner that everyone would think (I once thought so) because when it would start to see increased use would be when the economy was also fucked, when consumerism fell off a cliff and therefore cargo volume would drop.  There is, however, a need to fill up box-load after box-load with coal, though this isn't going to offset the declines elsewhere.

Thu, 05/24/2012 - 04:48 | 2458152 falak pema
falak pema's picture

Just realised Warren is common to Buffet and Elizabeth. Can Bess arrange a buffet for the unemployed with the money made by the other Warren, when he shot down the Keystone Cops hose pipe to make sure the Pilkington Train heist made him as big a bang as in those pioneer days. No True native indian buck, forefather to Bess's high cheekbones, tolerated the intrusion when Iron Horse ramrodded his country. The least that Bess can do is to milk the Buffet of his new earned wealth, thus to salvage the honour of dead bygone forefathers. Sitting Bull will never be shitting bull to a true Indian loving girl and Crazy Horse will never talk shop with the Pilkington mob.  

 Elizabeth Warren Goes After Scott Brown On "Buffett Rule"

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