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

How to:

1. Register
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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.

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