Investing

As the World Burns... Buffett & Berkshire Spending Billions For Private Jets and Mortgage Assets (BRK-A, BRK-B, TXT, FIG)

Jon C. Ogg

If you have watched the flow of news out of Asia and Europe over the last month, you might have had a reason to think that the world was going to hell in a handbasket.  One week of a market recovery and a Spanish bailout may have changed this opinion temporarily, but summers are often a difficult time to be in the business of playing in teh markets.  If things are really so bad, why are Warren Buffett and Berkshire Hathaway, Inc. (NYSE: BRK-A) giving the largest private jet order in history and why are they buying more interest in bankrupt mortgage assets?

Berkshire Hathaway owns NetJets, the fractional ownership airline for the wealthy and corporate clients who prefer to buy jet use time units rather than paying to own one entirely.  The purchase was to add up to 425 new jets to the NetJets fleet and the total order size for Bombardier and Cessna may total as much as $9.6 billion.  Cessna is part of Textron Inc. (NYSE: TXT).  The breakdown is for up to 275 Bombardier Challenger aircraft, including 100 firm orders and options for 175 more, with deliveries scheduled to begin in 2014.  This is also up to 150 Cessna Citation Latitudes, with 25 firm orders and options for 125 more planes, and those deliveries are set to start in 2016.

Last night came reports from Bloomberg that Berkshire Hathaway was looking to buy the Residential Capital mortgage unit.  The report noted that Berkshire Hathaway offered to buy Residential Capital LLC’s mortgage unit and that Buffett aims to replace Fortress Investment Group LLC (NYSE: FIG) as “the initial bidder at an auction for the bankrupt company’s most-valuable asset.”  Court filings on Monday showed that Berkshire Hathaway would trump Fortress and Ally in this aim. Private jets and mortgage assets?  This would beg the question… “Just how bad are things in reality?”

Warren Buffett has said over and over in the past that one great strategy is to be greedy when others are fearful and to be fearful when others are greedy.  Of course, that always assumes that a total economic wipe-out doesn’t arise.

JON C. OGG