Thursday, July 23, 2009

Buffett Sees the Writing on the Wall; Reduces Moody's Stake

Warren Buffett's business-owning conglomerate - Berkshire Hathaway (BRK/A) - reported that it has reduced it's stake in Moody's Corporation (MCO), public parent of the ratings agency extraordinaire Moody's Investor Services. Buffett reportedly reduced his MCO holdings by nearly 20%, from a 20.4% stake in the company to only 16.8%. From Reuters:

"NEW YORK, July 22 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) this week lowered its stake in credit ratings provider Moody's Corp (MCO.N) to 16.98 percent from 20.4 percent, the first reported reduction since 2000.

The sale of about 8 million shares was revealed three months after Moody's stripped Berkshire of its own "Aaa" rating, and a day after the Obama administration proposed new disclosure and conflict of interest rules for rating agencies.

Buffett has long defended investing in the New York-based parent of Moody's Investors Service, while saying he does not rely on credit ratings to make his own investment decisions."

The Reuters piece seems to imply - in an ever so subtle fashion - that Berkshire's actions were some form of retribution for Moody's own stripping of Berkshire's AAA rating. The more plausible explanation is that Buffett, like many other astute market observers, is in tune with the steadily increasing investor/regulatory antagonism being directed towards the ratings establishment. The major credit rating firms (Moody's,S&P,Fitch) are quickly losing credibility with investors; summarized in a most illuminating fashion by the ZeroHedge piece entitled "S&P Committs Professional Suicide With Ratings Round Trip, Underlying CRE Remains Toxic Garbage" Investor sentiment also appears to be coinciding with a push by Washington to punish another perceived scapegoat of the financial crisis, and the ratings firms have emerged as the most vulnerable target. Moody's et al are unfortunately guilty of wrongdoings that the public can grasp with ease, thanks to the ubiquity of the english alphabet. There is no telling what sort of havoc the Obama Administration will wreak upon these companies; angered as it will be for allowing health insurance reform to slip from it's steadily-less-popular grasp. This is a reality that we suspect Mr.Buffett is keenly aware of.

InfoNgen facilitated the researching of this post

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