Published by WallStreetWeather.net
“Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” – Warren Buffett, 2002 Berkshire Hathaway annual letter to shareholders
With his Sun conjoining Neptune in Virgo, Warren Buffett has carefully crafted his public image to portray himself as the world’s most honorable value investor. Buffett excels in his role as the humble and thrifty man whose Midwestern values have kept him planted in the same house in Omaha for decades. With his Jupiter in Cancer conjoining the USA’s natal Sun, Buffett’s folksy style, fondness for eating American junk food, philanthropy, and wealth creation resonates with the country’s philosophical beliefs. Buffett is the only billionaire who is admired as much on Main St. as he is on Wall St.
Just as the public gets a glimpse of Buffett’s Omaha home but not when he’s California dreamin’ in Laguna Beach, the transits of Saturn and Pluto to Buffett’s natal Mercury, Mars, and Saturn are bringing to the surface evidence that shows a clear conflict between his words (Mercury) and deeds (Mars) that will ultimately affect his reputation (Saturn).
Pluto in Capricorn since 2008 has brought to the surface the dangers of opaque and unregulated financial products such as derivatives. In his 2002 letter to Berkshire Hathaway shareholders, Buffett was prescient about derivatives’ potential to create the liquidity crisis that gripped Wall Street in September 2008:
“Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.”
Pluto in Capricorn exposes the corrupt and manipulative influences occurring in the shadows of the corporate and government corridors of power. As Pluto exactly conjoined Buffett’s natal Saturn in Capricorn and Mercury in Taurus turned retrograde April 18 squaring Buffett’s progressed* Mars in Leo, media reports surfaced how Buffett acted to exempt Berkshire’s estimated $63 billion derivatives portfolio from financial regulatory reform legislation.
A front page story in The Wall Street Journal described how David Sokol, chairman of Berkshire subsidiary MidAmerican Energy Holdings who is speculated to be Buffett’s successor, lobbied lawmakers by emphasizing how important the issue is to Buffett.
Berkshire is Sen. Ben Nelson’s largest contributor, and together Sen. Nelson and his wife owned shares valued at around $6 million in late 2008. Just as he threatened to derail the healthcare bill unless he got goodies for Nebraska, Nelson originally inserted a provision in the derivatives bill passed by the Senate Agriculture Committee April 21 exempting Berkshire and other companies with existing derivatives contracts from being required to set aside capital to cover potential losses. Nelson was the only Democrat to vote with Republicans against opening debate on financial regulatory reform last week after Senate Democrats removed Nelson’s provision from the derivatives bill when it got incorporated into the overall financial regulatory reform legislation. While Nelson claimed he voted against the bill because he believed it would hurt auto dealers and Main St., Senate Banking Committee Chairman Chris Dodd said dropping the provision for Berkshire was the only issue the two discussed before Monday evening’s vote.
In his 2008 letter to Berkshire shareholders, Buffett describes (p. 15-19) Berkshire’s $37.1 billion in put contracts on the S&P500, FTSE100, Euro Stoxx50, and Nikkei 225 that come due between September 2019 and January 2028. Buffett claims the contracts are written so Berkshire very rarely puts up collateral and when it does, the collateral goes to a third party and the company still collects interest on it. Buffett wrote that “if we lose money on derivatives, it will be my fault,” as he personally initiated and monitors the 251 derivative contracts. In his 2009 annual letter written in February, Buffett writes (p.15) that derivatives can be “dynamite,” but assures investors that derivatives have never been a danger for Berkshire “- nor will it.”
Under the financial reform legislation, Berkshire’s collateral requirements would be material and might even require the company to have to start borrowing money to put up more collateral. Posting collateral might have an effect on the pristine credit ratings of Berkshire’s insurance subsidiaries.
Although his efforts to derail the derivatives legislation have been conducted out of the limelight, Buffett desperately defended Goldman Sachs (GS) at Berkshire’s annual meeting yesterday. He said the counterparties and not GS, were responsible for their actions and it is not GS’ fault if these “sophisticated investors” lost money. Buffett said it was “irrelevant” that hedge fund manager John Paulson was shorting the Abacus synthetic CDO that he paid GS $15 million to create as a vehicle to bet against subprime mortgages. He said he agreed with GS that receiving the Wells Notice from the SEC was not “material” to disclose to shareholders. Just as Buffett vigorously lobbied Senators to ensure they voted to reconfirm Ben Bernanke to a second term at the Fed, Buffett defended GS CEO Lloyd Blankfein. He said if Blankfein stepped down as CEO he hoped Blankfein "had a twin brother to succeed him."
Buffett said Berkshire receives “$15 a second” on its $5 billion investment in GS preferred shares at a 10% interest rate that Buffett arranged during the height of the financial crisis. Buffett bragged that GS is not going to call the preferreds anytime soon as GS will want to continue to show Buffett as a key investor in order to enhance its reputation.
In “Goldman Sachs: CDOs Custom Built To Fail,” I described the planetary influences leading to the SEC’s April 16 fraud charges against the investment bank. Like Buffett, GS has been lobbying hard to eliminate a provision of the financial reform bill that would require banks to sell off their derivatives trading businesses. Being bailed out by taxpayers and receiving the benefits of TARP did not deter GS from spending over $2.8 million on lobbying in 2009. Those lobbying efforts are spearheaded by the former aide to House Financial Services Chairman Barney Frank, along with assistance from former Democratic House Majority Leader Dick Gephardt and former Reagan Chief of Staff Ken Duberstein.
Last Tuesday’s Senate Subcommittee on Investigations hearing on GS was part of the committee’s 16 month investigation into the causes of the financial crisis. Blankfein and other current and former GS employees refused to show any signs of humility or regret over GS’ ethical transgressions despite the Committee’s evidence that GS sold other CDO deals to clients which the firm then betted against.
Fabrice Tourre is on paid leave from GS for an extended period of time, while the firm’s lawyers are representing his legal defense. But there’s no free lunch; Tourre’s defense is being molded for GS’ benefit – potentially to Tourre’s detriment. Tourre’s emails, from describing the Abacus CDO as creating a thing “which has no purpose, which is absolutely conceptual and highly theoretical” that was “a little like Frankenstein turning against his own inventor,” show GS was acting far beyond its claims of being nothing more than a “market maker” in a transaction involving “sophisticated investors.” Before ACA agreed to act as portfolio selection agent for the Abacus CDO, GS first approached GSC which rejected the offer “given their negative views on most of the credits that Paulson had selected,” Tourre wrote in an email.
A market maker is a facilitator for a transaction. In this capacity, a market maker may hold inventory for a very short period of time. If GS is a market maker, so is Macy’s because they sell things out of inventory too. The difference is that Macy’s or any another store does not intentionally sell products born to fail. During Chairman Carl Levin's questioning of Blankfein at the hearing, the Senator accused GS of actively selling tainted merchandise rather than fielding customer calls for quotes.
Mercury retrograde in Taurus conjoining GS’ stock chart’s natal Saturn and Mars in Leo squaring the chart’s progressed Mercury in Taurus Friday, sparked selling (Saturn) action (Mars) over potential news GS could face a second (Mercury) investigation. GS shares tumbled almost 10% to $145.20 after The Wall Street Journal reported the Manhattan U.S. Attorney’s Office is in the preliminary stages of conducting a criminal probe to investigate whether GS committed securities fraud in mortgage trading that concerns different evidence than the SEC’s case. While the Journal points out that many investigations take place without the government ever filing charges, it also notes that no Wall St. firm has ever survived criminal charges.
Jupiter in Pisces represents ethical and legal violations resulting from deceptive and fraudulent practices. Jupiter will oppose Saturn in Virgo May 23; past actions must be accounted for within the judicial structure. Saturn’s energies will be particularly prominent in late May through early June as the planet prepares to begin moving forward again. Jupiter closely conjoining Uranus in Pisces followed by the two planets conjoining in Aries June 8, will really shatter the illusions surrounding the false images cultivated by companies such as GS and individuals such as Warren Buffett who have led the public to believe their successes were predicated solely on their honorable intellect. Pisces is ruled by Neptune, and Neptune’s energies will be prominent as the planet of illusion and dissolution appears to be stationary retrograde in the sky from late May through early June.
Jupiter returns to its natal position about every 12 years. While a Jupiter return can be a time of opportunity and good fortune, GS Inc’s Jupiter return is being pressured by the opposition of Saturn and Uranus to its natal Jupiter in Pisces. Any potential break in the case perceived to favor GS is likely be temporary.
The Full Moon in Jupiter-ruled Sagittarius on May 27 puts the spotlight on ethical and legal issues and is a culmination point that anchors all of these energies and affects GS and the major players of this drama. Mars in Leo opposing Neptune in Aquarius (exact June 4) alerts attention to fraudulent trading practices. The Full Moon will conjoin GS Inc’s natal Pluto in Sagittarius, Mars in Leo will conjoin natal Mercury in Taurus, and Mercury in Taurus will square its progressed Sun in Leo. Mercury will conjoin the GS stock chart’s natal Sun in Taurus while Mars in Leo will square the chart’s progressed Sun in Taurus.
In mid-May Jupiter opposes Lloyd Blankfein’s natal Sun in Virgo and at the Full Moon Mercury in Taurus will oppose his natal Venus in Scorpio as it did the day the SEC announced its lawsuit. Mars will conjoin Blankfein’s natal Pluto.
Putting this all together, news about GS at this time could once again spur a swift market reaction as the Full Moon conjoining GS’ Pluto could illuminate the truth as more information is published regarding how the firm’s trading actions conflict with what GS communicated to its current and prospective clients. The reputation of GS and its leadership could come under further attack, affecting Blankfein’s ability to remain effective at the helm.
The Full Moon squares Buffett’s Sun in Virgo, Mars in Leo squares his progressed Sun in Scorpio, and Mercury in Taurus squares his progressed Mars in Leo. Buffett’s own actions and eagerness to defend GS could bring more reports about his own hypocritical views on taxation and increased concerns over his refusal to name his successor at Berkshire. While Buffett believes the wealthy should be taxed more, he’s proud of the fact that his charitable foundation ensures he pays as little tax as possible. Berkshire has never issued a dividend to its shareholders, since dividends are taxed at the corporate and individual levels which would hit Buffett with a big tax bill.
The real reason why Buffett is aggressive about defending GS is the potential liabilities that could arise if GS has to reimburse counterparties such as AIG if GS is found guilty of fraud. These obligations could become so great that GS might not be able to pay dividends on preferred shares.
Speaking of AIG, Mars in Leo at the Full Moon also conjoins Bernanke’s Pluto and conjoins Treasury Secretary Timothy’s Geithner’s natal Sun. The early June Mars/Neptune opposition present during the Full Moon affects Geithner’s natal Uranus in Leo and squares Bernanke’s progressed Mars in Scorpio. Both men went to great lengths to ensure GS’ survival during the financial crisis while inflicting highly punitive measures against AIG. Bernanke and Geithner insured that taxpayers fully reimbursed GS at par by using AIG as a conduit to funnel money to GS. As Bloomberg reported earlier this year, GS underwrote more CDOs than any other investment bank, then GS and other investment banks bet against them by purchasing CDS from AIG which the Fed has gone to great lengths to keep the details of these transactions secret.
Some Wall St. analysts believe Berkshire should be granted an exception if financial regulatory reform passes with the derivatives rules intact so the company’s capital is available for deployment in other investments. While Buffett is no doubt smarter about the terms in his derivatives contracts than AIG was, it’s important to remember that AIG was once a cash rich company too.
Wall St. needs to understand that when Saturn re-enters Libra July 21 the purpose of this transit until 2012 is to bring our attention to what is unfair and out of balance in order to create harmony and equilibrium. Saturn is rules and regulations and when it comes to financial regulatory reform, Saturn in Libra in its highest manifestation wants the law to be applied equally to all without any exceptions.
Mars will enter Libra in late July for the first time since the height of the financial crisis. As Mars conjoins Saturn and opposes Jupiter and Uranus in Mars-ruled Aries and the four planets square Pluto in Capricorn, they will form challenging planetary alignments to planets in the USA and the Federal Reserve charts, indicating that we are about to enter a new Act in the financial crisis that is once again connected to the banking system. Right now the Oracle of Omaha is not exhibiting the foresight to realize that this time even he might not be immune.
* A mathematical calculation that moves the planets forward in time as a method of prediction.
Warren Buffett: August 30, 1930 time unknown Omaha, NE
Ben Bernanke: December 13, 1953 time unknown Augusta, GA
Timothy Geithner: August 18, 1961 time unknown NYC
Federal Reserve: December 23, 1913 6:02 PM EST Washington, DC
USA: July 4, 1776 5:10 PM Philadelphia, PA
For GS-related data, click the link above referencing my previous post.