The bond market has seized up, stocks are in turmoil, private-equity funds are sidelined and hedge-fund managers and lenders are hosting fire sales.
These are happy days for Warren Buffett.
"I can spend money faster than Imelda Marcos when things are right," he says, referring to the former Philippines first lady and renowned shopper.
For the past three years, Buffett's traditional bargain-hunting investment strategy has been partly stymied as debt-fueled private-equity funds and hedge funds drove asset prices out of his value-investing orbit.
The result: Today he's sitting on a war chest of nearly $50 billion in cash.
Now, with the shakeout in the subprime-mortgage market forcing the end of easy money and the distressed sale of assets — such as Thornburg Mortgage Inc.'s sale Monday of $20.5 billion of its top-rated mortgage-backed securities — many see Buffett, the 76-year-old chairman of the giant Berkshire Hathaway Inc. holding company, as one of the last buyers standing.
There doesn't appear to be a shortage of people who are courting him these days. "I'm definitely more popular than I was a few months ago," he says — and then quips: "But I started from a low base."
So what is Berkshire buying or looking to buy? Buffett hews to Berkshire's policy of not discussing potential transactions. But it is safe to guess that sellers of all shapes and sizes — from beleaguered lenders hurt by the mortgage-backed and commercial-paper markets, to sponsors of private-equity deals that run the risk of falling through — are reaching out to him.
Some investors speculate Berkshire could be a buyer for parts of mortgage lender Countrywide Financial Corp., whose stock price has been hit hard by subprime worries. Countrywide's assets, including its debt-servicing business and its portfolio of high-quality mortgages and mortgage-backed securities, could be attractive to Berkshire, these investors say.
It wouldn't be the first time a financial firm asked Buffett for help. In 1991, he took over as chief executive of Salomon Brothers, then in the midst of a criminal probe for a scandal involving the treasury market. Many credit Buffett today for shepherding Salomon back into the good graces of securities regulators and investors.
Seven years later, he came close to bailing out hedge-fund Long-Term Capital Management, which was run by some of his old Salomon crew, but later changed his mind, in part because he wanted the firm's assets — its stocks, bonds and other securities — not its management company and its complex partnership structure.
Unlike LTCM, Countrywide runs some straightforward lending businesses, a strong brand name and high-quality mortgage assets that could complement Berkshire's other securities investments. For example, Berkshire is a longtime shareholder in Wells Fargo & Co. and M&T Bank, also reputed to be conservative lenders with strong brand recognition and long operational histories.
In fact, Buffett has already been dipping his toe a little deeper into the market for mortgage-backed securities. In the second quarter, Berkshire reported that its insurance division doubled its investment in mortgage-backed securities rated double-A or higher, to $3.7 billion, from the first quarter.