Buffett’s Equivocal Bull

I’m a big fan of James Cramer’s Wrong! column in The, but his take on Berkshire Hathaway’s $23.5 billion acquisition of reinsurer General Re was a curious one, to say the least. Berkshire Hathaway is, of course, Warren Buffett’s company, and Cramer took the deal–which was structured entirely as a stock swap, which Buffett normally frowns on–as “a massive positive stunner” and “unequivocally bullish.” Cramer, who of late has been operating under the conviction that the financial press is unduly bearish, even took pains to write that “I am sure there is a way to paint this one as negative for the market that I haven’t thought of.” This, of course, is a rhetorical way of saying that no reasonable person could paint the acquisition as anything other than bullish.

Now, as people immediately jumped to point out, the fact that Berkshire paid for General Re with stock could quite reasonably be taken as a sign that Buffett thought Berkshire’s stock was not undervalued. For their part, the people who run General Re are no dummies, and they wouldn’t have accepted the deal unless they thought the acquisition was worthwhile, both short- and long-term. But you don’t have to look at the way the deal was structured to find evidence that it wasn’t “unequivocally bullish.” You just have to look at what Buffett himself said.

One of the real virtues of General Re, from Buffett’s perspective, is that it brings with it $24 billion in assets that Buffett will eventually be able to put to work. The key word here, though, is “eventually,” since at the moment Buffett is having a hard time finding places to put his money. “Right now we don’t have lots of great ideas,” he said. “We don’t even have lots of good ideas. We are not doing this deal because we need the cash in the till now to seize opportunities that we could not otherwise seize.” More than that, in today’s Wall Street Journal he’s quoted as saying, “It’s very hard to find any [acquisitions] that make sense.”

If Buffett doesn’t have even good ideas about stocks in which to invest, and if there aren’t any opportunities that he’s anxious to seize, it seems fair to say that he’s not exactly bullish on the market. Now, Buffett is not necessarily right about stock prices, of course, but if you’re going to look to the General Re deal for evidence of where the market is going, his words in this case speak louder than anything else.

Why, though, would Buffett pay a premium for General Re if the market as a whole is overpriced or, at best, fully valued? Well, as a friend of mine is fond of saying–quoting some stock-market guru, we’ve always assumed–it’s not a stock market, but a market of stocks. At any one time, you’re always going to be able to find companies you think are undervalued. It’s just that right now there are probably many fewer of those than there were even a couple of years ago.