Filed under: Other issues, Rumors, Management, Bear Stearns Cos (BSC)

In his excellent blog The Big Picture, market commentator Barry Ritholz gave a powerful slap to the report that Warren Buffett is in talks with Bear Stearns (NYSE: BSC) to buy a share of the company. Using language a bit saltier than we use here at family friendly BloggingStocks, Ritholz made it clear that the idea that Buffett would get involved with Bear Stearns is pure bull . . . well, let’s just say that bears use the woods for certain purposes and leave it at that.

So why is Ritholz so suspicious? First, he points out that Buffett once had a horrible time running Salomon Brothers and is not likely to voluntarily climb back into the trading (and Wall Street ego) pit. Second, the value of Bear Stearns is very much up in the air, which hardly fits Buffett’s investment profile. (Ritholz argues that much of Bear Stearns’ recent income, weak as it is, is really an accounting trick based on the reduced value of its own debt.) And third, Buffett has been critical of the fancy financial footwork that Bear Stearns and other firms have engaged in, once calling derivatives “financial weapons of mass destruction.” All of this makes Buffett a very unlikely investor in Bear Stearns.

Why, then, the rumor? Follow the money. On Thursday, Bear Stearns suddenly sold $2.5 billion worth of 10-year notes. The sale came a day after the report in The New York Times of the rumored Buffett interest. According to a report on TheStreet.com, quoted by Ritholz, the sale “comes just a day after Bear shares surged nearly 8% on rumors that the Wall Street firm was near a deal to bring in a big outside investor. One report said Bear has been talking with billionaire value investor Warren Buffett. On Thursday, Bear Stearns took advantage of that momentum and some strong demand in the corporate bond market to raise some money.”

Quite a coincidence, no? Makes you wonder who started the rumor. But whatever the source, let it serve as a reminder to be careful in the presence of bears of all kinds.

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This entry was posted on Friday, September 28th, 2007 at 10:08 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.