Are Buffett And The Goldman Recapitalization Indicating That It Is Time To Invest?

As the financial musical chairs continue to get shifted, we are now learning that Warren Buffett, who has been relatively silent (investment wise) until last week, is now beginning to see value in the markets (see WSJ article). Is Buffett investing only in small regional banks, as some others are doing. No. Berkshire Hathaway is taking a position in Goldman Sachs, investing $5 billion in return for receiving perpetual preferred shares in Goldman. At the same time, Goldman will also be looking to do a stock offering to raise over $2 billion in additional capital.

This turn of event is significant, in my opinion, in that it signals a couple of important points. For one, by taking a sizable position in Goldman, the richest man in the world is indicating that the financials are in value territory, and that it is time to step up and take a position. This will certainly give a boost of confidence to other investors. The move by Goldman also shows that companies themselves are willing to recapitalize, believing that the market is now stable enough to do so, or at least that there are government and Buffett-type backstops available if times get difficult. Given the recent restrictions on short sales, this also appears to be a good time to do a secondary given that the diluting affects of the offering are less likely to be punished by short sellers and the market. Is volatility behind us, and is this a bottom? No, and probably not. Nonetheless, we may be finally reaching a point where leading companies in leading industries (and even non-leading industries) will finally begin to see their value reflected in the market place. This may not be a bottom, and financials will certainly still see volatile times ahead, but looking through the cloud of bankruptcy does allows potential opportunities to start appearing.