WarrenBuffett
Warren Buffett, the most famous American investor of all time, called derivatives "financial weapons of mass destruction"
Stifel Nicolaus analyst Meyer Shields said in a research note that declining consumer confidence will likely slow consumer spending; oil prices could also rise and further reduce consumer spending. Berkshire's insurance businesses, like Geico and General Re, generated more than half the company's $8.1 billion profit last year, but its clothing, furniture, jewelry, railroad and building materials businesses are sensitive to the health of the economy.
Mr. Shields also said Berkshire may be hurt more than other companies in an economic downturn because of its derivative contracts and investments. Some of Berkshire's derivatives are tied to the value of several stock market indexes, so their value would fall if those stock markets falter. In the past, the estimated value of Berkshire's derivative contracts has weighed down the company's earnings even though they don't mature until more than a decade from now. Berkshire recorded a largely unrealized net loss of $4.6 billion on its investments and derivatives in 2008, but as stock markets improved last year, Berkshire's derivatives helped the company record a $486 million net gain on derivatives and investments in 2009. Mr. Buffett has said he believes Berkshire's derivatives will ultimately prove profitable over their lifetimes, and he has encouraged investors to ignore the wild swings in their estimated value from quarter to quarter.
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