Warren Buffett is having a bad year or two. The numbers for profit and book value he will disclose tomorrow in the 2008 annual report for Berkshire Hathaway Inc, his conglomerate and investment vehicle, will lack the sparkle of yesteryear.

This year has been no better. Berkshire?s Class A shares touched a five-year low Monday and are down 19 percent so far for 2009. Yet Buffett, 78, still knows how to play. In recent months, he has bought $18 billion in preferred stock and debt from eight companies eager for capital as the US credit markets froze up and recession gripped the economy.

The new investments earn Berkshire rates of up to 15%, boosting the company?s operating income before interest and taxes by $1.8 billion annually.

In the 12 months through September, the Omaha, Nebraska- based company?s operating income was $13.2 billion.

Buffett?s deals range in size from $5 billion in preferred stock of Wall Street?s Goldman Sachs Group Inc. to $150 million in debt of Sealed Air Corp, which makes Bubble Wrap for shipping. There may be more deals like this to come. Berkshire had $33 billion in cash as of Sept. 30. In addition to the high rates of return, Buffett negotiated equity kickers on half his deals. While he?s well out of the money on all these options, the stock market will recover some day, won?t it?

Nice money

Buffett wins in any case. He has five-year warrants to buy $5 billion of Goldman Sachs common shares at $115 versus the current market of $92.15. Berkshire?s $3 billion in General Electric Co. preferred have similar warrants to buy GE common at $22.25 versus the current $9.10. Even if neither common recovers, both preferreds pay 10%, giving Berkshire a total of $800 million a year in pretax income.

Like many other financial companies, Swiss Reinsurance Co. got into trouble trading things like credit-default swaps. Buffett, who already had a 3 percent equity stake in Swiss Re, invested $2.6 billion in the company?s convertible notes earlier this month, saying he was ?very impressed? with Chief Executive Officer Jacques Aigrain. (Perhaps Buffett wasn?t amused when, days later, Aigrain was replaced.)

Buffett stepped in as lender of last resort when the recession took its toll on USG Corp, which makes wallboard for housing, and Harley-Davidson Inc, the motorcycle maker.

Losing streak

USG has lost money for five straight quarters. Berkshire, which already owned a 17% stake in the company, bought $300 million of USG notes paying 10% percent interest. The notes are convertible at $11.40 a share. USG closed on Thursday at $6.01.

Buffett put another $300 million into Harley-Davidson debt, exacting 15% in interest. Berkshire also has taken on $250 million in Tiffany & Co debt paying 10%. Its Sealed Air investment returns 12%.

Berkshire made a combined debt-preferred stock investment last October when it helped Mars Inc, the candy company, buy chewing gum maker Wm. Wrigley Jr. Co. Buffett bought $4.4 billion in Wrigley bonds that pay 11.45% interest and $2.1 billion in Wrigley preferred paying 5%.

These deals will soften some of the blows Buffett has taken. Berkshire earnings have been hit by hurricane losses and derivative bets that lose value when stocks go down. What?s more, Buffett?s large holdings in the likes of Wells Fargo & Co and American Express Co have plummeted along with the rest of the stock market.

It will be interesting to see what Buffett says about stocks in his letter to shareholders tomorrow. Several weeks back, he said it was time to buy — and the market kept right on declining. Still, Buffett has shown he knows how to make the best out of bad times.

David Pauly is a columnist for Bloomberg. The opinions expressed are his own.