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Monday, March 22, 2010

Buffet Beats Bernanke

Amusing, but true:
In the long run, it's hard to see how Buffet risk could be less than the US government, because in their dying stages governments leach all the money out of ongoing commercial interests within their control.

But on the other hand, everyone knows that Buffet isn't going to engage in one of these unilateral renegotiations that the US government has recently pulled off. So:
The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.
No comment.

Btw, as the result of the House vote last night the Senate bill will become law in ten days even if President Obama does not sign it. The Senate may or may not pass the House amendment to the bill, so we may well end up with the Senate bill.

In the near term, there are very few changes to the system except for a huge new bureaucracy (expensive!) that gets set up. I am preparing the section by section and I will post that when it is completed. It's very long, though. Over a hundred pages. I may stick somewhere as an html doc and just link to it. Also there will be so many lawsuits under this thing that it will definitely boost legal employment. I figure maybe 100K lawer/reg jobs, and 250K government/medical reg jobs, so Pelosi is about right about the employment. The only thing is that is all an added burden on medical costs and another red line on the governments, so who knows.

The big economic US news of the week has nothing to do with any government stats; Walmart is crumpling and cutting grocery prices hard, plus launching a new ad program touting its prices. Walmart has been losing customers because of a bad shopping experience and because their food prices aren't really competitive with grocery prices in many areas with a lot of grocery competition. But Walmart is dependent on a lot of traffic and sales (it has high overhead prices with those big stores - think of the utility prices alone), so it has to move quickly to stop its bleeding.

The Walmart move is a very clear sign that we are in a deflationary environment. That Titanic graph I posted about retail is the problem.

Commodities are collapsing.

Comments:
M_O_M, here's an analysis pointing out some technical reasons why some high-grade corporates are trading above Treasuries:

http://blog.atimes.net/?p=1411

I am inclined to place more emphasis on the point you made at the beginning of the post--Buffett's operations are almost entirely based in the U.S., and last I checked the IRS has quite enough power to extract cash from him. I'll believe this when (if) the 10yr+ end of the curve dips below AAA corps.
 
Neil - I could well understand people wanting to diversify their risks by going into multi-nationals, but it brings up a whole new range of risks.

I agree with that post.

The distortions in the markets involved in just mortgages are creating some interesting eddies and swirls.
 
M.O.M.,

I'm not sure what AAA means anymore, but I am going to mention that Berkshire Hathaway lost its AAA rating in 2009 - before the announced take over of BNI!

If Berkshire isn't a AAA credit and yet can borrow at a lower rate than the U.S. Gov't then.......
 
http://www.bloomberg.com/apps/news?pid=20601087&sid=adpjbUsrrBQQ&refer=home

M.O.M.,

Berkshire lost its AAA credit rating in 2009 (even before the announced take over of Burlington Northern).

If Berkshire isn't a AAA credit and yet can still borrow at lower rates than the U.S. Gov't then........
 
Speaking of health care reform, I have thought about what it probably means to me.

Congress Just Offered Me Cheap Catastrophic Health Insurance

Last year I really wanted catastrophic health insurance. I was willing to pay relatively high premiums to get it, if only to sleep better.

This year, thanks to the new health care reform that's designed to see people like me actually have health insurance, I no longer seem to want any health insurance at all.

Isn't that just a hoot? Way to go Congress! Unintended consequences for the win!

 
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