Monday, March 22, 2010

Obama Pays More Than Buffett as U.S. Risks AAA Rating

March 22 (Bloomberg) -- 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.

Read this and if you still believe that markets are rational then I've got a bridge to sell you.

Markets are a function of the actors that comprise them. If the belief systems that mold the behavior of those actors is based on myth, fallacy or just plain ignorance, then the market's behavior will mirror that.

In a rational world there is no way in hell that corporate bonds of any kind shoiuld be yielding less than those of a sovereign, currency issuing nation. Yet, that is exactly what we are seeing because the participants believe that the U.S. has too much debt or that it can go bankrupt, when if fact there is absolutely no chance of that.

No matter how financially secure Warren Buffet's firm is, it is infinitely more risky than the U.S. Government because at the end of the day Berkshire Hathaway cannot simply credit bank accounts to meet all payments.

This is a clear indication of an old saying: "Garbage in, garbage out."

Investors believe this garbage about the U.S. going bankrupt and they seem to trust Warren Buffet even more. Were it not for the fact that the idiot rating agencies will soon downgrade U.S. debt (I absolutely believe this), arbitraging Bershire bonds against Treasuries (sell the former, buy the latter) is probably the greatest trade of all time!


Mike Sandifer said...

I'd be very interested to see how strong EMH adherents explain this one.

googleheim said...

another sling shot for the dollar coming too.

if you down grade the dollar all the other currencies will have to fold and then everyone rushes to the dollar. sounds cyclical
in that a AAA goes to AA, an AA goes to A if not B, then an A goes to B if not C or D then they simply elliminate the top zero position and the

dollar is back on top

just a lucky guess

dollar is undervalued and classed incorrectly.

sounds like these people are confusing apples with bananas again.

X & Y cannot be grouped together such X & X make 2X

from the trademark perspective - someone is colluding the dollar with that of a stock