Obama vs. Buffett 03/24/2010
Note: the following is from Bloomburg, and I include it not for politics sake but as a comment to my Big Play on bonds.
Check this out:
Obama Pays More Than Buffett as U.S. Risks AAA Rating
(click to read the whole story at Bloomburg)
March 22 (Bloomberg) [edited] -- 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.
Former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.
“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management.
America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.
“It’s a manifestation of this avalanche, this growth in U.S. Treasury supply which is under way and continues for the foreseeable future, and the comparative scarcity of high-quality credit,” particularly in shorter-maturity debt, said Malvey, whose Lehman team was ranked No. 1 in fixed-income strategy
Last year’s $2.1 trillion in borrowing by the government exceeded the $1.08 trillion issued by investment-grade companies, the biggest gap ever, Bloomberg data show. Malvey said the last time he can recall that a corporate bond yield traded below Treasuries was when he was head of company debt research at Kidder Peabody & Co. in the mid-1980s.
While Treasuries are poised to make money for investors this quarter, they are losing momentum. [Treasuries] are down 0.43 percent in March after gaining 0.4 percent last month and 1.58 percent in January, Bank of America Merrill Lynch indexes show.
President Obama’s budget proposal would create bigger deficits every year of the next decade, with the gaps totaling $1.2 trillion more than his administration projects, the nonpartisan Congressional Budget Office said this month. Publicly held debt will zoom to $20.3 trillion.
Shorting US Treasuries 03/16/2010
February 4 (Bloomberg - the full story) -- Nassim Nicholas Taleb, author of “The Black Swan,” and Black Swan Theory said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.
It’s “a no brainer” to sell short Treasuries, Taleb, said. “Every single human being should have that trade.”
Also, March 12 (Bloomberg –the full story ) Taleb joins Mohamed A. El-Erian, co-chief investment officer at Pacific Investment Management Co., in warning governments about rising public debt. Failing to carry out fiscal measures in timewould raise the possibility of governments seeking to eliminate excessive debt through inflation or default.
Again, Nassim Nicholas Taleb warned: “We are facing an environment with a huge amount of debt,” he said in a speech in New Delhi today. “The next mistake is going to be overprint, which is going to be the way out for them, which is why I fear hyperinflation.”
The U.S. budget deficit widened to a record in February as the government spent more to help revive the economy. The figures indicate the deficit this year will probably surpass the record $1.4 trillion in the fiscal year that ended in September.
In a report published on Feb. 12, the IMF said a higher inflation goal may give central bankers more leeway…
For anyone who is not a fan of Taleb and his VERY important theory: Check out the Wiki page about Black Swan Theory, and check out this essay which summarizes it well.