Warren Buffett says U.S. Treasury bubble one for the ages

February 28, 2009 by · Leave a Comment
Filed under: Opinion 

With the fundamentals in place on the dollar, it does seem like we have a huge crowd of “safe haven” investors sitting on the sideline in cash waiting for some sign of a bottom, which may or may not be in the near future.  I would say we are not close and we most likely see another bear market rally before we really start continue declines in the Dow and S&P.   I am personally shorting treasuries in anticipation of a fall in the dollar after these record levels of debt issuance.

News:

Warren Buffett, whose Berkshire Hathaway Inc sits on $25.54 billion of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.

In his widely read annual letter to Berkshire shareholders, the man many consider the world’s most revered investor said investors are engulfed by a “paralyzing fear” stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the “triple-A” rated debt.

Read more

Federal Reserve to inflate another asset bubble to kickstart economy?

January 26, 2009 by · Leave a Comment
Filed under: Opinion 

Is this what I am actually reading?  We should create more mal-investment to spur spending that will lead us right into another crisis that would likely be larger than our current debacle?  If this tells us the only way to fix systematic problems is by creating others ones, then I have to tell you that we might need to look our how we are structuring our monetary system.  

The more you read into all the problems we read about in the daily financial news, it makes me wonder if some other financial forces are at play that are residue to other artifacts?  My suspect is the extension of credit through a fractional reserve monetary system.  If money = credit through how we treat paper currency and checkbook/debit money then compound interest equals compound debt by banks taking more deposit and using that to extend credit back into the financial system as loans.  

This looks to be a recipe for disaster and we might be making it even worse if we are bailing out the debt while incomes are falling.  Maybe the default of the debt was part of the flawed process.  This is basically I am with this whole crisis.   When you step back and take a close look at how all these pieces interact and how the news has come out and what order, you can see evidences of what I wrote all over the place.

News:

Federal Reserve Chairman Ben S. Bernanke and his colleagues may try once again to cure the aftermath of a bubble in one kind of asset by overheating the market for another.

Fed policy makers meeting tomorrow and the day after are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield. Behind the potential move: a desire to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero.

The risk is that central bankers will end up distorting the Treasury market, triggering wild swings in prices — and long-term interest rates — as investors react to what they say and do. “It sets forth a speculative dynamic that is very unstable,” says William Poole, former president of the Federal Reserve Bank of St. Louis and now a senior fellow at the Cato Institute in Washington.

Read more