Buffett Expects "Terrible Problem" For Municipal Debt

[Parsad]

Short, but good article, on Buffett's views on municipal debt.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=airOwCWviFuU&pos=2

[Thrifty3000]

From the FFH annual report:

 

"In 2009, for the first time ever, a significant portion of our pre-tax investment income (approximately $241 million)

was derived from U.S. “Muni” bonds, the majority of which are taxed at very low rates (approximately 5%)."

[Parsad]

I wouldn't worry about the FFH muni-bonds.  They're insured by Berkshire!  ;D  Cheers!

[Thrifty3000]

Good point.  From FFH 2009 report:

 

"Our U.S. Treasury bond position was to a large extent replaced by $4.1 billion in U.S. state, municipal and other tax-exempt bonds (of which

$3.6 billion carry a Berkshire Hathaway guarantee) with an average yield (at purchase) of approximately 5.79% per annum."

[beerbaron]

I don't understand Buffett, in this year Annual Report he says he should have bought more muni bonds during the crisis. And today he says muny bonds might default...

 

Fairfax made a good deal with the Muni Bonds. It show that they are smaller then Brk, they can deploy their capital in a more focused way.

 

BeerBaron

 

[Parsad]

I think it's like his comments about alot of other things such as derivatives...do as I say, not as I do!  The stuff he buys or writes is based on his assessment, thus he thinks there is enough safety in the premiums.  But the stuff alot of other people buy or insure...well that's another subject all together, and often there isn't enough due diligence.  Cheers!

[Myth465]

My guess is he likes his bonds (namely the ones he insured), but hates the overall market for Munis given the macro view.

[value-is-what-you-get]

I think it's like his comments about alot of other things such as derivatives...do as I say, not as I do!  The stuff he buys or writes is based on his assessment, thus he thinks there is enough safety in the premiums.  But the stuff alot of other people buy or insure...well that's another subject all together, and often there isn't enough due diligence.  Cheers!

 

His apparent hypocrisy on these matters is simple politeness because he is really saying do as I say, not as I do . . . because you're not me and I know what I'm doing and you don't!!  This is of course right, accurate and prudent.  A sharp blade in the hands of a thug is a dangerous thing, in the hands of a knowledgeable surgeon it can be a life saver.

[tiddman]

A sharp blade in the hands of a thug is a dangerous thing, in the hands of a knowledgeable surgeon it can be a life saver.

 

Yeah but the surgeon doesn't stand up in front of 40,000 people and announce that sharp blades are ticking time bombs and serve no purpose to society.  I am continually confused by Buffett's preaching on these issues that is directly contradictory to his actions.  He can certainly choose to invest in securities that are dangerous for other people -- what he doesn't have to do is get up on his soap box and philosophize about them.

[mhdousa]

Does anyone know how to determine whether specific muni bonds are insured by Berkshire?

 

[value-is-what-you-get]

 I am continually confused by Buffett's preaching on these issues that is directly contradictory to his actions.  He can certainly choose to invest in securities that are dangerous for other people -- what he doesn't have to do is get up on his soap box and philosophize about them.

 

I believe it's the same sort of contradiction that sees Buffett relentlessly pursuing an increase in shareholder value for a pittance in salary and then giving his shares away to charitable organizations.  Sometimes the contradictions are for good reason.  

[Guest longinvestor]

A sharp blade in the hands of a thug is a dangerous thing, in the hands of a knowledgeable surgeon it can be a life saver.

Yeah but the surgeon doesn't stand up in front of 40,000 people and announce that sharp blades are ticking time bombs and serve no purpose to society.  I am continually confused by Buffett's preaching on these issues that is directly contradictory to his actions.  He can certainly choose to invest in securities that are dangerous for other people -- what he doesn't have to do is get up on his soap box and philosophize about them.

Well, I, like one of the 40000, rather like him to get on his soapbox and philosophize. We only listen to him because he is successful AND is aligned intellectually with the structural truth, "the real thing" of whatever subject he chooses to speak about. Almost always anyway which makes it worthwhile for me to go there to learn. What I do with it is mine alone. I'm comfortable that Buffett's primary purpose of getting on the soapbox at Omaha is to serve his shareholder's interests. And that is measured in terms of return to shareholders.

 

I rather like his preaching. People are free to listen to someone else if they feel like Buffett is confusing and contradictory.