Warren Buffett on a 0% interest rate world

[Guy Berger]

http://postcards.blogs.fortune.cnn.com/200...-on-mattresses/

December 9, 2008, 7:28 pm <h1 class="storyheadline">Power Point: Buffett on 0% interest rates</h1> Warren Buffett emailed this note to the directors of his company, Berkshire Hathaway (BRK.B), Tuesday after he heard that the U.S. Treasury sold $32 billion in 4-week bills at a yield of 0%:

“This should be bullish for Berkshire. With great foresight, I long ago entered the mattress business in a big way through our furniture operation. Now mattresses have become fully competitive as a place to put your money, and sales will soon take off.”

[papsrus]

[Jazzmoose]

Seriously, though; this is some weird shit. Treasury bonds acting like the old 'Christmas Club's of yore?

[Guy Berger]

There was another 0.000% treasury bill auction today.

Furthermore, we hit another milestone as the yield on the 30-year Treasury bond, one day after blowing past 3.00%, fell below 2.75%. I remember a distant era of the past (October) when people expressed shock at the long bond yield falling below 4.00%. We are a very lucky country to be facing record low borrowing costs at a time of record high funding needs.

Also, this was an amusing story that I don't think I've posted here:

U.S. Treasury Protection Costs Surpass Campbell Soup on Bailout 2008-12-10 15:20:50.577 GMT

By Shannon D. Harrington

Dec. 10 (Bloomberg) -- The cost to hedge against losses on

U.S. Treasuries surpassed the price of default protection on

bonds from Campbell Soup Co. and drug-maker Baxter International

Inc. as government spending on stimulus packages grows.

Credit-default swaps on U.S. government debt in euros for

five years are trading at 66 basis points, according to CMA

Datavision, meaning it costs 66,000 euros ($85,700) to protect 10

million euros of debt. Contracts on Campbell of Camden, New

Jersey, were quoted at about 52 basis points today, and

Deerfield, Illinois-based Baxter contracts were at 54 basis

points, CMA data show.

The Federal Reserve's assets have more than doubled from a

year ago to $2.14 trillion as the central bank seeks to revive

credit markets. Economists including Harvard University professor

Kenneth Rogoff and Nobel Prize winner Joseph Stiglitz say

President-elect Barack Obama should push for a stimulus package

of at least $1 trillion to lift the economy out of a yearlong

recession. The U.S. government's total cost to bail out the

economy may exceed $4 trillion, according to strategists

including Ira Jersey at Credit Suisse Group AG in New York.

"It's a certain absurdity, but it's also a question of

supply and demand," said Scott MacDonald, head of research at

Aladdin Capital Management LLC in Stamford, Connecticut, who

expects between $1.5 trillion and $2 trillion of Treasuries may

be issued over the next 18 months. "We have another massive

stimulus package coming. Does Campbell's Soup have a stimulus

package coming? No."

U.K., Netherlands, Italy

Contracts protecting U.K. government debt for five years

were quoted at a mid-price of 114.6 basis points today, according

to CMA. Swaps on Italy are at about 189, and the Netherlands at

92. France was quoted at 59 and Germany at 49, CMA data show.

Credit-default swaps pay the buyer face value in exchange

for the underlying securities or the cash equivalent if a

borrower fails to meet its debt obligations. A basis point on a

credit-default swap contract protecting $10 million of debt from

default for five years is equivalent to $1,000 a year.

A benchmark credit-default swap index tied to the bonds of

125 companies in the U.S. and Canada rose today. Contracts on the

Markit CDX North America Investment-Grade index of 125 companies

in the U.S. and Canada rose 2.5 basis points to 270.5 basis

points as of 9:49 a.m. in New York, according to Barclays

Capital. An increase suggests deterioration in investor

confidence; a decline indicates the opposite.

Contracts on the Markit iTraxx Europe index of 125

investment-grade companies rose 8 basis points to 200 basis

points, according to JPMorgan Chase & Co.

--With reporting by Abigail Moses in London and Scott Lanman in

Washington. Editors: Alan Goldstein, Romaine Bostick

To contact the reporter on this story:

Shannon D. Harrington in New York at +1-212-617-8558 or

sharrington6@bloomberg.net

To contact the editor responsible for this story:

Michael Nol at +1-212-617-2384 or

mnol@bloomberg.net

[Jazzmoose]

Damn that Campbell's Soup!