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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s. In the early... More
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Carryl Capital Management
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A Modern Approach to Graham and Dodd Investing
  • The Rise of Supranational Credit 2 comments
    Mar 22, 2010 11:26 AM

    Whose credit would you prefer, that of the United States of America, headed by Barrack Obama? Or that of the "nation" of Berkshire Hathaway, headed by Warren Buffett? This morning, the bond market said, "the latter," by pricing Berkshire's bonds at a lower spread than U.S. obligations of similar maturity.

    This goes to highlight a trend that I mentioned earlier: the rise of "supranational" investors that are more powerful than whole countries. With perhaps 300,000 employees, (and twice as many shareholders) the Berkshire "nation" is about one tenth of one percent the size of the USA. It typically pays about 1/500th of the taxes of the whole country. Clearly, the US is a much larger, and by implication, a much "safer" entity.

    Except that it isn't. That's because Berkshire is an elite outfit, the corporate equivalent of the Rangers or the Marines. Put another way, Berkshire "punches above its weight." And the U.S., well, it is a collection of citizens of varying qualities.

    That must be an embarrassment for politicians of all stripes. To preside over a nation that is in some ways weaker than one of its largest corporations.

    Long BRK/A, membership in the "Berkshire nation"

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  • bearishondisco
    , contributor
    Comments (50) | Send Message
    This is puzzling in that Brk is largely a derivative trade on the US system. The owner of the system and the military assets that protect it should always carry the premium.
    22 Mar 2010, 01:55 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6879) | Send Message
    Author’s reply » Here's my reply to someone else's post:


    "There is a certain lack of discipline in the budget process and upcoming deficits.


    There has also been a certain lack of discipline in Buffett's underwriting derivatives (which is why Berkshire lost its AAA rating).


    But not to the same degree as in U.S. fiscal policy."


    In the end, "it's all relative."
    22 Mar 2010, 04:44 PM Reply Like
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