Stocks and Bonds: Miscellaneous
So you want to invest in stocks and bonds? Okay. But just be careful about what you're doing. Sometimes things aren't what they seem. We'll look at a recent bond issue, then move to a rather questionable move by none other than the greatest investor of all time, Warren Buffet.
Bonds
Goldman Sachs sold bonds last week. The bonds pay 6.125% and they sold them to individual investors, not institutional investors. Did you buy some? After all, a return over 6% is pretty hard to find these days. And Goldman's behind the trade - Goldman, the world's premier investment bank.
Let's hope you didn't.
First of all, it's unique in two ways: it's Goldman's largest offering ever; it's a 50-year bond (yes, 50), the longest bond Goldman ever offered.
So put this together: 1) They're selling only to individuals, not institutions; 2) They're paying over 6% (which you can't get unless you're buying more junky stuff); 3) It's a 50 year bond. And what do you get?
You get a firm famous for "ripping the face off" its institutional clients (a term used investment banking when the bankers screw their customers) - and you're a mere individual. With inflation built into our monetary system, the money you get back in 50 years will be worth about 25% of what it is now - if you're lucky. If you're not lucky, it may be worthless by then.
But what about that 6.125% interest rate? It's only good if we get deflation over a long period of time - like 50 years - which is an impossibility under our current monetary system. Besides if we get deflation - even in the short term - and Goldman's 6.125% turns out to be a generous interest rate, they can call the bond in 5 years. Which means you get your money back and they don't have to pay you interest any more.
The cards are stacked in Goldman's favor. They always are.
Stocks
Warren Buffet a fraudster? Maybe that's too strong a term, but what was he doing in his company's latest SEC filing? Berkshire Hathaway has huge losses in US Bankcorp and Kraft. So Buffet doesn't bother to put that into his company's latest statement. How did he get away with this? He just said, aw shucks, the darn stocks'll come back up one of these days. It's just a temporary dip. Far as I know, he's going to get away with this.
What would happen if you or I tried to pull something like this? Do I have to answer that question?
I'm not saying the guy's a crook - like a Madoff or anything. But guys like Buffet (and there aren't all that many in his league) get a lot of leeway in the system. That's why he and his partner Charlie Munger are always defending the system.
It makes me wonder how sincere he is when he always tells everyone to buy equities - he who's staked his fortune on a healthy stock market. And I'm also not surprised when the two wonder boys consistently put down the idea of owning any gold. It's not their thing, I suppose.
It's not that the guy's not a great investor or anything. But I wouldn't take any advice from him on anything but buying companies at great values. He does seem to know what he's doing there.
And it sure doesn't hurt his results when he can just bend the rules to suit his purposes during those times when the tide might turn against him - as it does for all of us from time to time.
It's nice when people throw money at you just for the asking, as seemed to have happened to Goldman. And it's nice when things don't go your way that you can bend the rules so that your results look a lot better than they really are, a la Buffet. The rest of us have to work for a living.
Bonds
Goldman Sachs sold bonds last week. The bonds pay 6.125% and they sold them to individual investors, not institutional investors. Did you buy some? After all, a return over 6% is pretty hard to find these days. And Goldman's behind the trade - Goldman, the world's premier investment bank.
Let's hope you didn't.
First of all, it's unique in two ways: it's Goldman's largest offering ever; it's a 50-year bond (yes, 50), the longest bond Goldman ever offered.
So put this together: 1) They're selling only to individuals, not institutions; 2) They're paying over 6% (which you can't get unless you're buying more junky stuff); 3) It's a 50 year bond. And what do you get?
You get a firm famous for "ripping the face off" its institutional clients (a term used investment banking when the bankers screw their customers) - and you're a mere individual. With inflation built into our monetary system, the money you get back in 50 years will be worth about 25% of what it is now - if you're lucky. If you're not lucky, it may be worthless by then.
But what about that 6.125% interest rate? It's only good if we get deflation over a long period of time - like 50 years - which is an impossibility under our current monetary system. Besides if we get deflation - even in the short term - and Goldman's 6.125% turns out to be a generous interest rate, they can call the bond in 5 years. Which means you get your money back and they don't have to pay you interest any more.
The cards are stacked in Goldman's favor. They always are.
Stocks
Warren Buffet a fraudster? Maybe that's too strong a term, but what was he doing in his company's latest SEC filing? Berkshire Hathaway has huge losses in US Bankcorp and Kraft. So Buffet doesn't bother to put that into his company's latest statement. How did he get away with this? He just said, aw shucks, the darn stocks'll come back up one of these days. It's just a temporary dip. Far as I know, he's going to get away with this.
What would happen if you or I tried to pull something like this? Do I have to answer that question?
I'm not saying the guy's a crook - like a Madoff or anything. But guys like Buffet (and there aren't all that many in his league) get a lot of leeway in the system. That's why he and his partner Charlie Munger are always defending the system.
It makes me wonder how sincere he is when he always tells everyone to buy equities - he who's staked his fortune on a healthy stock market. And I'm also not surprised when the two wonder boys consistently put down the idea of owning any gold. It's not their thing, I suppose.
It's not that the guy's not a great investor or anything. But I wouldn't take any advice from him on anything but buying companies at great values. He does seem to know what he's doing there.
And it sure doesn't hurt his results when he can just bend the rules to suit his purposes during those times when the tide might turn against him - as it does for all of us from time to time.
It's nice when people throw money at you just for the asking, as seemed to have happened to Goldman. And it's nice when things don't go your way that you can bend the rules so that your results look a lot better than they really are, a la Buffet. The rest of us have to work for a living.
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