Buffett’s Bond Bubble (BRK-A, BRK-B, TBT, TLT)

November 17, 2010 by Jon C. Ogg

Berkshire Hathaway Inc. (NYSE: BRK-A) has recently released its quarterly holdings and the changes were more than in any recent quarter.  This morning CNBC has been interviewing Warren Buffett about his opinions on taxes, future taxes, QE2, currency, stock market levels and the bond market.  This morning’s interview was after Buffett wrote an op-ed “thank you note” in the New York Times.

There is one standout.  In the interview, CNBC’s Becky Quick and Joe Kernen asked many questions but the one that stood out the most was whether or not the U.S. was in a bond bubble after QE2 has started.  You know Buffett will leave himself wiggle room, but this was about as close to an overwhelming “YES” answer as the Oracle of Omaha will give:

  • “I think short-term and long-term bonds are a very poor investment at the present time.”

He might not use the word “BUBBLE” but that is close enough.  The 10-Year Treasury yield is roughly 2.83% and the 30-Year Treasury’s Long Bond yields approximately 4.27% this morning.  So far we are seeing a slight gain in the ProShares UltraShort 20+ Year Treasury (NYSE: TBT) as it is ‘double short’ the 20+ year Treasury Index.  It closed at $36.59 yesterday and is around $36.80 in early bird pre-market trading.  The iShares Barclays 20+ Year Treas Bond (NYSE: TLT) is indicated lower as well.  After a $96.14 close, it is indicated around $95.95, but it lacks the leverage and therefore lacks the volatility.

Buffett did note that he would rather be in stocks over bonds at the present time.  He also noted that the tax code should hit those making more harder.  He did note something a tad less damning on the bond bubble, and that is that the dilutive effect of QE2 won’t be huge.

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JON C. OGG