Warren Buffett compares US Fed to a hedge fund
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Warren Buffett compares US Fed to a hedge fund
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Re: Warren Buffett compares US Fed to a hedge fund
#2I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sell them at a massive loss, which is likely, then all that revenue they've been throwing off in interest better offset those losses. I might have this wrong but it seems to be very odd to characterize the fed's QE programs as a success when it is literally an experiment in progress.
Re: Warren Buffett compares US Fed to a hedge fund
#3I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sel…
The Fed bought toxic assets at way below par value. These bonds are giving off interest, but their underlying value is going up as well. They also bought equity in companies like GM and AIG (iirc) for fractions of what they are worth today.
I think Buffet used the term "hedge fund" for dramatic effect rather than strict accuracy (since most of the public sees hedge funds as the epitomy of the investing money making dogma), but you can definitely draw parallels between the Fed's investment decisions and those of a long-only hedge fund (rather than the algo or long-short variety)
Re: Warren Buffett compares US Fed to a hedge fund
#4I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sel…
The Fed bought toxic assets at way below par value. These bonds are giving off interest, but their underlying value is going up as well. They also bought equity in companies like GM and AIG (iirc) for fractions of what they are worth today. I think Buffet used the term "hedge fund" for dramatic effect rather than strict accuracy (since most of the public sees hedge funds as the epitomy of the investing money making d…
"their underlying value is going up as well"
How can you tell? These are illiquid bonds that have no market. The Fed could say they're worth anything and there's no way to prove or disprove it. The only way to know is to offer them for sale and obviously that's the opposite to what the Fed is doing.
Re: Warren Buffett compares US Fed to a hedge fund
#5I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sel…
The Fed can hold them to term. They are under no pressure to sell.
Re: Warren Buffett compares US Fed to a hedge fund
#6I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sel…
The Fed can hold them to term. They are under no pressure to sell.
The Fed has no choice but to hold them to term. The Fed's whole game is to continue keeping rates at zero by buying everything under the sun to the tune of $85 billion! per month. Selling, or even slowing the rate of purchasing, would do the opposite and raise rates.
Re: Warren Buffett compares US Fed to a hedge fund
#7"'The Fed is the greatest hedge fund in history, ... it's generating $80 billion or $90 billion a year probably' in revenue"
Can you get more asinine than that? Probably? How is this relevant when the Fed is printing $85 BILLION a month to finance ongoing bond purchases? Guys like Buffet must absolutely love the Fed because they have an outlet to offload their illiquid garbage bonds and derivatives.
Imagine if you made a terrible investment that loses most of its value... you're screwed, you have no choice but to suffer, eat the losses, and move on. But wait! The government opens a shop where they'll buy your investment for close to you original principal. You're saved! Amazing. I'd write nonsense articles praising the government too.
Re: Warren Buffett compares US Fed to a hedge fund
#8Earlier quoted context omitted.
The Fed can hold them to term. They are under no pressure to sell.
The Fed has no choice but to hold them to term. The Fed's whole game is to continue keeping rates at zero by buying everything under the sun to the tune of $85 billion! per month. Selling, or even slowing the rate of purchasing, would do the opposite and raise rates.
They have choices. They have complete flexibility. They are under no pressure to do anything that isn't explicitly their goals. They want to control inflation and increase employment. If the economy starts to heat up and inflation starts to rise above their 2% target they will then have the option of selling bonds or raising the federal funds rate, the latter of which is more likely.
I'm not really sure what you're trying to get at with the last comment. He doesn't know the exact number off the top of his head. The exact amount remitted last year to Treasury is $88.4 billion.
Re: Warren Buffett compares US Fed to a hedge fund
#9I don't understand this point of view, sorry Warren. The fed is generating revenue for the government in a certain sense, yes, but saying it is a successful hedge fund is like me saying that if I hold a bunch of bonds in my portfolio throwing off some interest that is a successful hedge fund. The entire question is what are they going to be able to sell those bonds back to the market for. If they end up having to sel…
The Fed can hold them to term. They are under no pressure to sell.
Holding them to term is actually a bit of a joke if you think about it. The Fed is buying bonds. The government is selling them. As long as the Fed keeps buying them, the government can keep selling them. If the Fed holds them to maturity, where will the money come from to pay back the mature bonds? From the government selling even more new bonds which the Fed will have to buy.
It's not a Ponzi scheme or a pyramid scam but it can't help but be compared to them. It's in a similar boat to Social Security. It has the veneer of legitimacy because "it's the government" but underneath it's a bit unseemly.
Re: Warren Buffett compares US Fed to a hedge fund
#10Earlier quoted context omitted.
The Fed bought toxic assets at way below par value. These bonds are giving off interest, but their underlying value is going up as well. They also bought equity in companies like GM and AIG (iirc) for fractions of what they are worth today. I think Buffet used the term "hedge fund" for dramatic effect rather than strict accuracy (since most of the public sees hedge funds as the epitomy of the investing money making d…
"their underlying value is going up as well" How can you tell? These are illiquid bonds that have no market. The Fed could say they're worth anything and there's no way to prove or disprove it. The only way to know is to offer them for sale and obviously that's the opposite to what the Fed is doing.
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