The gold price
"Historic" in a Bad Way - 25th March 2010
The new US healthcare bill made history for US Treasury debt...
IT SHOULD have gone down as a historic moment, writes Steve Sjuggerud in his Daily Wealth email.
But hardly anyone noticed.
The same day the health care bill passed, US government debt lost its "risk-free" status.
That day, for the first time in over a generation, the US government was a worse credit risk than a US company.
Specifically, investors were willing to accept a lower interest rate to lend money to billionaire Warren Buffett's company, Berkshire Hathaway, for two years than to lend to the US Treasury for the same period of time.
It shouldn't be possible...after all, the government prints the money... how can it be less likely to pay off its debts? But it makes sense on the other side, too. You can easily see how billionaire Buffett's company is less of an actual credit risk than our government, which is on the hook for tens of trillions of Dollars of promises.
It's not even just the world's richest man who's grabbing lower interest rates than Uncle Sam...Heck, even home-improvement store Lowe's can borrow money at a cheaper rate than the US government.
The Obama administration believes the health care bill is "historic". Obama meant historic in a good way. The bond market recognizes it's historic in a bad way.
The passing of the legislation marked the first day in decades the bond market thought highly rated corporate bonds are a safer bet than the people who print the money.
The market decided a bet on bonds from our government is no longer risk free. It was a historic day.
The way to play it is simple – and you've heard it before...but it's right – is sell government bonds and Buy Gold, the currency that can't be printed.
IT SHOULD have gone down as a historic moment, writes Steve Sjuggerud in his Daily Wealth email.
But hardly anyone noticed.
The same day the health care bill passed, US government debt lost its "risk-free" status.
That day, for the first time in over a generation, the US government was a worse credit risk than a US company.
Specifically, investors were willing to accept a lower interest rate to lend money to billionaire Warren Buffett's company, Berkshire Hathaway, for two years than to lend to the US Treasury for the same period of time.
It shouldn't be possible...after all, the government prints the money... how can it be less likely to pay off its debts? But it makes sense on the other side, too. You can easily see how billionaire Buffett's company is less of an actual credit risk than our government, which is on the hook for tens of trillions of Dollars of promises.
It's not even just the world's richest man who's grabbing lower interest rates than Uncle Sam...Heck, even home-improvement store Lowe's can borrow money at a cheaper rate than the US government.
The Obama administration believes the health care bill is "historic". Obama meant historic in a good way. The bond market recognizes it's historic in a bad way.
The passing of the legislation marked the first day in decades the bond market thought highly rated corporate bonds are a safer bet than the people who print the money.
The market decided a bet on bonds from our government is no longer risk free. It was a historic day.
The way to play it is simple – and you've heard it before...but it's right – is sell government bonds and Buy Gold, the currency that can't be printed.
Steve Sjuggerud, 25 Mar '10
Former stock-broker, mutual-fund vice-president and hedge-fund advisor Dr. Steve Sjuggerud is the founder and editor of True Wealth. Launched in 2001 and now one of America's best-followed newsletters for private investors, True Wealth also provides free analysis and ideas in the Daily Wealth email service.
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