The Worldwide Investor

Warren Buffet announced today on CNBC that he offered to insure the bond insurers, on their municipal bonds. This is a fairly significant event in the world of finance, as many analysts begin to wonder how dire the debt markets may become. The largest question in this situation is that of Mr. Buffet’s motive. Does he believe the situation is over exaggerated, and he saw this as an opportunity to profit by going where few others dare to go, or does he believe the situation is so dire, that if the municipalities were to go bankrupt, that it could take down the whole financial market as we know it.

While we may never truly know his intention, we can guess on his motive. Being a highly optimistic person, Mr. Buffet strategy has always been to invest in unloved assets. If there is an unloved asset class right now outside of the homebuilders, its the re-insureres such as Ambac. There is speculation that they are on the verge of insolvency, sending prices for risky debt instruments back to levels not seen since the tech bust in the early part of this decade. While many very intelligent, very rich investors are negative on the US economy long term thanks in part to the credit markets, Mr. Buffet has been nothing but positive.

Historically, the situation is only paralleled by one previous episode in the early part of the last century, when the United States asked J.P Morgan to help bail it out of a financial trouble. Mr. Buffet is the modern day version of Mr. Morgan - sharp, with incredible business savy. While Buffet is a true gentleman, JP Morgan was known more as a cutthroat individual. Both, however, were extremely rich men who could move markets by the sound of their voice. JP Morgan eventually did bail out the government, but not out of charity, rather, his motives were purely financial. He believed that he could purchase assets at such reasonable prices, that they could do nothing but go up in value. He was, correct, and made a fortune off the investment. While Mr. Buffet is an extremely philanthropical individual, his monetary donation to the Gates foundation will likely be his legacy in that segment. Their work in medicine and developing countries is more along the lines of what Mr. Buffet sees fit for giving alms, as opposed to bailing out irresponsible corporations or governments. Given this analysis, it is likely that Mr. Buffet views the bond insurers as an opportunity to profit from beaten down assets, a huge vote of positivity for an unloved asset class