BEHIND THE MONEY: Pessimism At Extreme with Vietnam Considered Safer than Warren Buffett
Have investors gotten so pessimistic that there are no bears left to sell and we are therefore due for an oversold bounce?
Consider this: Berkshire Hathaway credit default swaps are now trading wider than Vietnam, according to Bank of America/Merrill strategist Michael Hartnett. Meaning that Berkshire bondholders need to pay more to protect themselves against default than those holding sovereign debt issued by Vietnam. Hartnett holds this up as just one example of the extremes he's seeing in the credit markets. He also shows that GE CDS are trading wider than Russia.
Let me point you to an article in The Economistthat states that some people in Vietnam are so scared about their economic prospects that they've resorted to drinking the blood of snakes, which is supposed to enhance "good fortune and sexual prowess."
I do not see Warren Buffett resorting to such a tactic. But I do see that he has $24.3 billion in cash sitting around. "I have pledged - to you, the rating agencies and myself - to always run Berkshire with more than ample cash," wrote Buffett in his annual letter released last Saturday. "We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits."
This sounds like a safer place to put your money.
For another example of extreme bearishness, look to the weekly poll of the American Association of Individual Investors. It shows that the number of bears are at their highest level ever, at 70 percent. The following chart comes courtesy of the folks at Bespoke Investment Group:
It's scary out there. We'll ask the traders tonight if this means we're in for -- at the very least -- a nice bear-market bounce. Wall Street veterans Dennis Gartman and Marc Faber will help us answer that question as well.
Also, see the great 'Warren Buffett Watch' blog for further insight on The Oracle.
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