Wednesday, February 13, 2008
Whew! Macro Man sure is glad the whole credit crisis thingy is over. Now that Warren Buffet is on the scene, everything's gonna be just peachy, don'tcha think? That seemed to be the market reaction to Warren's revelation on CNBC that he is looking to reinsure all the munis currently covered by the unholy trinity of AMBAC, MBIA, and FGIC.
Indeed, the sentiment shift appeared to recall nothing so much as the old Mighty Mouse cartoons, with the Oracle of Omaha in the starring role. See if you can spot him in the clip below, bellowing in a surprisingly robust tenor "Here I coomeeee to saavvveee thee daaayyyyyyyy!"
Unfortunately, upon further reflection Warren is not, in fact, here to save the day. The muni market remains in pretty good shape with low default rates. So while Buffett's offer may head off some tail risk in that market, it shouldn't really do much to lift the prices, given that AAA muni yields are already pretty much at par with Treasuries.
No, the real distress is in structured-credit land, and Macro Man couldn't help but notice that Warren said nothing about bidding to reinsure the veritable Everest of structured credit turds which are currently stinking up financial markets. That's where the accidents have been, that's where the pain is, and that's a place that Mr. Buffett clearly (and justifiably) has no interest in stepping.
So far from saving the day, Warren's offer yesterday was the equivalent of a paramedic coming upon the victim of a horrific automobile accident and saying "Ooh! That hangnail looks really painful! Let me snip that off for you!" It might make a minor irritation feel better, but in the grand scheme of things it doesn't improve the lot of the victim very much at all.
Speaking of "not helping the victim", markets received further evidence this morning that helicopters cannot fly across the Atlantic. In a move forecast by precisely no one (or at least no one that provides forecasts to Bloomberg), Sweden's Riksbank tightened rates by 0.25%, citing high inflation and an erosion of inflation expectations. Gee, don't they know that there's a crisis going on? If their mindset is mirrored in the halls of Frankfurt, waiting for the "imminent" ECB rate cut could be like waiting for Godot....