Monday, August 20, 2012

Warren Buffet Bails Out of Muni Bonds

Did Warren Buffett take the recent Federal Reserve warning on municipal bonds seriously?

Zero Hedge is reporting that Buffett has covered an $8.25 billion muni cds long risk (short CDS) position, which becomes profitable if muni bonds go up in value.

He has terminated the position 5 years early and has apparently lost a few hundred million by getting out of the position early.

As any Buffett follower knows, he is a long-term investor and rides out short-term bumps, if he is bailing with a few hundred million in losses, he is expecting trouble in the muni market.

As I have said before, there is absolutely no reason to own municipal bonds at this time.


  1. I am very green with regards to Muni bonds. Where and how cold you buy municipal bonds? From any trader (schwab, ameritrade...?) I am not going to, but i have not even seen it being an option.

    1. You can buy them from your broker. They usually are anywhere from $10k to $100k per bond. They really don't work well unless you have a high tax rate since that is what provides some of the yield.

  2. I love the idea of a derivative shorting a derivative. I remember when the old coot said these were weapons of mass financial destruction.