- Published on Thursday, 10 May 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 648
Warren Buffett says one thing, but does another. What's good for him is certainly not good for you.
Warren Buffett is a hell of a guy. He comes off as Mr. America. Do good, pay your taxes and invest in what you know... and you can end up just like him.
It's a lie. So sorry to shatter your dreams.
The truth is Buffett is a shark just like anybody else who makes a living investing other people's money.
Don't get me wrong. I don't think the Oracle is a liar or a cheat. But I will say Buffett will eagerly take advantage of ignorance any chance he gets.
When it comes to making a buck... ethics take second seat. It is as true for Buffett as it is for Madoff.
Here's my proof.
Starting back in the fall of 2010, Buffett warned of the bubble in the bond market.
"We have started down a path you don't want to go down," he said of the Fed's monetary manipulation and its effects on bond prices.
What's worse, he took his rhetoric a step further, saying he "can't imagine" the rationale for adding bonds to a portfolio at current prices.
So what did our great American hero do this week?
Youbetcha... he pumped $1.6 billion of bonds into a bubble he's long admitted is dangerously overinflated.
It's like a heroin dealer telling a buyer his product is deadly... and then selling him the syringe to push the juice into his arm.
Anything for a buck, right?
Buffett's not stupid. He knows you have to fleece a few sheep if you want a wool coat.
His Berkshire is rolling over higher-priced debt at absurdly low levels. In fact, the firm's $750 million worth of five-year bonds hacked out a new record low rate for the company.
And how about the 30-year bonds he dumped on the Street? Berkshire borrowed $500 million... and it will pay just 4.4% each year for the next three decades.
Whoever bought those bonds just got ripped off -- big time.
Beside Buffett and his loyal shareholders, the big winners in this swindle are the banks of Wall Street.
Goldman, Bank of America, JPMorgan and Wells Fargo are all working to "manage" the deal.
These banks love the bond bubble.
It's like I tell Unconventional Wealth subscribers this month... thanks to the Fed's bond bubble, their business is "all reward and no risk."
That's why they have all but abandoned their traditional banking businesses... and left the small-business realm gasping for loans.
We've all heard the struggles of today's small businesses. They beg a dozen banks for loan... and maybe one or two will come through with a fraction of the original asking amount.
It is fantastic news for a tiny segment of the investing realm... a niche called Business Development Companies (BDC).
Hashed out by the fine folks in Washington in 1980, this type of business never gained much steam until the Fed slammed its printing presses into high gear. In fact, up until the last decade, there were just three of these companies available to ordinary investors.
But thanks to Big Ben and his easy money... investors now have their choice of over 30 -- and they are paying off big time.
On Monday, when the next monthly issue of Unconventional Wealth is posted to our website, readers will learn about the company I call the best in the breed.
While a big boy like Berkshire is milking the market and dumping measly 2% and 4% bonds on the market... this company is feeding the starving small-business segment.
If you've ever seen what happens when a pig farmer splashes a bucket of slop in his trough... you know the image that ran through my head as I scoured this company's loan sheet.
Small businesses are lining up to get the company's cash... and they're paying 11%, 12% and even 14% to get it.
And as a BDC... most of that revenue flows right to the pockets of shareholders. In fact, the company I recommend pays a whopping 11% annual dividend.
And it's done it for the past five years!
It is the beauty of understanding the reality of the Fed's bubble machine.
While "nice guys" like Buffett are pumping more trouble into the market -- and making themselves richer in the process -- smart investors are treating the bond market like a two-headed serpent.
Instead of getting bit by both ends of the trade, invest in the handful of companies that are virtually designed by law to take advantage of Bernanke's manipulation.
Plain and clear... invest in BDCs.
Editor's Note: Want to know which BDC I say is a must-buy... along with over two dozen other alternative investments? Here's your link.