Thursday, March 15, 2012

My Radical Paradigm Shift, It Turns Out, Was Too Wimpy

In this post, I talked about a "paradigm shift" where the bonds of august corporate institutions could replace government bonds as the "risk-free" benchmark in investors' minds. RTWT because it's a damn good post if I do say so myself, but here's a key tidbit:
So I ask, "Who do you think is a safer bet - the US government or the company that makes Tide, or Tylenol, or the leading brand of toothpaste?" Would you rather hold J&J stock yielding 3.5% or get an identically yielding US Treasury? Frankly, I see less risk in any number of institutions with names like Colgate-Palmolive, Johnson & Johnson, IBM, Proctor & Gamble, Clorox etc. In today's world, these are the less risky bets and the US government ought to pay me a premium for capital that I could otherwise tie up in the equity of these institutions.
When I wrote that I was talking about corporate financial assets and only obliquely referred to Tide in reference to the stock and bonds of its producer, Proctor & Gamble. Little did I know that the situation could get so bad that Tide detergent itself would become a proxy currency for the greenback!!

Holy. F'n. Moley. !.

As and added bonus, here is Alex Pollock today in the WSJ wondering why anybody ever bought into the moronic notion of government bonds being "risk-free" in the first place. Indeed. From an elemental principle that is wrong, much disaster flows (to wit, home-ownership is good).

UPDATE: In another prescient long ago post of mine, I said that Ben Bernanke has driven some nails into Barack Obama's coffin. Well, today, the wonderful Amity Shlaes hits the same theme. And the Powerline guys pick up the theme too.


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