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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (11363)	6/25/2003 4:59:35 PM
From: Elroy Jetson	Respond to of 306849

What happens then? Ssssh! You're not supposed to ask questions like that. I bet you're one of those pessimistic people who believe that this 13th rate cut will be as ineffective as the previous twelve. Shame on you. Patriotic Americans are all running their debt up as quickly as they can to keep the world economy humming. Pay no attention to that cranky old Jim McMannis and Elroy Jetson, we'll just tax their savings away. Keep moving, keep spending, nothing to see here.

To: Jim McMannis who wrote (11363)	6/25/2003 5:00:47 PM
From: Les H	Read Replies (4) \| Respond to of 306849

Second, interest rates in the U.S. have been lower -- not in theory, but in practice. As Forbes magazine has reported, "T-bills got so popular that for brief periods between 1938 and 1941 they carried negative interest rates." (See: A Brief History of Stock Fads, September 14, 1992) realtytimes.com more from same link: Aside from folks still willing to buy shares in unprofitable dot coms, why would anyone invest $100 to get back something less? In the Depression years the attraction of negative interest was that it potentially represented a smaller loss then other investments -- but what is the attraction today? A few weeks ago Berkshire Hathaway, the firm headed by famed investor Warren Buffett, made this offer: Berkshire Hathaway Inc. (NYSE: BRK.A and BRK.B), announced today that it intends to sell $250 million of a new type of security, named "SQUARZ", in a private placement to qualified institutional investors. The initial purchasers will have an option to purchase up to an additional $37.5 million of securities to cover over-allotment. The SQUARZ security is a unit consisting primarily of a senior note and a warrant to purchase the company's stock at a premium. Berkshire expects the interest rate on the note will be lower than the installment payment rate on the warrant and as a result this will be the first security to carry a negative coupon. Now you might think, whoa -- who's going to go for this? A bunch of folks, apparently. Berkshire did not raise $250 million. It took in $400 million! Essentially the deal is this: You buy warrants which allow you to purchase Berkshire Hathaway shares during the next five years at 15 percent more than the May 21st price. You pay 3.75 percent yearly to maintain your warrant. You also receive a note equal to the warrant amount which generates 3 percent interest. In effect, your warrant has a negative interest rate equal to .75 percent. Berkshire Hathaway shares need to appreciate only 2.83 percent annually to increase 15 percent in value compounded over five years. Given Mr. Buffett's market prowess and excellent reputation over many years, 2.83 percent annually doesn't strike many people as much of a hurdle. Alternatively, there is risk here and other considerations: Past performance is not a guarantee of future results, there is that pesky .75 percent annual cost whether the shares rise or not, and dollars spent on warrants are not getting interest from alternative investments such as Treasury securities, a savings account, or something similar. More significantly, a line has been breached. Negative interest is here and it's accepted by at least some investors.