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Greetings- This is more a insurance sector topic but the BRK board is always lively so I present this theory here. The “long bond” was 14.4 in Sept 1981, CBT futures(8%coupon then), spot month traded 52. I had started a brokerage career just 3 years prior and this youngster had sold some A rated bonds to 70 yr old clients in 79, 15-18 yr maturities that were trading at 45. Today, the long bond is, 3.17, 15 yr high grade corporates, 4ish%. The now CME bond futures, (now 6% coupon derivred) 142.

A fact we all know, credit, fixed income has out performed most asset classes over 10 yrs and have done very well since the high in rates in 1981. Insurance company portfolio have benefited tremendously from appreciation, though reinvestment rates of course are down, down, a corundum and one IMO has to end badly, to some degree anyway.

I like a few Ins names and consider them core but recently saw a list of public ins equities with links to 2012 and Q4 results. Being easy to do a quick take re book growth, combined ratios etc, I looked at 25. I was hit, though I really like my few, there are many doing so well, and foolishly though for a moment, Gee, so many to own! Of course I know better and back to reality it quickly hit me, so much has been gained in fixed income ports in recent yrs, add in a better than avg underwriting year and OF COURSE most did very well.

Which quickly says to me, how much of Ins Co gains of say the last 5 yrs has been “excess” bond port gains, coupons have been earned, OK, but principle gains have some risk. Personally I think bonds are a bubble (I. en-mass public desperate buying-don’t buy darn stks, they go down ala 2008-09, etc II) zero% bank rates gradually pushes the masses out the curve III) it has paid in recent yrs, Hey do more!!, as rates plunged lower, lower. OK, the point, if (when in my book) the long bond goes to 5.5 and short rates 3.5, who would take the losses worst and how much book might be gonzo and might many sell under book as Ins becomes unpopular (OMG, they can lose$$!).

I think one, me anyway, needs to have some capital sitting at .25%, sitting awaiting for grand opportunities in select insurance companies.

Comments, please, other views, ideas re this topic?
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