Right now, we have an opportunity to buy into a few very simple businesses. They borrow money at around 3% interest and invest it at about 5% in government-guaranteed investments. This last part is crucial: These companies don't take any credit risk. The U.S. government is 100% responsible for paying the interest on those investments.
The idea is pretty straightforward. These businesses simply earn the interest "spread" like a bank... But importantly, they're not banks. They don't have teller machines, or buildings, or even many employees. But they do earn an interest spread. So I call them "virtual banks."
Right now, these virtual banks are earning a huge amount of money.
The government is keeping short-term interest rates low, so these virtual banks can borrow at a low rate of interest. But interest rates on the government-guaranteed investments they buy have still not come down, so they can earn a high rate of interest for a safe investment. We're in the "sweet spot" for virtual banks.
