Quote of the day:

"We have argued for many years that the No. 1 rule of asset allocation is that returns on capital are in markets in which capital is scarce. Investors should always want to play the role of the provider of scarce capital."

-- Richard Bernstein, chief U.S. strategist, Merrill Lynch, 2006

This is exactly what Warren Buffett and Berkshire Hathaway are doing by opening up a bond insurance company at the worst moment for bond insurers in many years. From AP:

Warren Buffett's Berkshire Hathaway will receive a license in New York to open a new bond insurance business, a state regulator said Friday.

The license for Berkshire Hathaway Assurance Corp. will officially be approved no later than Monday.

Also on Friday, Berkshire Hathaway agreed to buy NRG N.V., the reinsurance unit of ING Group said for about $435.7 million in cash.

Buffett's new insurance unit could take some business away from other insurers, said Donald Light, a senior analyst with Celent. Light owns Berkshire Hathaway shares.

Buffett will have the advantage of setting up operations with a strong balance sheet and a clean book of business, making his operation attractive for bond issuers, Light added.

Buffett's foray into the bond insurance sector comes at a tumultuous time for his new competitors. In recent weeks, bond insurers have come under fire as rating agencies have downgraded them, or warned of possible downgrades, because of their exposure to the deteriorating credit markets.

Standard & Poor's downgraded ACA Capital Holdings Inc.'s bond insurance unit to "CCC" from "A" on Dec. 19, while Fitch Ratings has placed two of the largest bond insurers, MBIA Inc. and Ambac Financial Group Inc., on negative credit watch.