Counterparties

By Felix Salmon
August 13, 2010
HuffPo

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Teenager-backed bonds — Alphaville

The Problem With Financial Journalism — HuffPo

“Somehow, so far, Apple has gotten away with it, maybe because nobody‚Äôs even realized this feature is in there” — NYT

“Vaughn Walker is something special, and the way he has worked this case is simply a work of art” — FDL

Treasuries are risk-free up to 2 years. Bunds are risk-free past 10 years — Alphaville

The UK joining Schengen is a no-brainer, and should have happened years ago. But the Tories’ll never do it — Economist

“The negative TIPS yield is a rational reaction to the lunatic casino that has infested every market in the world” — Self-evident

Beautiful charts: World Population by Latitude/Longitude — Kedrosky

Slater’s tantrum “as the inevitable nadir of a decade-and-a-half-long deterioration in passenger stowage” — Gawker

Gridlock Sam’s great op-ed on the idiocy of NYC bridge tolls — NYDN

Comedy pays better than drama — Yahoo

Six essential questions about the deficit, Wall Street and Washington — Nieman Watchdog

Ryan Avent has a very smart take on the unemployment issue — Economist

Quants: The Alchemists of Wall Street – a good Dutch doc — YouTube

5 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

“The negative TIPS yield is a rational reaction to the lunatic casino that has infested every market in the world”

I agree. The stock market hasn’t gone anywhere in 10 years, and may go substantially lower. Housing may go substantively lower also. Holding actually cash has the potential of theft or loss. We may be in a situation where there is no growth, and the very best one can do is to lose small amount of value slowly.

Posted by fresnodan | Report as abusive

The risk to cash is inflation. (We could see inflation, could see deflation, who really knows?) That is why TIPS are attractive.

Of course the risk to government bonds is fiscal imprudence and sovereign default. That is why gold is attractive.

Except gold does nothing but sit there and look pretty, backed by nothing but the collective fears of the world. If the economy stabilizes, gold will fall. That is why stocks are better.

But stocks are vulnerable to economic health. Even major corporations could run into trouble if the global economy stagnates. Bonds are safer.

Bonds, on the other hand, are sensitive to rising interest rates. And with interest rates at record lows, what else can they do? So stick with cash.

Oops… Think I’ve come full circle now? Isn’t any course of action without risk, so you might as well blow it all on one big party and go out in style.

Posted by TFF | Report as abusive

Except that Nemo also forgot to add back the option premium when trying to infer a real yield from a TIPS yield. Once you do that, you find the real yield is not negative. But that hasn’t stopped anybody from “explaining” it!

Posted by Greycap | Report as abusive

The concept of “Teenager Backed Bonds” is likely a spoof, but investing in our youth makes a lot more practical sense than investing in our retirees. We’ve seen a huge transfer of wealth (on paper at least) from the younger generations to the “Me Generation” popularly known as the Baby Boomers.

The Boomers need to wake up and realize that no matter how much they have saved and invested (and when you add in the federal debt built over the last thirty years, it really isn’t much), THEIR CONSUMPTION IN RETIREMENT RELIES ON SOMEBODY ELSE PRODUCING.

Invest in teens today and you’ll have a booming economy in fifteen years. Suck the life out of education and training programs and the Boomers Social Security benefits will be resting on a foundation of sand.

Posted by TFF | Report as abusive

Quants: The Alchemists of Wall Street 26:25 was very telling about ‘changing the maths to make it look less risky’ and hide risk.

37:36, and how to modify the speed of light?

Thanks for adding that… it interesting.

Posted by hsvkitty | Report as abusive