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Is the Crystal Ball Clearing? | 148 comments (147 topical, 1 editorial, 0 hidden)
Re: A shift in expectations (none / 0)
A not insignificant fracion of all capital is not in the stock market, but in (generally) far less risky investments like bank accounts, corporate and sovereign bonds, or real estate.

The extent to which it's less risky is basically a function of credit seniority and recovery/collateral values.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 12:32:45 PM EST
[ Parent ]
Re: A shift in expectations (none / 0)
Creditors always have greater seniority than shareholders, that's why shareholders demand higher returns.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Mar 13th, 2012 at 12:38:25 PM EST
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Re: A shift in expectations (none / 0)
There are more tiers of seniority than "creditors" and "shareholders" or "debt" and "equity".

Interestingly, in English there's "equity" and "debt" = "fixed income", but in Spanish there's no word for "equity". Rather there's "fixed income" (renta fija) and "variable income" (renta variable).

What makes equity more risky than debt is not the seniority but the discretionality of dividend payments.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 01:12:55 PM EST
[ Parent ]
Re: A shift in expectations (none / 0)
Well, that too.

But of course, there are differnt kinds of seniority when it comes to bonds as well, and the more junior bonds pay higher interest. That's completely reasonable and not mysterious at all.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 01:27:50 PM EST
[ Parent ]

Is the Crystal Ball Clearing? | 148 comments (147 topical, 1 editorial, 0 hidden)
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