tag:blogger.com,1999:blog-32636283.post7678598730231986116..comments2023-03-26T03:50:25.501-04:00Comments on David's Secret Blog: A ConundrumUnknownnoreply@blogger.comBlogger5125tag:blogger.com,1999:blog-32636283.post-5480613195045106372008-12-10T13:30:00.000-05:002008-12-10T13:30:00.000-05:00You can't, but these guys have short time horizons...You can't, but these guys have short time horizons, I guess.<BR/><BR/>Whatever, I bet we'll hear a lot less about signing oil contracts in rubles from now on.Harry Eagarhttps://www.blogger.com/profile/04196202758858876402noreply@blogger.comtag:blogger.com,1999:blog-32636283.post-47360482829457243572008-12-09T22:51:00.000-05:002008-12-09T22:51:00.000-05:00Gah, SixApart does it again. They moved my OpenID ...Gah, SixApart does it again. They moved my OpenID from Typekey to Typepad and now it doesn't work. Sigh. You can tell it's me, though, if you click on the name link.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-32636283.post-64520188227787067372008-12-09T22:49:00.000-05:002008-12-09T22:49:00.000-05:00How exactly do you protect principal by trading ca...How exactly do you protect principal by trading cash for treasuries at 0%? Inflation would eat both at the same rate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-32636283.post-51616742497431718992008-12-09T19:28:00.000-05:002008-12-09T19:28:00.000-05:00Funny you should ask. I just got back from a discu...Funny you should ask. I just got back from a discussion of that with Bank of Hawaii's chief economist.<BR/><BR/>He says the market is factoring in a certain (still smallish) risk of deflation; but the main sentiment is inflation. <BR/><BR/>Therefore, people with hot money are willing to accept 0 interest in order to protect principal.Harry Eagarhttps://www.blogger.com/profile/04196202758858876402noreply@blogger.comtag:blogger.com,1999:blog-32636283.post-84367541744829252322008-12-09T19:11:00.000-05:002008-12-09T19:11:00.000-05:00No conundrum. It's the difference between the mod...No conundrum. It's the difference between the mode of a distribution and the tail. <BR/><BR/>Let's say the default scenario is a total loss, for simplicity of analysis. Then the price of the credit default swap indicates that the probability of a return of zero has increased to 0.6%, from 0.35%. However, the modal return, dealing with the 99.4% of the time in which there is no default, is lower because market interest rates are lower.<BR/><BR/>So the market rate is = modal rate * .994 + 0 * .006, changed from modal rate * .9965 + 0 * .0035 a month ago, while the modal rate has fallen substantially.Anonymousnoreply@blogger.com