Anything resembling fiscal rectitude and propriety on Wall Street are things of the past. From Edward Chancellor at reuters.com:
LONDON (Reuters Breakingviews) – Alice was tired of studying for the CFA exams, the figures in the spreadsheet were blurry, she laid her head on the desk…
Her first day at Tweedle Asset Management was going to be a busy one. She was escorted around the offices by a young staffer named Otto. Their first visit was to the bond team. Fixed income was Alice’s keenest interest.
“Do you hold bonds for income?” she eagerly asked. Everyone laughed. “Are you dreaming?” the desk head replied rudely. “The coupon is subtracted from the principal, not paid out. If it’s income you want, you should take out a Danish mortgage, they pay very well. Or sell short Swissies.”
“But why own a bond, if it doesn’t pay interest?” replied Alice, who’d read her Homer and Sylla assiduously.
“As long as yields continue declining, even at negative rates we hold bonds for capital gains. If you want dividends, go ask the equity folks.”
“I see,” said Alice doubtfully, hoping that stock market investors would prove more sensible. At least they valued investments by discounting future income streams. But on opening a door marked “Fundamental Active Equity”, she came across an empty trading floor.
“Oh, we closed down that team last month – they’d been underperforming for decades,” said Otto.
“What was their problem – did they buy overpriced stocks?” Alice asked, keen to show off her knowledge of Fama and French.
“That’s exactly what they didn’t do!” replied Otto scornfully. “They stuck with value, and as everybody knows value sucks. If you want to outperform, you’ve got to show your FANGs.”