Thursday, November 17, 2011

Abusive language

One of the things not helping the shocking reputation we finance and economics types have is the use of idiotic language coupled with totally deceptive phraseology.

My latest discovery is the term “high equity content” to describe risky bonds – hitherto known as “high yield bonds” or “junk bonds”.

This curiousity arises from the fact that when a bond has a high probability of default the chances of getting ones money back depend upon what’s left, if anything, of the issuing firm’s assets and earnings – i.e. the stuff of equity (not bonds) and equity analysts – so to assess these instruments takes equity analysis skills rather than the standard fare of credit analysts looking at gilts or low risk bonds.

The most important thing is that risk here is high! Disguising that or being deceptive about it by calling it “high equity content” is silly, condescending and deceptive. High risk bond – is the term the salesmen are struggling for.

In this case it is a new issue by Contact Energy – the ridiculous thing being that they have no need to resort to this rubbish. Investors are perfectly capable of figuring whether this level of risk is for them.

High equity content? Presumably the EU currently has “high equity content?” South Canterbury Finance bonds had “high equity content”?

This rubbery nonsense indicates rubbery intellect – the very same which describes company results as having “no unexpected surprises”. Right? So all surprises were fully expected. Good. Just as the risky option for Kiwislaver sufferers is described as “growth” instead of “most risky of the options”.

After a certain pretty bad day on Wall Street in 1929 JP Morgan’s side kick when asked about the state of the market declared that the market was “susceptible to price increases”.

Cleaning up our language might go some way to cleaning up our industry’s reputation – and possible clear out a few souls who are “susceptible to a brain transplant.”

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