When "OF" is more important than "ON" Friday, March 14, 2008
The Price of Everything has a great quote
Return of capital trounces return on capital when the financial markets have become essentially unhinged. Preservation of capital – in real terms – becomes the primary objective. In this world, cash alone does not do the job. It needs to be bolstered by high quality credit, ideally of unimpeachable quality – but try finding that in an environment where ‘AAA’ no longer means what it used to.
People are more worried about loss of capital than the returns they can get right now. Even with a price of 1250bp i.e. 12.5% for a one year CDS (credit protection) on Bear Stearns there are no takers.