Quote:
Originally Posted by Tsuyoshi
Indeed. In my line of work, I hear a lot of investors putting money into things like Emerging Market Debt. A lot of it has to do with future projections on what these investments will yield (or what they think will yield). What I think this means is they're basically spending money on debt investments in the hopes of gaining something out of it in the future. It's the same is if you would invest in Equities or Fixed Income, except they have a negative value rather than a positive one. I could be wrong, but I'm sure Saintess would be able to explain this better.
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I'd say those investors should just go turn themselves into soylent green - TRADERS can do that, but not INVESTORS.
Debt is something one should not hold for long, as simple logic dictates. An EMD is still a debt, and as much interest as one can collect from buying the bond, there isn't any point in holding it for too long because your capital is at stake there.
And your capital is always larger than the total interest earned in the bond. It is
compounding that makes big money,
but the longer a debt is owed, the more likely it is going to be a bad debt; there isn't any time for the compounding to churn out a 500% profit.
While one may argue that this isn't a problem because the investors are pooling in their money, they forget that most, if not all investors, use something called leverage. And where does the proportionate money from the leverage come from? Central banks. And where does the money from the central banks (as of 2009) come from? The government.
And where does the money from the government come from? *sarcastic*
I wonder if this is the cause of math being taught in school around the world - the East teaches drilling, while the West simply skim over it. Nobody is teaching the application of critical thinking and case studies to it - just formulae and concepts.