Word: bonds
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Dates: during 1990-1999
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...Though we once watched films to see Knute Rockne win one for the Gipper, we're now cheering on his agent. As much as Cuba Gooding, Jr., may have stolen the show in Jerry Maguire, the 1997 movie was built around the football player's slicked-up dealmaker. James Bond movies used to paint the Russians as the enemy; the most recent Bond film, Tomorrow Never Dies, vilified Elliot Carver, a media mogul intent on boosting ratings...
...most popular person at the party used to be the one flaunting the hottest stock tip. Pssst--zip drives. Ooh, baby! Not anymore. Today's darling is the geek in the corner explaining zero-coupon bonds. Zero what? You know, those tricky little devils that look like bonds and move like stocks and, um, are only up 25% this year after rising 22% last year. Ooh, baby! That's right. Just when you had given up on another year of 20%-plus investment gains (and having anything to gloat over), along comes a sharp decline in interest rates that...
...biggest spoils have gone to aggressive investors who own "zeros," which rise and fall about twice as fast as regular T-bonds. Zeros, up 9.3% in the third quarter, aren't as exotic as they sound. You may know them as TIGERS (Treasury income growth receipts) from Merrill Lynch or CATS (certificates of accrual on Treasury securities) from Salomon Smith Barney. Basically, a zero is a bond that pays no current interest and is sold at a deep discount to its face value. The interest payments are built into the price at which the holder redeems the bond when...
...late to buy bonds? Can interest rates keep sliding? We are at historic lows already, and rates are famously difficult to forecast. To make an additional 25% gain in zeros from here, the T-bond yield would have to drop to about 4%. A further tumble sounds incredible, I know. You have to recognize zeros as an aggressive bet. But it could pay. Inflation, the greatest threat to bondholders, is truly dead, and the world and U.S. economies are weakening fast--developments that argue for lower rates...
Kamal I. Latham, a student at the Kennedy School of Government (KSG) who was elected president of the Harvard chapter last night, said Bond's opinion prompted him to revise his own notions about the NAACP...