Anchors aweigh! Put thoughts of the Frank Sinatra and
Gene Kelly movie aside. If the Naval Academy fight song is playing in your
head, tune it out. The anchors being raised here are setting adrift perceptions
that government bonds are always low risk investments.
Behavioral finance – a field of study that looks at
behavioral and cognitive psychology in tandem with conventional economics and
finance to explain why investors do what they do – tells us investors have been
known to make decisions based on faulty reasoning. In some cases, they tend to
classify new information based on experience or knowledge.
For instance, people who adhere to the idea U.S.
government bonds are low-risk investments might be inclined to take in stride
the news that geopolitical tensions pushed bond yields lower during the past
two weeks. Who cares that yields are at a low for the year? Government bonds
are not risky investments, right?
Not necessarily. While it’s true that U.S. Treasury
bonds are backed by the full faith and credit of the U.S. government, they are
still subject to the unpredictable changes in the markets. One thing to
remember is interest rates and bond prices interact like children on a seesaw.
When interest rates go down, bond prices go up. When interest rates go up, bond
prices go down. Bond prices generally have been going up since the early 1980s
and rates are currently at very low levels. As economies recover and rates
start to rise again, bond prices are likely to fall and could have a negative effect
on the value of portfolios holding government bonds, particularly those with
longer durations.
Bond yields have stayed low during recent years
largely because of Federal Reserve monetary policy. President of the Federal
Reserve Bank of St. Louis James Bullard recently said there is a mismatch
between our macroeconomic goals and the stance of monetary policy. While this
mismatch is not currently causing problems for the economy, it may in the
future. This week, Fed officials are expected to discuss
when and how to begin lifting rates from near zero – a level they’ve been at
since 2008.
‘video gamer’ may soon join astronaut, athlete, and super hero on children’s lists of what they want to be when they
grow up. Those who reach the top of the e-sport may do well financially since
video game competitions can be quite lucrative.
Okay, first, let’s tackle the
concept of e-sports. If you’re one of those people who have a hard time
thinking of chess or poker as sports, the idea of video games as sports will
probably throw you for a loop. However, last week ESPN.com featured The
International – the fourth annual world championships of the popular video game
‘Defense of the Ancient 2’ (Dota 2).
The event, which was held in KeyArena in Seattle, sold out. In addition, more
than 300,000 people watched the event on a popular video game streaming
website.
Total prize money for the tournament was $10.9 million, a record for video game competitions and all the more remarkable because fans raised much of the prize money. That’s a big step up from the first championship. It was held in 2011 in Cologne, Germany and the teams competed for a grand prize of $1 million.
The League of Legends championship,
another big gaming competition, is coming up in October. Two teams will compete
in Sangam Stadium in Seoul, South Korea for bragging rights, the Summoner’s
Cup, and $1 million in prize money. USA
Today reported last year’s championship “was watched by more people than
the NBA Finals, World Series, and BCS (Bowl Championship Series) National Championship
[college football].” If that seems like a stunning statistic, consider this: 67
million people play League of Legends every month.
According to PCWorld.com, “Playing PC (personal
computer) games has become a bona fide career option and right now business is
booming… A confluence of events occurred at just the right time in 2010 to
reinvigorate the PC’s strong legacy of hardcore competitive gaming. Most
significantly, the PC’s return as professional gaming’s platform of choice is
tied to the economic rise of Asia along with huge missed opportunities by
console game manufacturers.”
Weekly Focus –
Think About It
“The best time to plant a tree was 20 years ago. The
second best time is now.”
--Chinese Proverb
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