and he will not readily purchase an investment except in the hope of capital appreciation.
This is only another way of saying that, when he purchases an investment, the American
is attaching his hopes, not so much to its prospective yield, as to a favorable change
in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator.
Speculators may do no harm as bubbles on a steady stream of enterprise.
But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.
When the capital development of a country becomes a by-product of
the activities of a casino, the job is likely to be ill-done.
of which the proper social purpose is to direct new investment into
the most profitable channels in terms of future yield, cannot be
claimed as one of the outstanding triumphs of laissez-faire capitalism
à ‚¬"which is not surprising, if I am right in thinking that
the best brains of Wall Street have been in fact directed towards a different object."
John Maynard Keynes, 1st Baron Keynes of Tilton
June 5th, 1883 à ‚¬" April 21st, 1946
The General Theory of Employment, Interest, and Money.
Chapter 12: The State of Long-Term Expectation, VI.
December 13tn, 1935
The Puzzle of the Dynamic of a Crash:
Yield Curve:
In The Tract Pro Bono I develop a novel model of the yield curve.
The difference between long-term short-term rates are functions of the time value of options on shorter term rates.
A normal yield curve is the one for which the long-term yields are fairly priced compared to the short-term rates.
The normal yield curve depends on the short term interest rates and on the implied volatility of interest rates.
The term differential of interest rates can be, thus, considered as an interest rate risk premium.
The closer short-term rates to 0%, the higher the volatility of interest rates the steeper the normal yield curve.
A steep yield curve is steeper than the normal yield curve.
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