One of my other interests—loves, really—beyond convertible bonds is classical languages. For a project I’ve been doing, it occurred to me that the words apostrophe and catastrophe, not normally used in the same sentence, are related. You can quickly see the common bond of "strophe," Greek for "turning," and so by adding the prefix “apo” for “away from” you get an apostrophe, which has the effect of turning you away from the word you’re reading to something else, be it something possessed or a missing letter. Similarly, “cata” for “heading down” tells you that a catastrophe is a major downturn. My older daughter, ever the wisecracker, pointed out that if you’re an intense grammar nerd, the misuse of an apostrophe is indeed a catastrophe.
Speaking of catastrophes, it seems that a lot of investors and talking heads are anticipating one. Some say that because the market’s been up a lot since 2009, it has to go down hard, and the beginning of 2016 was just that—a beginning. Those who turn away from this kind of thinking might argue that the 2009 lows were nasty, nasty lows, and that if you compare current levels to where we were oh, 16 years ago, we’ve barely treaded water in any economic sense. The truth, as usual, is probably somewhere in between. But grey areas don’t play well on TV—if you don’t believe me, look who’s leading the Republican race.
Convertibles provide a great way to use that middle ground where most reality lies. In fact, that’s why I have often argued that we have it backwards: convertibles are not a derivative of stocks and bonds. Equity and debt, rather, are the pieces of the convertible whole.
Unfortunately, the zero-rate world has been a big turnoff for potential convertible issuers, at least during the reign of high-yield unworthy of its name. Now that high yield once again means what it says, things should get a lot more interesting. Here at Hillside we have been adding to our high-yield capabilities, as we wrote last week, both by adding to our team and by developing a high-yield analytic measure cognate to our HOCS for convertibles.
What do I mean by cognate? You know, words in different languages with similar meanings and a common source. Consider one of my other interests, horse racing. The Latin word for horse was “equus” while the Greek was “hippos.” You know, equine (pertaining to horses) and hippopotamus (river horse). With any kind of ear for words, you can hear that these two probably came from a common source, known as Indo-European. And speaking of horses, remember this name: Mohaymen. You’ll probably be hearing a lot about him in a couple of months.
(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).