Anyone who has ever read a main story in the New York Time, perused the final list of an investment fund, or read a report by people such as Mctague or Barrons from Rockwood, will know just how much jargon is involved with this. While most of us have a slight understanding of standard financial terms such as ‘asset’, ‘fund’, and ‘investment’, it often seems that people need a specialized degree to really make sense of things. This is why Dan Purjes is looking at the secret language of Wall Street and investments, lifting the veil for everyday individuals.
Dan Purjes on Wall Street’s Secret Language
If you were to read a financial reports that relate to Wall Street, you may come across firms such as contango, NIRP, ZIRP, backwardation, and bifurcation. This may sound like incredibly confusing words, but I actually have a very important purpose. First of all, they are used to describe specific market conditions. Secondly, they are a type of signal for traders. Finally, traders use them because they would like to impress and or confuse you.
Of course, the majority of people are not impressed by complicated or big words. We just find them slightly annoying. The problem is however, that it makes it impossible for most people to get their foot in the door on the financial markets, simply because they do not speak the language. This is why the following information is so important. Take ZIRP for instance, which means zero interest rate policy. While put in place to help stimulate the economy after the 2008 financial meltdown, the truth is that it has decimated pension plans, thereby effectively crippling senior citizens.
Then there is the NIRP. This stands for negative interest rate policy period this is something used mainly in countries across Europe. The weird thing about an nirp is that an investor has to pay a government in order for them to hold their money. This is a lose lose situation yet millions of dollars have been spent on them.
Backwardation, meanwhile, is the situation on the market where the cash or spot price of a commodity rises above that of the forward price. Essentially, it gives people the right to delay the delivery of a stock that they want to sell. Bifurcation, meanwhile, describes the two branches in which a stock or commodity divides. For instance, it looks at both science and technology, two sectors clearly linked but also clearly separated. Last but not least, there is contango. Contango is better known as the status quo, or the normal state of affairs. Basically, it means that a commodities cash or spot price is lower than its forward price. Contango is the opposite of backwardation therefore.
These are just some of the commonly used financial terms on Wall Street that may as well be replaced with something easier to understand. However with the big wigs on the market liking to impress people, even though they are failing at it, it is unlikely that these words will ever be replaced.