This should end well
Stephen Gandel in Fortune worries about banks’ exposure to bonds at a time when bonds look dangerously overpriced:
Bank of America Corp (NYSE:BAC) prefers investors focus on effective duration. In its most recent 10-Q, B of A told investors that it held $33 billion, or just 11% of its overall debt portfolio, in bonds that won’t get paid back for at least a decade or more, down significantly from the quarter before.
Take a look the numbers B of A reported to the FDIC, which requires banks report durations based on the date on the bonds, and not best guesses, and you get a very different picture. By those numbers, B of A appears to have around 90% of its portfolio, or $266 billion, in bonds that won’t come due for 10 years or more.
If that is right, a 1% rise in interest rates could cause B of A to lose nearly $30 billion, or five times what JPMorgan lost on the recent London Whale debacle. That’s not enough to blow away the bank should the bond bubble burst — it has nearly $250 billion in capital — but it’s certainly enough to sting, a lot.
Big wrong
Nassim Taleb throws cold water on Big Data:
We’re more fooled by noise than ever before, and it’s because of a nasty phenomenon called “big data.” With big data, researchers have brought cherry-picking to an industrial level.
Modernity provides too many variables, but too little data per variable. So the spurious relationships grow much, much faster than real information.
In other words: Big data may mean more information, but it also means more false information.
Wisdom
Blackstone Advisory vice chairman Byron Wien shares a list of wisdom learned in his 80 years on Earth. My favorites:
Network intensely. Luck plays a big role in life and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.
Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career. Try developing concepts later on. Stay at risk throughout the process.
Heir apparent
Bloomberg talks with Warren Buffett’s son, Howard, who is set to become Berkshire Hathaway Inc. (NYSE:BRK.A)‘s chairman after his father’s passing. Watch it here.
Enjoy your weekend.
The article 8 Fascinating Reads originally appeared on Fool.com and is written by Morgan Housel.
Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Apple and Berkshire Hathaway. The Motley Fool owns shares of Apple, Bank of America, and Berkshire Hathaway.
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