The Ballpoint Pen Edition

Summary

Slate Money – The Ballpoint Pen Edition

Date: January 14, 2017
Hosts: Felix Salmon, Cathy O’Neill, Jordan Weissmann

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Episode Overview

This edition of Slate Money takes a surprisingly deep dive into the ballpoint pen, uncovering the complex global economics, intellectual property intrigues, and cultural quirks underlying this everyday object. The discussion then transitions into a listener question about bond funds in a rising interest rate environment, culminating in a lively analysis of Anthony Scaramucci’s role in finance and his entrance into the Trump administration. The hosts finish with their signature ‘number of the week’ segment, touching on trends in health care, real estate, and higher education debt.

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Main Discussion Segments

1. Ballpoint Pens: Engineering Marvel Meets Economic Globalization

[00:08–13:30]

Ubiquity and Transferability of Ballpoint Pens

• Introduction: The hosts riff on the notion that ballpoint pens are the last “freely passable” item—akin to how cigarettes used to be. (00:08)
  • Cathy O’Neill: “It used to be true of cigarettes... But ballpoint pens, you can still do it.” (00:32)
  • Jordan Weissmann: “All of your anarchist friends basically want everything to be like ballpoint pens.” (00:45)

Why the Obsession?

• Felix’s fascination was triggered by an article celebrating the ballpoint pen for its function and economics:
  • Jordan Weissmann: “There is a very small number of items in this world where the best version of that item is also the cheapest version... and ballpoint pens are pretty much the best pen.” (03:06)
• Cathy confesses to buying more pens after reading the article. (02:29)

Mass Production and the IP Battle for Pen Tips

• Ballpoint pens are engineered marvels, especially their tips—a blend of tough, malleable steel and precise mechanics.

  • Jordan Weissmann: “Ballpoint pens are, it turns out, an unbelievably high-tech thing for something which is so cheap.” (05:19)

• Chinese manufacturers make about 38 billion pens yearly, profiting a mere cent per pen due to Japanese control of tip technology (industrial trade secret, not patent). (07:03, 08:11)

  • Jordan Weissmann: “Chinese manufacturers of ballpoint pens make basically nothing on this... because the intellectual property and the high-tech bit of the pen is in the tip… jealously protected by the Japanese.” (06:00)
  • Felix Salmon: “This is actually a really interesting IP story, right? Because… it’s been effective just to not patent it, just to keep it in the dark.” (07:58)

• The Chinese government invested heavily in R&D to break this lock, and after five years, succeeded. (09:31)

  • Jordan Weissmann: “This is going to revolutionize the economics of the ballpoint pen industry.” (09:34)
  • Felix Salmon ties it to China’s broader leap up the manufacturing value chain: “It shows that… they’re getting better and getting smarter at things like R&D. And that actually bodes well for their future.” (10:36)

Ballpoint Pen Reviews and Social Satire

• The team discusses the Amazon reviews of “Bic Cristal” and the satirical response to its “Bic for Her” marketing.

  • Cathy O’Neill: “‘Do you think I can use this pen, even though I’m just a woman?’ You know, things like that.” (12:34)

• Memorable Quote:

  • Jordan Weissmann: “Bic Cristal pens… are one of the great achievements of modern civilization. Go steal a few because honestly, I’m sure they’re just lying around.” (13:02)

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2. Bonds and Rising Interest Rates – Listener Mailbag

[13:30–26:36]

Core Question

• Listener Ronnie Anne Himmel asks if it’s wise to hold bond funds as rates rise, given the risk of falling values but potential for reinvestment.

Bonds 101: Contracts and Cashflow

• Cathy O’Neill: “You should think of a bond as a contract… coupons… and the last one is called…principal.” (14:45)
• Jordan Weissmann: “Every six months you get your $2.50… at the end of 10 years, you get your $100 back.” (15:35)

The Crucial Price-Interest Rate Inverse Relationship

• Felix Salmon: “If you buy a $100 bond with a 5% coupon… and then rates go up to 10%, well… that old bond… is not worth as much anymore.” (16:13)
• Jordan Weissmann: "So $5 is always 10% of something. And so you need to basically bring the price of the bond down." (17:02)

Bond Funds vs. Individual Bonds

• Bonds held to maturity are not as sensitive; bond fund values are (since bonds are often bought/sold before maturity).
• Cathy O’Neill: “[In bond funds,] the people who manage those funds are in charge of getting rid of some bonds and putting new bonds in… they control what's called the duration.” (21:24)
• Jordan Weissmann: “There are very few bond index funds… bonds don’t work the same way [as stocks]—effectively an infinite number of bonds out there.” (21:49)

How to Invest?

• Cathy O'Neill: “If interest rates go up slowly, you’re basically fine. …If they rise sharply, then maybe the price has gone down by $10, and you only make $3 in coupons, and then you’ve lost $7.” (18:55)
• Reinvesting coupons at higher rates and holding short-duration bonds can help mitigate interest-rate risk.

Key Takeaways for Listeners

• Don’t panic and dump all bonds because rates may rise; “set it and forget it” portfolio principles still apply.
  • Jordan Weissmann: “Do not change [your stock-bond ratio] just because you think that rates might be rising. Bonds still make sense even in a rising interest rate environment.” (24:49)
• Floating-rate bonds can also help, as their payouts rise with interest rates.

Notable Anecdotes

• Felix Salmon: “If Trump destroys the economy somehow or some crazy shit goes down, like, you want those bonds, man.” (26:05)
• Larry Summers’ famous lost bet on rising rates cited as a cautionary tale. (26:11)

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3. Anthony Scaramucci—The Mooch Moves to Washington

[26:47–36:57]

Who is the Mooch?

• Hedge fund world character turned Trump administration insider, famous for networking and self-promotion.
  • Felix Salmon: “He is the consummate self-publicist. So he wound up going on television a lot and pretending to be a hedge fund manager, which he’s not. He doesn’t actually make any investment decisions himself.” (30:57)
• Runs Skybridge Capital (fund of funds), known for the glitzy SALT Conference.

How the Mooch Succeeded

• Acquired Citigroup's fund-of-funds business after the 2008 crisis, essentially buying its track record on clever terms.
  • Jordan Weissmann: “He didn’t put a lot of money down, but he promised that he would pay them back over time from the profits of the business, which he did.” (30:57)

Networking, Branding, and Political Opportunity

• The SALT Conference is seen not necessarily as a direct moneymaker, but as an expensive branding exercise.
  • Jordan Weissmann: “I don’t for a minute believe that SALT is profitable. I believe that it’s a huge and expensive branding mechanism for Skybridge and for Scaramucci.” (34:36)
• Scaramucci’s move to the White House is described as a revolving door play for future networking and business clout.
  • Jordan Weissmann: “...when I come out of the revolving door… after the Trump White House, I’m covered in Trumpian fairy dust and I’m going to be able to make lots and lots of money. I just don’t know that Trumpian fairy dust is going to be worth that much.” (36:13)

Memorable Jabs

• Cathy O’Neill: “Like all these motherfuckers in finance, they absolutely benefit from survivorship bias…” (32:40)
• The notion that the entire Trump White House could have just set up inside Goldman Sachs:
  • Cathy O’Neill: “So basically, instead of moving to the White House, he could just move to Goldman Sachs.” (29:34)

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4. Numbers of the Week

[36:57–40:51]

Universal Health Care Sentiment

• Cathy O’Neill: “A Gallup poll… 58% of Americans want to have universal healthcare.” (37:01)

Bezos’ New Mansion

• Jordan Weissman: “23 million, which is the number of dollars Jeff Bezos just spent on the largest house in Washington, DC… He did that after Trump was elected.” (37:31)
• Jordan Weissman: “It’s the billionaires’ world, we just live in it.” (38:17)

Harvard Art Institute Debt Paradox

• Felix Salmon: “78,000, which is how many dollars students borrow, on average, to get a two-year certificate degree from the Art Institute at Harvard University.” (38:23)
• Raises the issue of MFA and certification programs failing “gainful employment” standards, questioning the value of certain elite programs when saddled with heavy debt.

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Memorable Quotes & Moments

• Jordan Weissman (on ballpoint pens): “Ballpoint pens… are one of the great achievements of modern civilization. Go steal a few because honestly, I’m sure they’re just lying around.” (13:02)
• Felix Salmon (on China’s innovation): “…as tiny and kind of out of nowhere as the story sounds, it’s actually a really, really positive sign for China…” (10:36)
• Jordan Weissman (on bonds): “Do not change [your stock-bond ratio] just because you think rates might be rising. Bonds still make sense even in a rising interest rate environment.” (24:49)
• Felix Salmon (on Trump administration): “If Trump destroys the economy somehow or some crazy shit goes down, like, you want those bonds, man.” (26:05)
• Cathy O’Neill: “Like all these motherfuckers in finance, they... benefit from survivorship bias where all their stupid ass decisions are forgotten and their one lucky decision is remembered and they’re like, oh my God, you’re a fucking genius.” (32:40)
• Jordan Weissman: “It’s the billionaires’ world, we just live in it.” (38:17)

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Key Timestamps

• 00:08–13:30: The ballpoint pen: technology, economics, and jokes
• 13:30–26:36: Bond fund mechanics, interest rates, and listener Q&A
• 26:47–36:57: Anthony Scaramucci, finance celebrity to Trump White House
• 36:57–41:02: Numbers of the week: health care polling, Bezos’ mansion, Harvard debt paradox

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Tone and Style

Conversational, witty, and slightly irreverent, peppered with sharp asides and frequent detours into lighthearted teasing, especially on the quirks of finance and the absurdities of business culture.

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Bottom Line Takeaways

• The ballpoint pen is a feat of unnoticed engineering and intellectual property intrigue, exemplifying the complexities of global manufacturing and economics.
• Bond fund holders should not panic about rising interest rates; portfolio diversification and long-term thinking are key, and some risks are already "baked into" typical asset allocation.
• Anthony Scaramucci is emblematic of finance's “branding-first” mentality and demonstrates how reputational capital can be even more valuable than investment acumen in certain financial and political circles.
• Underlying all this is a world shaped by the whims of billionaires and the subtly shifting tectonics of economic policy, technology, and personal ambition.

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For more on these kinds of topics, find and subscribe to Slate Money for weekly, sharp, and spirited explorations of business, finance, and the eccentricities of modern capitalism.

Transcript

[Felix Salmon]

The following podcast contains explicit language.

[Jordan Weissman]

Hello, and welcome to the ballpoint pen edition of Slate Money, your guide to the business and finance news of the week. I am Felix Salmon of Fusion. How many ballpoint pens do I own? A lot. How many ballpoint pens do you. Although I'm not even sure that ownership is really a concept which applies properly to ballpoint pens, may be the only.

[Cathy O'Neill]

Thing, like, left that people can, like, freely pass to each other and, like. Do you have a pen? Yes. Oh, keep it. You know, like, it used to be true of cigarettes. You could use a bum. A cigarette, but now you can't do that because they're like $15 each. But ballpoint pens, you can still do it.

[Jordan Weissman]

Yeah, it's a wonderfully free anarchic. Like, all of your anarchist friends basically want everything to be like ballpoint pens.

[Felix Salmon]

We are so excited about ballpoint pens that we haven't even managed to introduce the episode we're launching into a discussion of.

[Jordan Weissman]

Okay, so Cathy o' Neill is the author of Weapons of Mass Destruction. Jordan Weissman.

[Felix Salmon]

Hello.

[Jordan Weissman]

Jordan, Hi. Is the Moneybox columnist at Slate. Cathy is going to be talking to us about bond investing, which is actually kind of fascinating. And Jordan is going to be talking to us about the one and only, the unique, the amazing, the rather oleaginous Anthony Scaramucci.

[Cathy O'Neill]

Is that a swear? What does that mean?

[Felix Salmon]

Oily? Oily.

[Cathy O'Neill]

Oh, like Olio.

[Felix Salmon]

Yeah. I think that was a dig at the mooch's hair that he always used.

[Jordan Weissman]

To give me grief about my hair.

[Cathy O'Neill]

About your hair?

[Jordan Weissman]

My hair? Yeah, he.

[Cathy O'Neill]

Cause it's not greasy enough.

[Jordan Weissman]

Yeah, exactly. He was like, your hair's not greasy enough. It sticks up in weird directions.

[Felix Salmon]

It does. Felix's hair does stick up.

[Jordan Weissman]

Every time he would see me, he would be like, you have shit hair.

[Felix Salmon]

And now that man who told you you have shit hair is going to the white.

[Cathy O'Neill]

Well, you're going for that. I assume the sticking up thing.

[Jordan Weissman]

I just. I really don't care as much about my hair as Anthony Scaramucci. This is something which the Mooch has in common with the present elect. But we will come to, to. To the relative merits of the hair of Anthony Scaramucci and Donald Trump later in this episode. Because first of all, we have to talk about ballpoint pens.

[Cathy O'Neill]

Yes, we do.

[Felix Salmon]

Because Felix is so excited.

[Jordan Weissman]

I'm so excited about.

[Felix Salmon]

I want a little behind the scenes.

[Cathy O'Neill]

I just want to say that I read this article that Felix said us, and I immediately bought a bunch of.

[Felix Salmon]

Ballpoint pens just so you online for money.

[Cathy O'Neill]

Online. I was like, I gotta get these.

[Jordan Weissman]

Because I just feel like ballpoint pens are the kind of thing which you just pick up for free in hotels.

[Cathy O'Neill]

I almost cried.

[Felix Salmon]

We got an email from Felix being like, just so you know, I am obsessed with ballpoint pens right now. With no further explanation. Just saying, we have to.

[Jordan Weissman]

I had already sent out this email. You just hadn't read it anyway.

[Cathy O'Neill]

I didn't see it either.

[Felix Salmon]

I hadn't seen this ghost email. Apparently he thinks he sent out. So anyway, he. We are all sitting here wondering, why on earth is Felix so obsessed with ballpoint pens? Felix, why don't you explain to us right now?

[Jordan Weissman]

Well, so I can highly recommend this piece on the outline this week, which is just an ode to the ballpoint pen. There is a very small number of items in this world where the best version of that item is also the cheapest version of that item. And if you spend more, you get lower quality. Um, and ballpoint pens are pretty much the best pen that you can have. They work great. They work upside down. That you don't need to faff around with ink cartridges like they do.

[Cathy O'Neill]

They work in space.

[Jordan Weissman]

Do work in space.

[Cathy O'Neill]

I see. That's amazing.

[Jordan Weissman]

They work in space and. And they're super simple and they're cheap and they are ubiquitous. I mean, the fact that you bought ballpoint pens. I'm still trying to get over this.

[Cathy O'Neill]

I don't have to. Look, don't get me wrong. I have 50 ballpoint pens in a huge bo next to my front door because you never know when you'll need one. But they were the right kind, the exact brand.

[Jordan Weissman]

That's great.

[Cathy O'Neill]

This guy said so much about. Which is Bic. Cristal. I like to pronounce it Cristal.

[Jordan Weissman]

Cristal, like the champagne. Ballpoint pens everywhere. I actually spent years with this massive pile of ballpoint pens sitting next to my desk because there was this company which decided to get a bunch of ballpoint pens printed up with their URL on the side. And they were Market movers.

[Cathy O'Neill]

Okay. Okay.

[Jordan Weissman]

And I had this blog called Market movers. They were like.org or I was saying I had registered the.net of the domain and they got them printed up with net rather than.org or the other way around. And they wound up with all of these pens which directed people to the. To my blog by mistake instead of to their own website. And so they emailed me and said, we have all of these pens which are completely useless to us. Do you want them? I was like, okay. And so I had like a thousand market movers ballpoints until eventually I just threw them out.

[Cathy O'Neill]

Because you threw them out.

[Jordan Weissman]

They were just taking up space.

[Felix Salmon]

Okay, so our. Aside from Felix's personal travails with ballpoint pens. So there's also sort of an interesting engineering marvel here.

[Jordan Weissman]

Okay, so, yeah, so this is the thing which I learned this week. It's fascinating and there's an excuse to talk about ball pen, the ballpoint pens. Ballpoint pens are, it turns out, an unbelievably high tech thing for something which is so cheap. And so, and by the way, in terms of ubiquity here, like listeners, I want you to do something. How many ballpoint pens do you think are manufactured in China alone every year? Just think about that question while we are talking about ballpoint pens. We'll answer it at the end of this segment.

[Felix Salmon]

That's like an insane version of asking people to guess the number of jelly beans in a jar. Like there's no one who's going to get, get that.

[Cathy O'Neill]

It's in an order of magnitude.

[Jordan Weissman]

Yeah, I mean, so, so we know, you know, like do it any way you like. How many people are there who like can read and write? How many ballpoint pens do they have? You know, how much, how many ballpoint new ballpoint pens do they wind up getting every year? How many ballpoint pens are created, are manufactured in China every year? It turns out that the Chinese manufacturers of ballpoint pens make basically nothing on this. They make a profit of 1/10 of 1 yuan, which is about $0.01 per ballpoint pen. And the reason for that is because the intellectual property and the high tech bit of the pen is in the tip of the pen and has been jealously protected by the Japanese and successfully and successfully. And Japanese for decades have had a lock on ballpoint pen technology, which is incredibly difficult. You need to do like 20 different things to steal to be able to get it to become a ballpoint pen tip, which no one other than the Japanese know how to do.

[Cathy O'Neill]

Are we talking about that little tiny ball in the ballpoint pen? The whole tip?

[Felix Salmon]

Yeah, and it's specifically the steel itself. It's how do you make this kind of steel that you make?

[Jordan Weissman]

Balls are just balls. Anyone can make balls. The question is how can you, how can you make the ball like get covered in ink and roll around smoothly inside the tip, inside the tip?

[Felix Salmon]

And how do you make steel that can be manipulated and cut in all these different ways and will still be durable enough at the same time? I think it's like 800 meters of writing they have to do or something. So you need something that can. Malleable, but very, very durable. And apparently this technology has been, like Felix said, a trade secret for a very long time.

[Cathy O'Neill]

And I'm just imagining the machines at the, like, at the places where they're trying to invent this technology of, like, machines that are, like, writing things and saying, oh, that only lasted 750 meters.

[Felix Salmon]

I have a question, Felix. Now, when I read this, what I took away from it is that this is not patented technology. So this is actually a really interesting.

[Jordan Weissman]

This is a trade secret.

[Felix Salmon]

That's a really interesting IP story, right? Because the way we typically think of companies safeguarding their IP is by patenting it, and so no one else can use it. But this is an example where actually it was. It's been effective just to not patent it, just to keep it in the dark.

[Jordan Weissman]

Know that if the Japanese had filed a patent on this, then the Chinese.

[Felix Salmon]

Would just have copied it exactly, somehow would have figured out a way. It's sort of like Colonel Sanders secret recipe, Right? Like, it's that approach to. To guarding your.

[Cathy O'Neill]

I mean, there's a point of patents is like, you, You're. It's not secret, it's just a.

[Felix Salmon]

You to pay for it.

[Jordan Weissman]

Exactly. And so, and so here's the. Okay, so here's the answer to the question. The answer to the question is that China manufactures 38 billion ballpoint pens every year. That's like, There are only 7 billion people in the world, and most of them can't read and write. You know, not most of them. A lot of them can't read and write. It's an astonishing number. And the Chinese, six for each person. The Chinese government looked at this astonishing degree of manufacturing volume and said, this is ridiculous. The fact that we're making 38 billion pens a year and making no money, and the Japanese are making all the money because they have this trade secret. So the Chinese government started a major. A bit like other governments say, we're going to reinvent nuclear weapons, the Chinese government said, we're going to reinvent ballpoint pen tips, and we're just going to start from scratch and work out how to make these things. It took them five years to do it, but after five years of intensive R and D and God knows how many millions of dollars, they actually have now developed this technology.

[Cathy O'Neill]

So how many, how many pennies are they going to make now per pen?

[Jordan Weissman]

Much more. So anyway, so the news is the news from Xinhua this week is that Taiwan Iron and Steel Group, or Tisco, says it has mastered the production of steel components for pen tips after trying for five years. And this is going to revolutionize the economics of the ballpoint pen industry. But the idea that something is like, which we just don't think about and we use every day like a ballpoint pen, which is just one of those things, as you say, which has basically a value of zero, and it's something which you can't really have a property right in because it's just like something which comes and goes and you don't really is. It turns out to be like just really high tech and protected by secrets.

[Felix Salmon]

You know, there's also a segue that.

[Cathy O'Neill]

I've been looking forward to talk about the Amazon reviews of the big pen.

[Jordan Weissman]

Okay, this, I need to, I have.

[Felix Salmon]

One more highbrow point. Okay, let's go, let's go with those first. Oh, no, no.

[Cathy O'Neill]

Do the highbrow one first.

[Felix Salmon]

So just one other point which is this is a really interesting small example of China moving up the value chain in manufacturing. And I think this is actually as tiny and kind of out of nowhere as the story sounds. It's actually a really, really positive sign for China that it can do this because the way China has typically gotten more advanced is it, is it steals technology, right? It gets a manufacturer to come to China and it gives them their ip and then that kind of diffuses throughout other factories. This is a case where China said, well, we can't steal the ballpoint pen technology, so we have to reverse engineer it and figure it out. So it shows that they act like they're, they're, you know, they're chemists, they're, they're. People in the steel industry were able to do this and to, to, to come up with whatever chemistry they need for the steel. That's a sign of them getting better and getting smarter at things like R D. And that actually bodes well for their future. So that's my little aside here now about why.

[Cathy O'Neill]

Okay, So I mean, it really definitely plays off of what Felix was saying, which is like people think of ballpoint pens as so ubiquitous that they don't take them very seriously.

[Felix Salmon]

Okay?

[Cathy O'Neill]

So if you look on, if you.

[Felix Salmon]

Look on, contraire, if you look on.

[Cathy O'Neill]

Amazon.com at like the frequently asked questions around like the Bic Cristal pen, there's a lot of questions that are asked and answered, a lot of them and way more than you might expect. There's there and they're strange and I finally figured out by reading enough of them that the source of the strangeness is that Bic actually came out for a pen called Bic for her.

[Felix Salmon]

Oh, the pink one, right. That was a great one.

[Cathy O'Neill]

Like, and the idea of being, like, marketed to women because it goes back to this. Like, people don't even think of them as actually having identities at all.

[Jordan Weissman]

So the idea of having the gendered bullpen. Right.

[Cathy O'Neill]

So, so the, the. Of course, we all know that the Amazon reviews of Bic for her are hilarious, so everybody should read all of them, but it just basically has leaked onto all ballpoint pen Amazon reviews.

[Jordan Weissman]

A bit like a broken ballpoint.

[Felix Salmon]

Yes. The ink is spreading everywhere. It took a second.

[Cathy O'Neill]

They're all like, oh, do you think I can use this Bic Cristal pen even though I'm just a woman? You know, things like that. Oh, but I did. I do have one quot the original article that I hope we post on our front page, the guy who wrote it was like so in love with this big crystal pen. My favorite line from that article is, I'm not here to tell you how to live your life, but you know, buy this pen.

[Felix Salmon]

Felix is going to tell you how to live your life. Only buy bit crystal pens.

[Jordan Weissman]

Bit crystal pens, man. They are. They are one of the great achievements of modern civilization. Go steal a few because honestly, I'm sure they're just lying around. Very.

[Cathy O'Neill]

I've got some you can borrow.

[Jordan Weissman]

I should add, just to, you know, in the interests of journalistic accuracy and full disclosure, that not all ballpoint pens can write upside down and in space, but I'm sure that bitch still can.

[Felix Salmon]

What can't it do?

[Jordan Weissman]

Ladies and gentlemen, thank you for writing to us at our email address, which is slatemoneylate.com thank you particularly to Ronnie Anne Himmel, who wrote in with a question and said we've been told how dangerous to our financial health bond funds can be amid rising interest rates, although how much rates will go up is still to be determined. And yet here I sit in a couple of them, along with a mix of other types of investments. I keep thinking that with turnover and bonds maturing, the new bonds added to the fund mix should at least help ameliorate the effect of rising rates on the fund's value. And also, do they provide a buffer for that time when rates come down again. Am I hopelessly self deluded? Ronnie, you are not hopelessly self deluded. As everyone always says, you need a mix of stocks and bonds. But Kathy. Yeah, start telling us about this whole concept of investing in bonds. And is Ronnie right about this idea that, like, investing in bonds is a bad idea when rates are rising?

[Cathy O'Neill]

So, yeah, the answer is it really depends.

[Jordan Weissman]

Thank you, Kathy.

[Felix Salmon]

Yeah. Yeah.

[Jordan Weissman]

Moving on to Anthony Scaramucci, it's.

[Cathy O'Neill]

Look, it turns out that, that bonds, even though they're considered a boring asset in some sense, are actually a little bit complicated. So bear with us. But we're gonna, I'm gonna go through like a little tiny bond clinic that we're all gonna enjoy about the basics of bonds. So the first point is you should think of a bond as a contract. It basically is a sort of schedule of cash, cash flow to you. Like if you own the bond, you're gonna get cash flows. Coupons, they're mostly called coupons. And the last, the last one, which is like the, usually the biggest one by far is called something else principle. Thank you. I don't know the terminology, but it's important not to know the terminology. But you know how it actually works, right? So for the most part, and we're going to start with that, although we'll, at the very end we'll switch up. For the most part, when you buy a bond, like, you know exactly how much money you're getting at each.

[Jordan Weissman]

Every six months you get like your $2.50. And then at the end of 10 years, you get your last $2.50 coupon payment and your $100 back.

[Cathy O'Neill]

That's right. Okay, so that's what a bond is. Now the next thing is how much is a bond worth? And that's a very, very important thing. And it's counterintuitive, so we'll just do it really slow.

[Jordan Weissman]

It's the net present value of future cash flows.

[Felix Salmon]

Yes.

[Cathy O'Neill]

But the important thing is that the thing about pricing of bonds is that it depends on the interest rates. And when interest rates go up, the price of the bond goes down. And I'm going to, I'm like, even though I'm a mathematician, I can never get sign errors, right? So I'm going to depend on you two to explain that.

[Felix Salmon]

So here's a pretty basic way to think about it, right? If you buy a $100 bond with a 5% coupon, right? You're getting, eventually you're getting 5% interest, right, on that hundred dollar bond. But then let's say interest rates go up and all of a sudden interest rates go up to 10%, right? Well, you could buy a $100 bond and get a 10% for $100 and get a 10, 10% interest for the same price. That old bond that's sitting around, that's just giving you 5% on $100, that's not worth as much anymore. So you've got that bond sitting there. What are you gonna do? How do you get rid of it? Well, so if you sell the. If you sell your old bond with 5%, with a 5% coupon for less, the yield goes up. So even though the coupon is the same, it's still. You still get a 10. You can get a 10% yield on it.

[Jordan Weissman]

Yeah. And so basically, $5 is always 10% of something.

[Cathy O'Neill]

That's a nice way of saying it.

[Jordan Weissman]

So, you know, if you're. So $5 is always 10% of something. And so you need to basically bring the price of the bond down. And when we talk about interest rates, this is the main thing that we're talking about. When we talk about interest rates, what we're talking about is something which is true across all bonds. So whether the bond was issued today or whether the bond was issued five years ago, the bonds all basically have the same interest rate. We're going to ignore credit and interest rates are constant. So if I have a Treasury bond, if I have two treasury bonds, and they both mature in 2023, and one of them was issued yesterday and the other one was issued in 1994, then they will still both have exactly the same interest rate. And the way that that interest rate is equalized is through the price mechanism. So the one with the higher coupon will cost more, and the one with the lower coupon will cost you. Cost less.

[Cathy O'Neill]

Okay, great. So we have this idea that if you. That as interest rates go up, prices go down. Like the things that used to be worth more are now worth less. And that's a problem for people like our listener who's like, oh, my God, I have all this money in bonds, and literally, interest rates can't go down. They have to go up. So this is bad for me. But it's important to realize that not everyone invests in bonds in order to care about their price per se. A lot of people invest in bonds because they actually want that money in the future. And they've. They've already planned their expenses around getting that principal and maybe those coupons in the future. So I just. Like, that's an important distinction to make. There's. There's a different way of. Two different ways of holding bonds. In other words, there's holding a single. An individual bond to maturity, or there's investing in bond funds. And bond funds are really different.

[Jordan Weissman]

And the basic difference is just like hold to maturity versus mark to market. So the value of your bond today fluctuates according to whatever the interest rates are today. If you hold it to maturity, you will get your principal back. But yes, what a bond fund does, or even what a bond does for that matter, is it will have a value on a day to day basis and that value will fluctuate and when interest rates are going up, that value will go down. The question is, and the really, really important question is, is how fast are interest rates going up? Because if interest rates go up slowly, you're basically fine. The price of the bond will go down a little bit over time, but you're still getting all of those coupon payments along the way. And the coupon payments make up for the price fall. So you know, if the price goes down by a buck, but you get three bucks in coupon payments, you still wind up making two dollars on the thing. If interest rates rise sharply, then maybe the price has gone up, gone down by 10 bucks and you only make 3 bucks in coupon payments and then you've lost $7.

[Cathy O'Neill]

That's extra. True. If you take those coupon payments and reinvest in these new higher interest rates because then you, and that's exactly what.

[Jordan Weissman]

Ronnie was talking about, is that as you roll over. So there are two ways of base that bond funds basically make money in rising interest rates rate environment. One is by taking those coupon payments and their cash flows and reinvesting them in at the new higher rate, higher rates. And so that's good. And the other way, which is similar, which is basically the flip side of the same coin, is by what's known as reducing the duration. If you have a bunch of short dated funds which mature soon. So like let's say your principal payments are coming up in a few months or in like one year, then you can just wait until those principal payments arrive and then reinvest that. Whereas if your bonds don't mature for 30 years, if you have a bunch of long bonds in your portfolio, then the price and the value of those bonds can go down quite a lot and you're not going to be, they're not going to be cash flowing so much as their price is falling. So when interest rates rise, you want to be what's known as the short end of the curve. You want to have short duration bonds which are maturing in just like a few months or a few years. When interest rates are falling. You want to be at the long end of the curve. You want to have bonds which are dated way, way out, because that's how you make lots of money on the price going up when interest rates go down.

[Cathy O'Neill]

Yeah. So like, I think most people imagine that you buy a bunch of bonds and you have like a portfolio of bonds. But I think the way that bond index funds work is that the people who manage those funds actually are in charge of getting rid of some fund, some bonds, and putting new funds, new bonds in on a sort of daily or weekly basis. And they get to control what's called the duration, which is what you're saying, like how long from now are these bonds actually going to pay out?

[Jordan Weissman]

And by the way, there's very few bond index funds. There are lots of bond funds. And one of the big differences between the stock market and the bond market is that in the stock market you can just say, I want to buy everything, I want to buy the index. And you can just buy the index. And it's easy. That's because there's a relatively small number of stocks in the s and P500. There are 500 stocks. You can literally buy every one of those 500 stocks quite easily. There's effectively an infinite number of bonds out there. So bonds don't work the same way. There is something called the Barclays Aggregate, which is the most common bond index, but it's not particularly investable. And then there are lots of different flavors of bond funds. So there are treasury funds, there are municipal bond funds, which have various taxes advantages. There are corporate bond funds, there are short dated funds, long dated funds, and most of these funds are actively managed, as you say, by people who are trying to sort of maneuver their way up and down the curve in order to be able to get the highest returns.

[Cathy O'Neill]

So the last thing I'll just mention, actually I have two more things, but is that we have this conversation regularly on Slate Money about, like, how fast are interest rates going to rise? And our general consensus that interest rates aren't going to rise that quickly. I mean, you might be wrong.

[Jordan Weissman]

And if interest rates don't rise very quickly, then you don't have anything to worry about. And then the other really important point is that when we talk about rates rising, what we're talking about is overnight rates. Very, very, very short term rates, which are the rates which are set by the Federal Reserve. And the relationship between short rates and long rates is, to put it mildly, complex. If the Fed raised rates by 2 percentage points tomorrow and hiked them up super high. What would happen to 30 year bond rates? They would probably actually go down rather than up.

[Cathy O'Neill]

Yeah, there is a complicated relationship, but.

[Jordan Weissman]

There is a relationship, but it's not obvious what the relationship is. And so often people wind up buying long dated bonds because they think that they actually have that no matter what happens to interest rates at the short end of the curve, the rates at the long end of the curve are going to be a little bit more stable. That's not always true, but it's sometimes true.

[Cathy O'Neill]

So here's my bottom line for our listener. First of all, it seems like you're in. You're not expecting to hold these bonds till maturity. So you are going to be losing money.

[Jordan Weissman]

Bond funds by definition have no maturity, they just exist in opportunity.

[Cathy O'Neill]

So he doesn't have individual bonds that he's waiting to pay out. That would be the best case where he's like, don't care. I'm just saying, like he wouldn't be in shit's up Schitt's creek if he had that. If he knew exactly when the money was coming and he had plans for it.

[Felix Salmon]

It was a fixed income thing. He was just.

[Cathy O'Neill]

Yeah, so he's not in a perfect situation. But I wouldn't worry too much assuming that, that the interest rates don't go up very, very quickly. The last thing I'll say is if you go back in time, there are things called floating rate bonds and floating rate bond funds which you, which actually their, their coupons actually depend on the going interest rate. So then you have to, you can worry about this even less if you are in those.

[Jordan Weissman]

So. Yeah, and my main takeaway here is basically the same thing that I've been saying all for the entire history of slate money, which is in terms of investments, what you want is a kind of set it and forget it strategy. Invest in broad stocks, broad funds. Now, depending on your age and your risk profile, you might be more heavily weighted towards equities and more heavily weighted towards bonds. The standard weighting is 60% equities, 40% bonds. If you're more risk averse, you might want more bonds. If you're more. If you want more risk, you might want more equities. But if you have that standard 60, 40 or any kind of ratio, and that's what you think is working for you in terms of risk profile, do not change that just because you think that rates might be rising. That ratio, the idea that rates go up and down is built into that ratio. Bonds still make sense even in A rising interest rate environment. Whatever you do, don't start thinking, oh my God, rates are rising. I should sell all my bonds and put it into stocks because, like, stocks are still a lot riskier than bonds.

[Cathy O'Neill]

Totally. And the last thing I'll say is that, you know, the guy was the listener asked, maybe rates will go back down. And like, that's actually totally possible if.

[Felix Salmon]

Trump destroys the economy somehow or some crazy shit goes down. Like, you want those bonds, man?

[Cathy O'Neill]

Yeah.

[Jordan Weissman]

People have been assuming that rates are going up for many, many years and they haven't done that started. Talk to Larry Summers and his future forwards at Harvard University. He was this massive billionaire dollar bet that rates were going to go up and he lost a billion dollars.

[Felix Salmon]

I wonder if that's why he's gotten so, so hard on this secular stagnation like thesis, if that's actually all just the scarring from his bad bet at Harvard setting in.

[Cathy O'Neill]

I just realized that the listener who wrote in is probably a woman. I was thrown off by her first name, but her second name is Anne, so I apologize for saying he.

[Jordan Weissman]

Okay, enough of Bond. So in my long and boring career as a financial blogger, I managed to piss off various people over the years, but no one, with the possible exception of Larry Summers, the aforementioned Larry Summers, has been quite as spectacularly pissed off by me as Mr. Anthony Scaramucci.

[Cathy O'Neill]

Does it go beyond the hair?

[Jordan Weissman]

Yeah, it goes beyond the hair. Jordan, who is Anthony Scaramucci and why do we care about him?

[Felix Salmon]

Well, up until recently, Anthony Scaramucci was a character in the hedge fund world. He runs this fund of funds called Skybridge Capital. But more recently, we care about Anthony Scaramucci or the Mooch as the entirety of finance. Twitter refers to him because he was a big booster of Donald Trump's. And now after being one of his chief surrogates on CNBC and sticking with him through thick and thin, he's heading and helping fundraise for him. He's heading to the White House. He's essentially gonna be playing, it looks like the Valerie Jarrett role.

[Jordan Weissman]

I've heard so many different people seem to be playing this notorious Valerie Jarrett role, including Omarosa.

[Cathy O'Neill]

Who's Valerie Jarrett? Who's Omarosa?

[Felix Salmon]

So Valerie Jarrett is. A lot of people would say she was a very, very quiet senior advisor in the White House, but a behind the scenes power broker who had been with the Obamas for years and years and years dating back to their Chicago days. And a lot of people, she was one of the last people in kind of with the President. Or sometimes probably the first lady as well. And if you wanted to get to Barack, he could go through Valerie Jarrett. So they're saying that he'll be playing a similar role but more sort of, he'll be sort of a bridge to the business and finance community, which maybe for Anthony might not be the worst thing because he sort of made his name as more than anything a really loud mouth networker.

[Jordan Weissman]

But I mean, it's not like Donald Trump needs a bridge to the business and finance community. He already has Gary Cohn. I mean, Gary Cohn has more and better connections than Anthony Scaramouche could ever.

[Cathy O'Neill]

In a million years. I was having deja vu. Didn't we just talk about Cohn and how he's a good schmoozer?

[Felix Salmon]

Yeah, he is.

[Jordan Weissman]

And by the way, the Mooch is also Goldman alum along with Gary Cohn along with Steven Mnuchin, along with like half the rest of the cabinet. If you want a Goldman dominated cabinet, you are getting. Okay, this isn't a cabinet position, but this is a Goldman dominated White House. Oh, Steve Bannon was also Goldman.

[Felix Salmon]

I mean short of Lloyd Blankfein, they've basically got the whole roster. But.

[Jordan Weissman]

And Dina Powell.

[Felix Salmon]

Oh, it's right, yeah. Just came in. Yeah.

[Cathy O'Neill]

So basically instead of moving to the White House, he could just move to Goldman Sachs.

[Jordan Weissman]

It would actually, it would be a lot easier for him to just move down to West Street.

[Cathy O'Neill]

Yeah, they already have a lot of security.

[Felix Salmon]

They absolutely do. But. So maybe we need a little bit more about Anthony Scaramucci. So he back, back before the financial crisis he started this firm, Skybridge. And the idea was it was going to be like venture capital for hedge funds. It was going to seed hedge funds and it wasn't working especially well as a concept. But then after the financial crisis he bought Citigroup's hedge fund unit.

[Jordan Weissman]

Okay, so basically what happened is Skybridge failed. It was a miserable failure. And so searching around for a pivot.

[Cathy O'Neill]

Still had a lot of money?

[Jordan Weissman]

Well, no, he didn't have any money. So the one really kind of smart and clever thing that the Mooch did was that Citigroup was in fire sale mode. It needed to sell off assets very, very quickly after the financial crisis because a. It was basically because it was being forced to by the government and the Mooj didn't have a lot of money. But Citigroup did happen to have this fund of funds which for whatever reason had done pretty well over the preceding years.

[Cathy O'Neill]

I need to interrupt to say that a fund of funds is A hedge fund that invests in other hedge funds.

[Jordan Weissman]

Yes. So basically you pay Anthony Scaramucci like 1.5% a year on top of the 2 and 20 that you're, you're paying the hedge fund managers who he's investing in. It's just a way of like piling fees upon a fees and it makes zero sense to anyone. But in any case, the Citigroup funded funds had done quite well and so the Mooch bought it in a kind of mortgage situation. Basically. He didn't put a lot of money down, but he promised that he would pay them back over time from the profits of the business, which he did. And he is the consummate self publicist. So he wound up going on television a lot and pretending to be a hedge fund manager, which he's not. He doesn't actually make any investment decisions himself. He has people who work for him who do that. So whenever he's on the television going, oh yeah, I think that, you know, we should rotate into commodities or something like this is all just.

[Felix Salmon]

So he, he did, he did make one good decision with, with his fund of funds, which was, which is he.

[Jordan Weissman]

Bought the track record. So now he can tell everyone that his fund of funds has this amazing track record because before he bought it, it did.

[Felix Salmon]

Let me, let me ask another question. So a lot this gets repeated in the financial media all the time. That he made a quote, like savvy decision after, like around 2010, 2011 to focus on hedge investing. His money, his clients money in hedge funds that had bet on housing recovering. And so that's why in the last few years it actually got pretty good returns because he basically figured house prices had to go up from their bottom. It did. He. Now was that actually his decision making or was that.

[Jordan Weissman]

Oh no, no, Scaramucci does not make any investment decisions.

[Cathy O'Neill]

Okay, so it was statistical comment.

[Jordan Weissman]

Yeah.

[Cathy O'Neill]

Like all these motherfuckers in finance, right? They, they absolutely, they absolutely benefit from survivorship bias where like all their stupid ass decisions are forgotten and they're. One lucky decision is remembered and they're like, oh my God, you're a fucking genius.

[Jordan Weissman]

Yeah, well, and in terms of being remembered, this is the one thing which the Mooch is better at than anything else. Like if you like, you can't forget the guy. The guy is ubiquitous and he created this thing called the SALT Conference, which is this sort of annual bacchanal in Las Vegas where he pays everyone from Jewel to Lloyd Blankfein, hundreds of thousands of money.

[Felix Salmon]

Train, train, train and Maroon 5 were also entertainment.

[Jordan Weissman]

And he's very good at getting ex presidents to turn up and he pays them large checks to give speeches and has lots of expensive dinners with wine. He is the guy who for many years hosted the Davos wine tasting dinner and spent hundreds of thousands of dollars on expensive wine so that people could get together and drink wine.

[Cathy O'Neill]

Is this how you got under his skin?

[Jordan Weissman]

Wait, that was how I initially got under his skin. I called it the most obnoxious party in Davos. And he like that.

[Felix Salmon]

That's high praise. Wait, so. But people have also given him some credit for this conference business because again, now you can feel as soon as I'm done. Feel free to tell me this is bullshit. But the line is that essentially the banks had stopped giving their conferences right after the financial crisis. And so he saw an opportunity to kind of create some big bacchanal in Las Vegas where since there was nothing else going on on the circuit, people would show up for this random hedge fund of funds event. So is there some truth that maybe he. Because this is a profitable thing he does every year?

[Jordan Weissman]

Well, I mean, maybe there was some.

[Felix Salmon]

Canny decision making on his part.

[Jordan Weissman]

Who says it's profitable?

[Felix Salmon]

He says it's profitable.

[Jordan Weissman]

And you believe him?

[Felix Salmon]

Oh.

[Cathy O'Neill]

God. I mean, he's a salesman, basically.

[Felix Salmon]

He is a. He's described as.

[Jordan Weissman]

He is. He is a salesman. And I don't for a minute believe that salt is profitable. I believe that it's a way. It's a huge and expensive branding mechanism for Skybridge and for Scaramucci. He is now going to divest himself only of Skybridge, but also of Salt. He's going to have to find buyers for both of them. I'm going to be very, very interested to see who has any interest in buying salt, because I don't think it's a profitable operation.

[Cathy O'Neill]

Even if it is, it probably depends entirely on him, his personality. Getting people.

[Jordan Weissman]

Yeah. Salt sans the mooch. Who. Yeah, who's going to go to that?

[Cathy O'Neill]

Salt sons the mooch. I can't believe we didn't call the episode that.

[Felix Salmon]

So I do want to say just one more thing in favor of like, like, you know, his, his canny instinct, at least for timing. You know, we talked about how with. With Mnuchin.

[Jordan Weissman]

Not to be confused with the Mooch. The Mooch is not.

[Felix Salmon]

Yeah. So we talked about how Manoogian sort of made a very low cost but potentially profitable bet with Trump. Right. That, you know, for not too much effort on his part, except for some maybe reputational capital he was basically rolling the dice for a big role in the upcoming administration. Now he's gonna be Treasury Secretary. The mooch, not to be confused with Mnuchin, is also. He sort of made a similar bet, right? Like now he's going to be in this sort of, you know, gatekeeper role in the Trump White House where all sorts of business people are going to have to come through him. It means that his network is going to get even bigger and he's going to know more people and he's going to come out of this with even, like, even more powerful connections.

[Jordan Weissman]

So, I mean, so this is the classic revolving door play, right, is that he has whatever level of success he's been able to build up at Skybridge, and he's looking at his business and he's saying, well, I can try and continue to make it grow, but my returns haven't been great for the past couple years and it's going to be a bit of a hard slog. So maybe the smart thing to do is to sell it, go into the revolving door for a few years and then when I come out of the revolving door on the other side and go back into the private sector, then now suddenly I'm covered in Trumpian fairy dust and I'm going to be able to make lots and lots of money. I just don't know that Trumpian fairy dust is going to be worth that much.

[Cathy O'Neill]

I'm barfing over here.

[Felix Salmon]

We'll see. We'll see.

[Cathy O'Neill]

I've got a number.

[Jordan Weissman]

What's your number, Kathy?

[Cathy O'Neill]

It's a really exciting number to me. I don't know if you guys already know this, but there was a Gallup poll recently that found that 50% more, give or take, depending on how it's asked, 50% of people wanted the Obamacare to be removed, to be repealed. Okay, that's sad, but 58% of Americans want instead to have universal healthcare.

[Felix Salmon]

Single payer.

[Jordan Weissman]

Let's do it both. Let's repeal and replace with universal health care.

[Cathy O'Neill]

That's exactly what I tweeted when I found this number.

[Jordan Weissman]

My number is 23 million, which is the number of dollars that Jeff Bezos just spent on the largest house in Washington DC. Oh, yeah, it's, it's formerly the Textile Museum. It's 27,000 square feet. Now, this is the man who famously said when he bought the Washington Post that he was not moving to Washington, that the Post people would come out to Seattle and meet with him when they needed to. He has now basically just bought himself a 23 million dollar Piera Terre. And he did that after Trump was elected.

[Cathy O'Neill]

And also, Zuckerberg is looking like he's getting ready to run for office. What the heck, people? This is awful.

[Jordan Weissman]

We're living in a world of. It's the billionaires world. We just live in it. Jordan.

[Felix Salmon]

My number is 78,000, which is how many dollars students borrow on average to get a two year certificate degree from the Art Institute at Harvard University to study things as acting, dramaturgy or voice pedagogy. Why am I bringing this up? Well, this program turns out it failed to hit federal standards for gainful employment. The students at in this program basically borrowed too much, have to pay too much in debt compared to what they actually earn once they leave, which is about $36,000 typically.

[Cathy O'Neill]

Wow.

[Felix Salmon]

And the Department of Education put in place these gainful employment rules, basically deal with for profit universities, which famously loaded up students with debt who, who were then unable to repay it because they weren't getting their job as a cosmetologist or whatever, or nurse's aide.

[Cathy O'Neill]

So nobody ever expected to come to Harvard.

[Felix Salmon]

Well, so this is the thing. Nobody expected to come to Harvard. And the only reason that this program actually ended up under the gainful employment regulations is because it's a certificate program. And so Kevin Carey at the New York Times wrote this interesting piece suggesting that, well, if this program, which really isn't that different from your typical MFA in a lot of ways, is failing these rules, it would be really, really interesting to see the Department of Education extend these to more nonprofit, traditional master's programs because they may also be failing it. So, you know, I was joking that he's basically declaring war on MFA programs, but I don't know, maybe it's time to declare war on MFA programs.

[Jordan Weissman]

I'm going to stand up for the Yale mfa. I feel like, you know, it would pass. I have no empirical reason to believe that, but, you know, I'm happy to bash Harvard and all of the ridiculous things that Larry Summers did when he did there, but I feel like Yale is.

[Cathy O'Neill]

It's interesting to me. I mean, just one small comment, but it's interesting to me that it's about the amount of average debt the students take on versus the actual price because that would be, you know, it would tend to make me think that schools where people's parents pay for them to go to an expensive program somehow are let off the hook. But if you actually have to borrow.

[Felix Salmon]

Money, that's fine, though the government doesn't really care if you're just, you know, marketing your services to rich people.

[Cathy O'Neill]

But it might be totally useless for the price is the point.

[Felix Salmon]

It might be. But again, the government's interest here, there's.

[Jordan Weissman]

No rule against wasting your money on two years mfa.

[Felix Salmon]

Yeah, the public interest here is in, is in debt. Is in debt. And because the federal government funds it. So that's, that's where the concern really comes into play.

[Jordan Weissman]

Okay, I think that's it for Slate Money this week. You now know all about the negative correlation between price and yield. Do you remember that that for another 45 seconds and then you will forget it.

[Cathy O'Neill]

You'll just remember after that, you'll just remember to be confused about it.

[Jordan Weissman]

But thank you for making your way all to the end of this. And do you know, start wandering around the street selling pens from a cup. That's basically what we're all going to be reduced to by the time the Trump administration is finished. That and of course listening to Slate Money, which will survive the apocalypse like some kind of cockroach. So do subscribe to Slate Money using whatever podcasting app.

[Cathy O'Neill]

We're a cockroach.

[Jordan Weissman]

We're the cockroach. People like you will wake up after the, after the crazy Trumpian holocaust and you will still be listening to Cockroach.

[Felix Salmon]

And you will hear the morning, the morning after the nuclear blast. You'll still hear that Saturday. Hello. Hello.

[Jordan Weissman]

So many thanks to Zach Dynastyn who produced this week and also to the various higher ups around these parts. Steve Lichti, Andy Bowers, those types who run the Panoply [e-mail] Panoply we will talk to you next week on Slate Money where I will be in Davos. I'll be up and out and we should have a very special guest in Davos with us. Looking forward to that. I'm gonna write a tear stained letter market personal private news and I hope you'll keep it to yourself and don't go around crying the blues giving off a bad impression.