Inverted Interest Rates
Inverted interest rates? What's that? Who cares? Even if you don't understand what Mr. Greenspan is saying (and almost nobody does) it is important to you because it could mean you might lose you job next year or have to cut back on some of the things you want to acquire.
It really is very simple, but most of the media broadcasters don't understand it because they are reading from a script written by someone else who doesn't understand it either. Let me take a whack at explaining it in plain language.
There are two kinds of interest rates - short term and long term. The amount of interest paid has to do with the amount of time that is involved. We are talking about long term and short term bonds that pay dividends. If you lend me a thousand dollars with the agreement I will pay you back in one year you can easily understand that the risk is less than if I agree to pay you back in 20 years. The amount of risk is reflected in the rate of interest. Longer is higher and shorter is lower. Pretty simple.
Now we throw the monkey wrench into the machinery. Greenspan arbitrarily sets interest rates rather than letting the market place determine them. The so-called Fed Funds rate is the short-term interest rate set by Greenspan that banks charge each other when one bank loans to another or from the Fed. The basic policy of banks is to borrow short and loan long. That means they borrow money at lower rates (5%) and loan out at higher long-term rates (6%). Unfortunately, we now have the monkey wrench that is ruining the machinery because the short-term rate is higher than the long-term rates.
This effectively cuts down on the amount of money banks have to loan and means the banks must cut back on loans for new business and loans for old business expansion. This is a very effective tool that our big money guru is using. Big G has said he wants to slow down the economy and he is doing it. He thinks a 2 ½% growth is fast enough; however, when you slow to 2 ½% from 6% that is 58%. Too much, too fast. What would happens if your company had 58% reduction in growth?
Money is the lifeblood of our economy. When you curtail the money flow it is like a person having congestive heart failure. Some people die and some businesses go bankrupt, but both must slow down drastically.
The amount of money flowing in our economy must be increased and the quickest way to do it is for Greenspan to reverse his course and start lowering the rates. Most of this break in the stock market can be laid at the doorstep of Mr. Greenspan. His micromanaging can lead to a recession.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
al@mutualfundstrategy.com; 1-888-345-7870
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
How to Make Big Money Safely in Stock Market
(1) Stock Market is Tough Place to Make Any Money
ConsistentlyNASDAQ or SP&500 averaged about -6% per year for 5 years
between 1999 and 2003. Many individual investors who made
killing in the internet bubble period got wiped out during
those 5 years.
Hot Stock Trader: How to Pick Momentum Stocks with Ease and Simplicity
Most stock traders know that momentum trading can be a very profitable activity. You can make big amounts of cash in a short period of time.
Dividend Paying Stocks
I would like to share with the reader an article printed in the financial section of U.S.
What is a Trading Plan - and Why You Need One?
How do you make money without picking tops and bottoms?I am glad you asked..
Good News?
As the man said, "I've got some good news and I've got some bad news. What do you want to hear first?" It was replied, "Tell me the good news first".
Social Insecurity
Just about everything you have been told about Social Security is an obfuscation. That is a big word for convoluted truth or lie.
Outsourcing
It's about time someone spoke the truth concerning outsourcing. The politicians sure won't.
Inertia Syndrome
When it comes to buying a stock or mutual fund most people act pretty quickly. There are some who will take the time to get a report from Morningstar (it is worthless) or get reports from their broker (also worthless) or even do a search on the Internet (if you know what you are doing).
When?
When will the stock market stop going down and start up again? If we knew that we'd all be jillionaires. So what do you do now while stocks are going down and stealing away your money every day?What does history tell us? Here is one very interesting fact.
Exchange Traded Funds Primer
Exchange Traded Funds (ETFs) are a group of passive index funds that trade on an exchange like an individual stock. At the time of writing there are 162 ETFs with $220 billion in assets under management trading on U.
How Commodity Trading Differs from Stock Trading
There are major differences between trading stocks and trading futures. While stories of fortunes made or lost overnight on the futures markets are largely untrue, the futures trader, if using a sound trading system, can usually make more money on the futures market and make it much faster.
Expense Ratios
Mutual funds and brokers are always preaching not to buy any fund with a high expense ratio. That is the annual costs of the fund to pay for trading of stocks within their portfolio, salaries, rent, telephone, analysts, etc.
How To Be A Winner
Everyone who invests in the stock market wants to be a winner. Each person's definition of a winner will be somewhat different, but there is hardly one who isn't looking for that stock that will double in price within one year.
Bad News is Good News
For weeks, no, months we have been bombarded with nothing but negative news about the economy in general and thousands of individual companies. The stock market has dropped thousands of points and more than $8 trillion in paper assets have disappeared.
It Cant Be Done
Wouldn't it be nice if you were only in the stock market when it was going up and have everything transferred to cash while it is going down? It is called 'market timing' and your broker or financial planner will tell you "it can't be done". What that person just told you is he doesn't know how to do it.
Trading as a Business
What can I expect to make my first year of trading?We get questions like this one quite often. We find that most aspiring traders don't have a clue as to what to expect from the market.
Chart Reading
As an investor you will want to check out any equity before you buy it. Many investors go to Morningstar that is one of the largest providers of mutual fund information in the world.
No Load Mutual Funds or Exchange Traded Funds (ETFs)?
If you are fed up with early redemption charges and ever increasing mutual fund management fees on top of bad-performing fund managers, read on. There is a quiet revolution going on in the no-load mutual fund industry and you, the individual investor, may benefit from it greatly.
Successful Trading - Taking Profits - Part 2
Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let's say your stock continues to make a big move and now we're asking again the questions we asked back in the first paragraph.
What the SEC Really Thinks About Mutual Funds!
Let's go into the details of why non-indexed mutual funds are such a bad deal. When Arthur Levitt became the head of the Security Exchange Commission in 1993 he had to sell off all of his individual stocks so that people would not claim that he was doing any dirty inside dealing.