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 % growth is fast enough; however, when you slow to 2 % 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

In The News:


pen paper and inkwell


cat break through


You Wont Like This

Why? Because I am going to shatter your conventional wisdom... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 2

Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More

The 10 Commandments

Wall Street has been preaching for years and years to... Read More

Stock Market Education; Day Trading for Beginnners; How to Pick Stocks

The trading method you employ to approach the stock market... Read More

You Don?t HAVE To Be Trading

As a novice trader, you'll often feel the need to... Read More

Lemmings Are Gathering

Before they go over the cliff to their destruction these... Read More

On Line Stock Trading: Small Cap & Micro Stocks Go Up and Down - How Can You Profit?

Success in small cap & micro cap stock trading like... Read More

Two for the Money

Look back over the years and try to remember how... Read More

Stock Chart Reading

As an investor you will want to check out any... Read More

Inertia

One of the basic laws of physics is that a... Read More

A Stock Market Investment Plan that Never Lets You Down

The bulls and bears of the stock market are both... Read More

Stock Options Trading Strategies - Lean

Professional stock options traders use the term lean to refer... Read More

Valuation

Every day I hear from the "experts" on CNBC-TV and... Read More

Hot Stock Trader: How to Pick Momentum Stocks with Ease and Simplicity

Most stock traders know that momentum trading can be a... Read More

Stock Trading Success

The ABC's of Stock Trading SuccessStock trading success...why is it... Read More

Lies, Damn Lies and Mutual Fund Returns

How many times has this happened to you? You're at... Read More

No Load Mutual Funds or Exchange Traded Funds (ETFs)?

If you are fed up with early redemption charges and... Read More

Enronization

Even if you don't own any of their stock or... Read More

Managing Investing and Stock Market Risks

Reduce your investing and stock market risks by:Setting your sights... Read More

NASDAQ 800?

In November of 2000 when the NASDAQ was trading at... Read More

China Syndrome

There has been great condemnation recently because China has been... Read More

Fools Gold

The stock market has been in an up trend for... Read More

Selection Vs Direction

As I have said many times before in this column... Read More

Parachute Investing

Ever jumped out of an airplane? It's OK if you... Read More

Buying Stocks and the Importance of Correct Timing

An investor can find and research the best stock on... Read More

Invest, Be Wrong, and Make Money in the Stock Market

I have been trading for several decades and was an... Read More

The Right Mutual Funds For Baby Boomers

If you are a baby boomer, time is not on... Read More

Dividend Paying Stocks

I would like to share with the reader an article... Read More

Psychology ? How to Reduce Negative Thoughts Relating to Trading?

The thinking process of the brain relating to the... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More