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

---

Defining a Long-Term Investment in the Stock Market

For some "long term" would mean holding a stock position... Read More

Is the Stock Market for You?

Many people would like to diversify their portfolios to expand... Read More

Economists

In today's volatile and confusing stock markets everyone is searching... Read More

Stock Trading Success

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

Acapulco - The Stock Market Dives

There is a famous cliff on the ocean in Acapulco... Read More

Which Way The Market

I am hearing predictions by brokers, financial planners, talk show... Read More

How to Pick Winning Stocks

There is nothing more exciting than finding an undervalued stock... Read More

Investing in Stocks and The Game of Monopoly

To begin, you might look at playing the stock market... Read More

I Love To Lose Money

Well, not really. What I mean is I don't mind... Read More

Why Technical Indicators

The fight continues to rage among traders who use technical... Read More

Valuation

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

Dont Ask Your Broker

Unfortunately, most of you who are reading my column are... Read More

Never Fall In Love!

Recently I watched my favorite football team lose a vital... Read More

Stock Trading Diversification

This is the continuing story of our two imaginary traders,... Read More

The Stock Trading Plan - Why You Must Have One To Trade Successfully

This is the continuing story of our two imaginary traders,... Read More

Downdraft

For the year 2000 we have seen hundreds of mutual... Read More

Prospering with Mutual Funds: How Anyone can ?Afford? an Investment Advisor

Recently I was invited to appear on a live CNNfn... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

Mutual Fund Commissions

You have heard about a particular mutual fund from a... Read More

Shorting Stocks ? The Basics, Part II of II

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

Managing Investing and Stock Market Risks

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

What is the Most Important Indicator of All?

Most stock market traders have a favorite technical indicator.The one... Read More

Fools Gold

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

Making a Stock Watch List

I am taking the time to help others learn the... Read More

A Funny Thing Happened on the Way to the Stock Market

On the 40 year journey through the turmoil of a... Read More

Market Psychology

Today we are inundated with tons of information about the... Read More

The Secret to More Winning Trades is as Simple as Avoiding This Common Mistake

If you're a normal human being, your need to feel... Read More

The Stock Market Doesnt Care if You are a Beginner?. Get Prepared to Succeed at Trading

Stock trading remains a very competitive field and the stock... Read More

China Syndrome

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

What Our Investment Advisor Wont Say Off The Bat

Most advisors will tell you they can beat the market.... Read More

Trading For A Living - Part 1

There can't be many traders who haven't at least considered... Read More

Buy and Hold Investment Philosophy

Wall Street has been preaching the doctrine of Buy and... Read More

Roller Coaster

I love roller coasters. The steeper the better. High and... Read More