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Cheat Sheet Q & A:
Topic: Interest Rates
I just turned on the radio and heard part of your commentary that discussed interest rates. You seem to feel that, at some time, that interest rates must go up. There is a very realistic possibility that they won't go up (or not by much as we are accustomed to) -- just consider
Maybe not never but what if we follow
They (Bernanke et al) have really painted us into the corner. How do they start moving back to a normal economy (with non-zero interest rates) while avoiding mass economic destruction?
Bottom Line: This is a well constructed and informed question. I have stated that it’s a matter of when interest rates go higher – not if. The potential for rising interest rates is predicated on one very necessary ingredient – sustained real economic growth. If the economy were to never sustain economic growth above the rate of population growth (about 2%) interest rates wouldn’t necessarily have to head higher.
The core function of interest rate policy is to keep inflation under control creating a sustainable economic environment. If an economy were to stagnate or actually deflate then we could see an extended period of interest rates similar to where we are and have been for the past few years. So if you do feel that the
As to the second question (How can we break away from the Fed policy without economic destruction?)… There are two facets to the Federal reserve policy:
QE will have to end regardless of what the
Without question this action has aided housing and along with the housing recovery there is associated job growth. The stock market which has grown used to the easy money and the “where else are you going to invest your money” factor is stands to experience a jolt when this stops as stocks are currently 21% higher than their relative historic values. Aside from the stock market there isn’t likely to be a noticeable day to day difference with the overall economy when QE stops. Onto rising interest rates…
Increasing interest rates isn’t likely to be a major issue when the Federal Reserve does decide to raise them. The reason is that they’ll likely go about it very slowly. Historically when raising interest rates the Federal Reserve has acted by 50 basis points (or .5%). When the Federal Reserve does raise interest rates it’ll likely be by .25% at a time. In other words the difference at the consumer level will likely be slight and slow.
Over the longer run there can be benefits to higher interest rates. Higher margins by loan companies, higher yield for fixed income investments. Higher levels of spending by retirees that can once again used fixed income investments and feel more secure, etc.
So I’d be concerned about the stock market’s short term performance with an end to QE and slowly rising interest rates but otherwise don’t anticipate any dramatic economic issues otherwise. As for how high interest rates could go? Well we’ve seen them as low as they are now and as high as 18%. It all depends on inflation risk.
Important takeaways from Friday’s employment report:
Bottom Line: Friday’s jobs report wasn’t great. In sheer numbers it wasn’t really good either. What the report indicated though is terrific. I’ll explain.
After a disappointing 2.5% growth rate to the economy in the 1st quarter (though right in-line with my expectations), economists grew very pessimistic about the 2nd quarter. The average expected growth rate for the 2nd quarter by an economist stood at 1%. After Friday’s jobs report we know it must have been significantly higher than that in April.
A 1% growth rate indicates potential imminent risk of recession and it isn’t enough to create more than about 100,000 jobs in a month at the high end. Friday’s report showed more than 160,000 jobs added in April and actually revised March’s number much higher from 88,000 to 138,000. Both of those numbers indicate growth that’s around 2% and any monthly number above 125,000 is large enough to make some progress on the unemployment front. So it’s not off to the races for the economy but it’s clear that the economy is pacing a growth rate that’s much higher than the 1% most economists were projecting and that we aren’t at near-term risk of recession.
1st known fully functional 3D printed gun is here:
Bottom Line: We knew the time would come when we’d have this debate. It didn’t take long. The first known 3D printed gun is here. It was created by a 25 year old law student at the
The aspiring lawyer has turned entrepreneur and is set to turn the national debate on gun control over the 3D printing. The gun he’s created is fully functional and is capable of firing standard ammunition and varied rounds. I mentioned he is an entrepreneur…
Cody Wilson has filed for a business lience allowing him to become a manufacture and seller of these firearms. Should this occur (or really even if he doesn’t obtain a licence), we don’t have existing laws regulating these types of weapons. They would be undetectable and sold without the existing regulation (back ground checks, registration, waiting period, etc.). The gun control debate just became much more complicated. If you’d like to see the gun click the link below (it looks a bit like a rudimentary toy gun).
Your 1 on 1 connection with Warren Buffet:
Bottom Line: Many have paid big money to gain any access to Warren Buffet. Whether it’s been $100,000 for a share of stock to enable access to the annual shareholder’s meeting or buying the annual charity auction lunch with the Oracle of Omaha. Access hasn’t been cheap let alone free. Until now.
Warren Buffet joined Twitter last week and you now have the ability to follow him. His first Tweet wasn’t earth shattering, he said he was in the house. His second tweet had a bit more to it as you pointed his followers to an article he wrote pertaining to the importance of women in the business world.
While you may never get
You’ll know be able to buy Viagra direct from the manufacture online:
Bottom Line: We could be on the verge of a prescription drug game changer. As of today Viagra is available online direct from Pfizer. Yes you still need a prescription but no you don’t need a pharmacy.
To date, even if you’ve been able to order prescriptions drugs online, you’ve still had to buy through some sort of pharmacy. Not today with Viagra. Cutting out the middle-man (pharmacy) theoretically could reduce cost, saving you the cut the pharmacy gets with non-compounded drugs. It’s unlikely that in the near future direct to consumer online sales will be the norm from manufactures but it’s now possible and it’s likely to be super popular for those discreetly looking for Viagra.
Young adults who do invest are more conservative than their parents:
Bottom Line: Younger Adults are still less likely to invest in stock than their parents but for those who do there is a noticeable difference.
Younger stock market investors are actually more conservative than their parents. Only 31% of Baby Boomers identify themselves as conservative investors as compared to 43% of their kids. Additionally younger stock market investors are more likely to be traditional “buy and hold” type investors rather than those who frequently trade the market.
What’s interesting is that the philosophy of the kids could eventually lead to a market that’s more stable and with their returns being higher than what Boomers have become accustomed to over the past ten to fifteen years.