The Mechanics of Are Economic Cycle

Posted on July 23, 2007
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Inflation and recessions are both recurring phases of a continuous economic cycle. Inflation occurs when prices rise as a result of too much money being in circulation due to a lack of goods and services to spend it on. When prices reach a point that is higher than people can, or-will- pay, the demand decreases and this is where the downturn in the economic cycle begins.

In our modern economy we don’t let the economic cycle run unchecked, because the consequences could result in a major worldwide depression like the one that followed the stock market crash in 1929. In a depression money become so tight that the economy virtually grinds to a halt, unemployment escalates, businesses collapse and the general economic mood gets very grim.

When a recession occurs the Federal Government can create new money to make borrowing money easier. Once the economy picks up, and sellers begin to sense a rise in demand for their product or services they begin raise prices. This is how inflation works.

Most economist agree that inflation isn’t good for the economy, because over time it destroys value, and this includes the value of money. Inflation also prompts investors to buy things that they can resell for huge profits: like art and real estate, rather than investing their money in companies that can then in-turn create new products and jobs. However inflation isn’t bad for everyone. Debtors love it! The people that get hit the hardest in an inflationary phase are the people that are living off of fixed incomes, this often consists of retired people whose payments are determined by salaries or wages that were earned in less inflationary times. their standard of living can swiftly erode by high inflation, this could cause them to sell their home or take other drastic economic measures.

Inflation is often the result of political pressures. A economy that is growing creates jobs and reduces unemployment. More often than not politicians are almost always in favor of this so they put pressure on the Federal Reserve to adopt an easy money policy that stimulates the economy. The most effective method for ending inflation is for the Federal Government to induce a recession, or downturn, in the economy. If the shrinks for two consecutive quarters it is considered a recession.

In order to avoid long term slow downs, politicians will reverse their policies once they notice that the economy is beginning to shrink. They do this to stimulate borrowing and economic growth. Over time the country emerges from the recession, begins to grow, and the completed cycle starts all over again.

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The Art of Futures and Options Trading

Posted on July 23, 2007
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Options on currencies, Treasury bills, notes and bonds, stocks and bonds indexes, and futures contracts are currently being traded. Since they are derivatives of actual investments, they can be difficult for individuals to understand and use profitably. The fact is that options traders loose money 60% of the time. These types of options are appealing to traders that want to protect their investments against major swings in market prices, or speculate on the markets movements.

Buying put options on stock indexes is a way for investors to hedge their portfolios against sharp drops in the market. It gives them the right to sell their option and make a profit if the market falls. the money realized on a sale will hopefully cover the losses in their portfolios resulting from the falling market. In order for this technique to work, the options have to be on the index that most closely tracks the kind of stocks they own. Plus there has to be enough options to offset the total value of the portfolio. Because options cost money and they expire quickly, using this kind of insurance regularly can take a big bite out of any of the profits that the portfolio itself produces.

Speculators use index options to gamble on shifts in the market direction. like other methods of high risk investing, this one offers the chance of making a big killing if the investor gets it right. Otherwise there wouldn’t be any takers. However the risks of getting the price and the time right are magnified by the short life span of the index options. A complicated factor is that indexes don’t always move in the same direction as the markets they track. When indexes are out of kilter, there are big profits to be made by the arbitrage traders with computer programs that are fine-tuned enough to take advantage of the movements.

Options are traded through options trading firms on the futures exchanges on the Chicago Board Options Exchange, and on four other stock exchanges. like futures contracts, options contracts are traded exclusively on the exchange that makes, or originates, them. Trades are handled through the exchanges where they take place. buy and sell orders are matched anonymously, and can be canceled by using an offsetting contract.

The SEC has initiated a controversial program with stock options, they are allowing them to be listed, and made available for sale on all of the exchanges the way that stocks themselves are. Currently, the Chicago and American exchanges, which trade contracts in blue-chip stocks, controls more than 75% of the business, with Philadelphia and Pacific exchanges about 22%. One change that multiple listing means is a shift to the increased use of telephone and computer-generated trading, introducing opportunities for comparison shopping and for arbitrage.

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The Nuts and Bolts of Mutual Funds

Posted on July 23, 2007
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Mutual fund are a collection of stocks, bonds or other securities that are owned by a group of investors and they are managed by a professional investment company. Most professional investors agree that it is smarter to own a wide variety of stocks and bonds than it is to gamble on the success of a few. However diversifying can be rough, because buying a portfolio of individual stocks & bonds con get expensive. Just trying to figure out what to buy and when to buy it can turn into a full-time job.

This is where mutual funds offer one solution: When investors put money into a fund, it is pooled with money from other investors to create a much greater buying power than it would have if the investors invested the money on their own. Because a fund can own hundreds of different securities, its success isn’t dependant on the success of how one or two holding do. Also the funds professional managers keep a close eye on the markets, and they adjust the portfolio for the strongest possible performance.

A mutual fund makes money in two ways: by earning dividends or interest on its investments and then by selling investments once they have increased in price. The fund then pays out its profits to its investors, minus fees and expenses. Most funds offer investors the option of reinvesting all or part of their distributions in the fund. The funds investors pay taxes on the money they receive from the fund regardless of whether the money is reinvested or paid out in cash. However if a fund loses more than it make in any given year, it can offset future gains. Until profits equal the accumulated losses, distributions aren’t taxable, although the share price might increase to reflect the profits.

Mutual funds are created by investment companies, brokerage houses and banks. The number of funds an investment company offers can vary from as few two or three on up to thousands. each of these funds has a professional investment manager, an investment objective, along with an investment plan. The fund are marketed to potential investors with ad in the financial press, through direct mailings and press announcements, and in some instances with brokers that make a commissions selling them

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How to Pick and Track Stocks In The International Markets

Posted on July 23, 2007
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With global markets increasingly open to investors, and electronic media capable of providing up-to-the minute reports on what’s happening around the world, investors appetites are being meet with a steady stream of information. The performances of 16 of the worlds major global stock exchanges are reported daily in the wall street journal.

The daily numbers on a particular exchange have meaning only in relation to what has happened on the exchange in the past. Take for example, the Nikkei index only reports what happened in that market; it is unrelated to Frankfurt’s, Paris’s, and Singapore’s. the worldwide stock market performance can be compared by looking at the percentage change. Political and economic situations here at home have a major influence on stock performance, despite what’s happening in the world at large.

Financial analysts tend to evaluate overseas markets from a top down perspective, focusing on a country’s or a regions financial environment rather than the prospects of individual companies. Among the factors that make a country’s stock look attractive to investors are the underlying strength and stability of economy, the value of its currency and its current interest rate.

Growing economies, strengthening currencies and flat or falling interest rates are good indicators of economic growth. Countries with currencies that are week, with high interest rates, and economies that are in recession don’t tend to attract equity investors. The Wall Street Journal regularly tracks foreign markets in comparison with the Dow Jones Industrial Average.

Some of the most actively traded stocks on foreign exchanges are listed in the Foreign Markets column daily. Their closing prices and previous close are listed in local currency. many of the corporations whose stocks are listed in their home country’s exchanges are also traded on U.S. exchanges or over-the-counter as ADRs or as U.S. subsidiary companies.

Since foreign market prices are quoted in different currencies and the markets are influenced by different forces, there’s no easy formula to compare the yields on international investments. However the stock market performances around the globe are increasingly interrelated, so that a boom or bust in one market will affect what happens in all of the markets.

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