Understanding The Real Rate of Return!
There is one indicator more than any other which determines the health of an economy and it is the Real Rate of Return.
Furthermore this is the simplest of all indicators to understand because it determines the safety of assets. Next time you hear the TALKING HEADS discussing the nuances of the markets, filter what they say through your own understanding of the Real Rate of Return. The Real Rate of Return is the one number that determines the safety of principal. It is calculated by taking the current BOND YIELD and subtracting the expected INFLATION rate from it.
The result is the REAL return on giaranteed money from the government. Interest Rates are on the rise as we have been expecting and
this pressure has put a tremendous amount of pressure on the
stock market. The essential simplicity at work here is very,
very basic. If Interest rates on Bonds are yielding 5.14% and
inflation is forecasted at 5%. The difference is the REAL RATE
of RETURN, (in this instance we are speaking about .14%). The
REAL RATE of RETURN is what sparks major rallies and declines on
Wall Street. The reason for this is that the Bond market is the largest
financial market in the world. There are literally trillions of
dollars invested in debt denominated assets. These investors
are primarily interested in the security of their principal and
taking as minimal risk as possible. They historically have been
thrilled with REAL RATES of RETURNS that would be in the 2% - 5%
annually. During the 1970's this indicator went NEGATIVE for a
while indicating INFLATION was rising faster than interest rates
and BOND INVESTORS actually had substantial negative returns.
During this time there was much "screaming and gnashing of
teeth." It has always been my estimation that Federal Reserve Chairman,
Alan Greenspan's key task is to keep the REAL RATE of RETURN as
high as possible. HE has been extremely successful at doing
this. If you read back over any history of the financial markets you would be WISE to view events through this indicator. The economic climate becomes remarkably different and people's opinions change dramatically when the REAL RATE of RETURN on the most SECURE investments is threatened. A thorough understanding of this simplicity is necessary for
success in any kind of investing as IT is the basic building
block from which all other analysis is based. Although it is
always difficult to forecast what will happen in the future, the
one factor you can count on is that when THE REAL RATE OF RETURN
is falling there is much SWEAT on the brows of Money Managers
who monitor the trillions of dollars entrusted to them. At this point KEEP YOUR EYES on this indicator and make your own
forecast of INFLATION. You'll realize that your ANALYSIS can be
better than the Big Boys. Let's be careful other there! Dowjonesfully,
-Harald Anderson
http://www.eOptionsTrader.com. Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of
Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies. His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.
Related News
|
 |
|
|
RELATED ARTICLES
When Its Too Late to Save for Retirement
You are 55 years old (or somewhere around
there) and your company is going to force you to
retire at 65. You have $35,000 saved in your
401K and that's all. The house will be paid for
by then so you will have a place to live. The
company pension will pay about $1,000/month and
so will Social Security. What will my life style
be like at that time?
Retirement Is A Scary Proposition If Youre Without A Plan, And Running Out Of Time
Of the 75 million baby boomers nearing retirement today, many are:
July 2005: Hurricane Forecasts for Weather Traders
Tropical Storm Arlene formed as a tropical depression on June 8, 2005 near 83 West Longitude and 17 North Latitude. Although Dr. Bill Gray's updated hurricane forecast for 2005 calls for 15 named storms, with 8 of the 15 being hurricanes, orthodox meteorology cannot pinpoint the time and place for the origin of any of those future storms. My June forecast published on Ezinearticles.com entitled "June 2005: Weather Forecasts for Weather Traders" called for tropical storm or hurricane formation between June 7 and 11, 2005 around 86 West Longitude and 24 North Latitude. This forecast was prepared in May 2005 long before conventional meteorology had any indication of tropical storm activity for June. As can be seen, Arlene formed near these coordinates. It then passed close to them on June 9th and 10th.
Out-Of-State Investors Check List of Questions
The following lists of questions are suggested questions to ask before you plan to purchase residential real estate outside of your neighborhood.
A Gadfly On A Dinosaurs Butt, Or The Hood-winking Of The American Investor
Have you ever noticed how some words in the English language are so perfectly named for what they describe? And how some words seem to be, I guess you could say, backwards? For instance, the word sunflower! How wonderfully aptly named is the sunflower, that beautiful yellow flower that follows the sun from sunrise to sunset.
The Switzerland of Asia Shines
In many respects, Singapore is the Switzerland of Asia.
Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds
Stock trading strategies are as rampant today, as they were during the Great Bull Market. Yet, can you truly master the stock market like so many investing books propose?
The Basics of Tax-Free UK Financial Spread Betting
Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.
Why Do You Want to Become a Online Trader?
Motivational guru Tony Robbins teaches that the reason for doing something rates much higher than the methods you use to get the job done. In order to make your goal REAL, you need to attach severe, horrifying, intense and profound fear to failure.
The Perfect Economy?
The U.S. economic data reported this week showed strong output growth with tame inflation. Industrial Production expanded at about 1% in June, three times greater than expected, while both the June Consumer and Producer Price Indices were unchanged. Also, the June Capacity Utilization rate rose to 80.0%, and the June Unemployment Rate fell to 5.0%. The June data generally show there is neither strain nor slack in the U.S. economy. Therefore, the U.S. economy is expanding at an optimal rate.
The Key Ingredient To Increase Preconstruction Profits By Over $20,000
One of the greatest preconstruction investing issues that I hear from individual investors is that they can't get access to what they believe are good projects. Regardless if the preconstruction project is a beach condo, a townhouse, a single family home, or even land investment, individuals are finding that many restrictions are being placed on them by developers. In addition, prices are continuing to runaway. So given all this, how is an individual investor supposed to excel in this environment? Read on and find out!
Powerful Hidden Techniques Mystery Formula - The Covered Call Option Trading Buy-Write Strategy
For better or worse, most option trading investors purchase stocks with the intent of holding their shares for an extended period of time.
Sitcom Investing
A fickle stock market encourages good-humored mockery.
Lobster Trapping for Investment Ideas
Recently, my family and I took a trip to Maine to visit relatives. During our stay, we toured the rocky shore lines and took in the beautiful architecture of the old towns.
Day Trading Strategy or Stock Trading Software? The Way You Pick Stocks Affects Your Results
The trading method you employ to approach the stock market can make a big difference in your results.
Margin Benefits are Marginal at Best
Margin is one of those things that novices find puzzling about the stock market, but the concept is really quite simple. Still, with understanding the basics of using margin accounts, determining the wisdom of using margin can be quite a conundrum.
Raising Capital in Today?s ?New Economy?
We've helped a number of clients develop business plans and raise capital from "angel" investors, corporate entities and venture capitalists during the last 6-8 years. It's always a daunting process that can be full of pitfalls and require a tremendous amount of work ? but it can be done! Here is some perspective gleaned from years of experience.
Understanding The Real Rate of Return!
There is one indicator more than any other which determines the health of an economy and it is the Real Rate of Return.
Furthermore this is the simplest of all indicators to understand because it determines the safety of assets. Next time you hear the TALKING HEADS discussing the nuances of the markets, filter what they say through your own understanding of the Real Rate of Return.
Investing As A Sport?
I said last week that money doesn't generally buy happiness, but the lack of it can buy absolute misery. This, by the way, is not just my personal observation. It is the conclusion of some of the most respected happiness researchers (Yes, there is such a thing -- read my book.)
Investing Offshore for Retirement
As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore for your retirement.
|
Comment by Frank O'Donnell