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There is one indicator more than any other which determines the health of an economy and it is the Real Rate of Return. 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. 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. Article: 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 insofar as 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 on the carpet 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 calibre of pressure on the stock market. The essential simplicity at work here is very, very basic. If Interest rates on stocks are yielding 5.14% and inflation is forecasted at 5%. The difference is the REAL RATE of RETURN, (in this instance we are speaking well-nigh .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 observably had substantial negative returns. During this time there was much "screaming and gnashing of teeth." It has forever been my estimation that parliamentary agent 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 ambiance becomes remarkably different and people's opinions change-over 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 chemical building block from which all other remark is based. notwithstanding 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 a priori reasoning can be better than the Big Boys. Let's be discreet other there! Dowjonesfully, Culture Briefings. - Culture Briefings are the key to understanding the culture and customs of people in other countries. Alternative Energy Resources. - Offers an e-book titled Understanding and Installing Your Own Solar Electric System. Includes worksheets, resources. Article Index: | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 |
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