THE CURRENT LOW INTEREST RATES

Investors are encouraged to take on additional risk because the current interest rates are low. For decades, the interest rates have been declining. It is no exaggeration saying that capital expenditure has been inadequate in curbing interest rates from trending down for over three decades. The low-interest rates have compelled central banks to slow down their monetary policy, for nominal interest should not fall below zero. A submission from the literature affirms that there is no general agreement as to the principal causes of it. Many have ascribed the caused to an increase in global saving, characteristics of a high-saving emerging market. Some arguments reiterated that interest rates are low, as a result, of the rising concentration of wealth and income.

Undoubtedly, the wealthy use smaller portion of their income and on many grounds the recent global trends in wealth and income distribution are disturbing. For global interest rates to be affected, the trends in income and wealth distribution are required to be translated into increased global savings. However, there is no evidence to support it. The second reason that can be given to explain why interest rates are low is a lack of attractive investment projects. However, this cannot be used as a diagnosis of stock markets where equities are being traded at record-high prices. The damage done to the labor force and the economy during the Great Recession can be linked to depression of investment and interest rates.

The morale and skills of the workers detached from the labor market, as a result, of economic recession have been eroded, with many having no incomes to spend. Firms are faced with challenges, such as shortage of qualified workers, and poor demand for their products. In response, the firms resort to low-capital spending that eventually leads to low-interest rates. Considerable merit can be attached to this above argument; however, it cannot explain why capital expenditure has been inadequate to curb rates from trending down for over three decades.

Critically looking at why interest rates are low, it would be deduced that the reasons are multiple needing multiple treatments. More public spending on education, infrastructure, and research to make up for the shortfall in private capital spending should be encouraged. Tax incentives should be given to firms to employ the long-term unemployed workers. Finally, the central banks should fix a greater inflation mark to enable them in cutting the nominal interest rates in relation to a future slowdown.

Gold tends to go up with inflation so you can profit from this by buying it. You can also buy companies that mine gold by doing gold stock investing. Many mining stocks fell in 2011 and 2012 in a bad bear market and are starting a new bull market that will bring profits to shareholders.

Posted under inflation

Factors responsible for the rise in oil prices

The prices of petroleum depend on several factors. Having a clear knowledge of the causes of the fluctuations of price of oil might be sometimes difficult for those with little insight on the commodity markets. But understanding the main factors that move and shake the oil prices is pertinent for those who want to fare well investing in this market.

Oil prices are mostly affected by global fluctuations in demand and supply. OPEC is the organization in charge of controlling the supply of oil in the world. Their responsibility is to ensure that there is a level playing field among its members (who are made up of oil producing countries) in the pricing and sell of oil in the international market. Though their objective for the past 10 years has been to keep the prices of oil under $30 per barrel, global economic fluctuations have made this task very difficult to attain.

It will be correct to point out that devastating weather, recession, and wars are the major external causes of oil price fluctuations in the world. The hurricane Katrina of 2005 is a perfect example of how weather can affect the general oil price level. It directly impacted on the production of oil in the Southern Gulf Coast of the US. This obstruction in the production and distribution of petroleum reduced supply why demand remained constant. This led to a rise in oil prices from $40 to nearly $75 per barrel, but the intervention of president Obama by releasing 30 million barrels from Federal reserve ensured that price does not escalate any further.

Effect of War on Petroleum Prices

The Middle East has been a center of political instability for years. This region supply 70% of the world’s oil fields and a production disruption will definitely affect the output of oil. When oil is in short supply and demand remains constant, it forces an increment of the price both in the immediate and international market.

Recession too can have an effect on petroleum prices

Several factors can combine to decrease the demand of oil during a recession. In this case, demand for oil falls due to consumers cutting back on expenses. And the first place they begin when reducing their expenses is fuel consumption. This normally have a negative impact on oil as supply becomes higher than demand, forcing a decrease in price. Recession generally affect transportation, which reduces the level of demand for oil.
In general, while it is the sole jurisdiction of OPEC to control global oil prices, there are several uncontrollable factors (as mentioned above) that can have a fluctuating effect in oil prices on the global scale.

Posted under investing

Jim Cramer Advises On Stock Picks In The CNBC Mad money Program

Jim Cramer of thestreet.com is a strong believer in the stock market and also believes that individual investors can make huge amount of profit by investing wisely and picking the right types of stocks. Stock picking is not a simple task because it involves a lot of analysis and research to be able to ascertain which stocks are more profitable for your portfolio. Jim Cramer, a confirmed multi-millionaire, gained his wealth through successful stock picking. He is currently working for CNBC and believes that individuals need to be very cautious when holding long positions because the market might swing against their favor when they don’t expect. In his CNBC program, Mad money, he advises that investors should try not to hold positions for more than 5 years. He advices them to get rich through stock picking but to do it carefully.

He opined that the market has eaten up most small investors but insists that these small investors can still rise up to the challenge and beat the averages. This will be very possible if they follow the recommendations he makes on “Get Rich Carefully”, his most recent book. He advises investors to pick their stocks very carefully in order not to get ripped off in this turbulent financial era.

Cramer has recommended water stocks and he thinks they should be in your portfolio.

About Jim Cramer

Cramer began investing in the stock market when he was still in Law School. He started gaining reputation by opting to leave stock picks on his answering machine. This impressed Martin Peretz, the New Republic Owner, and he gave him half a million dollars to invest. In two years Cramer had already earned $150,000 for Peretz.

He became a stockbroker in 1984 and his success in the company encouraged him to fund his own hedge fund in 1987. Some of the early investors in Cramer Inc. include Peretz, Brill, and Elio Spitzer, former Governor of New York.
From 1988 to 2000 during the fund’s tenure, he recorded only one negative return in 1998. In 1999, he gained a whopping 47% in returns surpassing S&P 500 by more than 35%. In 2001, he retired from the hedge fund after averaging a 24% and $10 million yearly return over 14 years. He has left the management of the fund to Jeff Berkowitz, who was his former partner. Cramer was not only an investor. He has interest in journalism which was portrayed by his role as the “chief editor” of Smart Money magazine. He now works with CNBC and is not allowed to trade stocks from his own personal account.

Posted under investing

Stochastics Indicator – The Overbought and Oversold Indicator For Non-Trending Markets

It’s well known that several traders make use of one or more indicators when they are trading in the forex market. While there are several indicators, there are very few ones that will help you track the market and ensure you avoid lots fake-outs. Stochastics is one of the key technical analysis indicators for you to know and use and is one of such types of indicators. This is why it is one of the most widely used types of indicators for intra-day traders, weekly or monthly traders.

For those who are just starting out on forex trading, Stochastics is one of the trading arsenals you would love utilizing because of its simplicity and efficiency in identifying trends in a volatile market. When you are backtesting with stochastics, you will have a great feel of how the real market will look like because its results are amazing. The stochastics normally has 2 lines that indicate the overbought and oversold zones. The overbought zone is any point above the 80 line while the oversold zone is any point below the 20 line. However, one rule of trading with this indicator is to buy only when the two lines cross each other at the oversold zone or sell when they cross each other at the overbought zone. This makes this a key indicator to use on the best charts you need to use in order to make money.
.
This is pretty simple right? But not all trades you enter with this simple rule may work. What you should understand is that these lines can cross each other and uncross again within a short space of time. If you had entered a trade at the first cross, you may have set up yourself for some loss when the lines uncross. This is because the forex market can be very volatile at times and things change very fast in a short time. So, don’t expect to win all trades when using this indicator. It is a very good indicator for novice and experience forex traders who want to ensure that they catch the trend very early and stay in the trend long enough to make profits.

But so many people prefer the stochastics because of its simplicity and less number of fake-outs you will get from the indicator. You can combine the stochastics with Bollinger Bands or Relative Strength Index (RSI) in order to minimize the number of whipsaws and make more profitable trades. Remember that the stochastics works best in markets that are sideways and not trending markets. If you utilize this tool in a trending market you are certainly going to get lots of whipsaws.

Posted under investing

Understanding the Causes and Types of Inflation

Apart from the many definition of the term, inflation has also been variously categorized. Words such as creeping, trotting , galloping, rapid, chronic, explosive runaway and hyper, have all been used to describe the pace of the various inflationary tendencies A sustained and almost imperceptible rise in prices of about 2 percent per annum is described as creeping inflation. This can be distinguished from galloping or hyper-inflation which occurs when the price rise is of the order of 50 or 60 percent, and from trotting inflation in which the price rise occurs at intermediates. For milder sustained price rises, economists have used the terms, walking; running or run-away inflation to describe them. The contention is that in the case of walking inflation, a sustained price rise may be about 8-10 percent per annum, while for higher two digits sustained price rise, the term running inflation may be used. Although there may sometimes be overlapping between these terms, the peculiarity of each rate of price rise justified the describing of any particular situation, as such in hyper-inflation, currency flight became so fantastically high that the velocity of money in circulation approaches infinity.

Inflation is causing the price of electricity to rise and basic utility costs too. In fact the price of water production is going up and becoming a hardship for many people.

Inflation in an economy is open when there are no barriers or controls to price increases. The reverse is suppressed inflation. In this case, policies of price controls, rationing of essential goods, are put in place, to suppress price increases. It was in this regard that Florence (1975) observed that one obvious distinction between open and repressed/ suppressed inflation is that in the former instance, prices which enter the price index are as determined by market force while in repressed inflation, prices and wages are determined administrative forces so that their real increase is a distorted estimate of true inflationary pressure.

Suppressed inflation is subject to many ills; firstly it creates many difficulty administrative problems. In badly managed situations, suppressed inflation can erupt sometime, resulting in open inflation. Inflationary spirals refer to wages chasing prices and prices chasing wages. The relatively recent ‘Stagflation’ is a term used to refer to a condition of inflation and low growth in real Gross National product.

The other type of rising inflation with respect to cause is the Demand Pull Inflation. Demand Pull inflation theory explains that when the supply of goods and services fell short of the demand for them, an excess demand was stimulated. This excess demand leads to comparative bidding, which in turn would lead to higher prices, which becomes inflationary. In the view of this, Demand Pull inflation is a term used to describe an inflation mainly induced by excessive demand, because supply of goods and services constantly failed to keep pace with demand.
Technically, it occurs when there was already full employment, and aggregate demand expands beyond the output which can be supplied at full employment.

Posted under inflation

Factors to Consider Before Choosing a Stock Trading Software

Technology has affected the way we trade and do business. The springing up of different stock trading software has made the life of a stock trader easier than before. People now have the necessary tools they need to take accurate decisions regarding the buying and selling of stocks. But with this recent development comes a disadvantage. There are different stock trading software everywhere. And not all of them can be trusted to provide what you what you want. This is why it is important to find out all you can from the seller before buying or ordering any particular software. The following are some tips that can help you select the right kind of stock trading software for your trading needs.

Ask questions and Look at the features

Usually, good trading software should have a combination of different technical analysis. The most robust software will cover hundreds of indicators such as Parabolic Sars, Stochastics, and Relative Strength Index to enable traders properly utilize all these tools as part of their trading arsenal. Some even offer a wide range of candlestick patterns and chart formations in order to set conditions for proper decision making when trading in stocks. When you find software with plenty of these features, then you are probably getting the real deal.

How complex is the program?

Normally, the most efficient software is totally automated and very easy to use. It should not pose a problem to the user. While some of these programs require you to have a little technical knowledge on programming, others are simply point and click systems. You should be going for the user-friendly model if you are new to stock trading and don’t have any programming experience. However, some of the easy-to-use systems lack more complex features fro experienced traders. The type of trading software you decide will depend on your need and trading experience. So, before you start using any one, make sure you go through their demo and find out how their program will function in case you decide to trade with real money.

How good is their customer service and tech support?

You wouldn’t want to have an outage on your platform when you about to execute a very important trade. Before you decide on particular software, find out their past records and see whether they have a history of high “up time” and if they are reliable. If their history doesn’t indicate a good tech support and customer service, then you have to look elsewhere.

There are other indices that will guide you select the right stock trading software. The most important thing is to do your proper research and ask questions before picking a particular one for your stock trading.

If you are looking for an online community to help you with your investing and trading then check out http://wallstreetwindow.com.

Posted under investing

China GDP Growth Rate – The Past and Future

China has the second largest economy in the world by purchasing power parity (PPP) and by nominal GDP after United States. With a growth rate of 10% per annum, it is the fastest growing economy in the world. There are many factors that indicate it might surpass the United States and become the largest economy in the world in the nearest future. It is the largest manufacturing economy and the largest exporter of goods in the world as opposed to the United States, a service driven economy. The Chinese economy is the only Asian economy to have reached the $10-trillion mark (along with the European Union and the United States) in reserves.

The most common reason for China’s high GDP growth rate in the past was the activities of its Special Economic Zones, which extend successful economic experiences to lesser developed areas.

The staggering growth of their financial institutions in the 1970s and 198s was another reason for their GDP growth. (87% percent of their financial institutions are controlled by the state). The Ministry of Finance and the People’s Bank of China are the major instruments of fiscal and financial control in China. These units have been so effective over the years that many other economies are trying to replicate their strategies.

But recent economic results show that the age of more than 10% yearly growth of the Chinese economy is over. Although the economy has continued to urbanize, the demand for roads, housing, and other infrastructure are getting close to their peaks.

This recent development has seen most of China’s resources being channeled to provide solutions to these problems. Many rural dwellers are still languishing in abject poverty and it is the goal of the Chinese government to balance the equation through massive investment in innovation and technology.

The Chinese government has set a 7.5% GDP growth target, but this will not be constantly achieved if the necessary things are not done. The government has to look towards the long term growth rather than the short term growth, and quality of development rather than quantity. This entails that it has to stay on course to enact comprehensive reforms that will spur their GDP growth. In practical terms it entails resisting the urge to use macroeconomic policy adjustments to spur growth. Otherwise, the economy may be strolling on another batch of inefficient and ineffective government projects that will boost the GDP in the short run but may eventually shrink its overall development in the long-run.

Posted under china