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Interest Rates
It might interest you to know that it is theNew York Federal Reserve System thatdetermines the monetary policy of the Fed.They have their meetings and then the Fedtakes its action. Interest rates are one of thespecialist’s most important tools. Whenspecialists are rallying stocks to their alltime highs interest rates are kept at their lows.The reason for this is simple. It causesinvestors to leave the safety of their moneymarket instruments, which are at their lows,and forces investors into the market to buystocks at or near their highs. Conversely,when stock prices are being dropped tothere low, rates will be high. When investorssee this they leave the risk of the stockmarket for the guaranteed safety of theCash instrument market. As rates rise themarket tends to rally.The nations most highly regardedeconomists have failed to note the linkbetween interest rates and the movement of stock prices. Yet of all the restraints uponinvestor’s ability to think intelligently aboutwhether they want to buy or sell stock, themost remarkable testimonial to the tenacityof traditional thinking is that investors haveunthinkingly accepted the proposition thatthe movement of rates determines themovement of stock prices.Because rising rates are alwaysaccompanied by suddenly declining prices,it seems self-evident to investors that whenthey see rising rates that they should sellstock. Since declining rates invariablyaccompany advancing prices and thereforeappear to be constructive, when investorssee declining rates, they move out of cashinstruments and into the markets. No onehas ever drawn out the connectionsbetween the exchanges use of rates toallow its members to accumulate anddistribute stock for tax purposes.The best possible news for investors wouldbe for the Fed to raise rates. The public hasbeen lead to believe high rates diminishborrowing and investment, which impactsoutput. A case in point is yesterday’s,(08/17/07), market activity caused by theFed’s actions. The market opened flat andwhen the Fed announced it’s actionsspecialists rallied the market up 314 pointsin the first hour of trading. The Fed’s actionof lowering the Discount rate by ½ point to5.75% has absolutely no effect oninvestors. It is money that the Fed loans tothe Banking industry, not the public.The reason the market was rallied sharplywas very simple. It was done so thatspecialists could unload massive amountsof stock back to the public and institutions,which they have accumulated over the lastfive weeks of declining stock prices beforeagain moving stock prices dramatically,lower for their final accumulation purposes.It would make absolutely no sense for themto continue lower with the entire inventorythat they picked up at higher stock prices.They would be loosing money on everypoint that their collective stocks decline.They only want to accumulate stock for their personal investing accounts at themarkets/stocks lows.To prove my point I will give you twoexamples to drawn your own conclusionsfrom:
1
) In 1982 when Ronald Regan wasPresident and Paul Volker was head of theFederal Reserve interest rates were nearing17 percent. The economy was in shreds,but the stock market was at an all time high.Conversely, in 1994 when interest rates hadbeen lowered to 3 ½ percent to stimulatethe economy the stock market was mired inthe middle of an 18 month “
Bear Market
”.
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Specialist Use of the Federal Reserve by Richard Ney
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| Category: | Uncategorized. |
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| Upload Date: | 11/28/2009 |
| Copyright: | Attribution Non-commercial |
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