Why are interest rates generally so low at the moment?

Tuesday, 7 April, 2015

The message is pretty clear, even if you only occasionally take in the finance news, interest rates, in the West at least, are generally pretty low right now. In the US and Europe for instance, central banks rates are pretty close to zero, if not lower.

Interest rates in Australia are trending down as well, fueling concerns of a property bubble in some areas, so cheap has housing finance become in recent years. So why are they so low in the first place? And I guess if Ben Bernanke, former chairman of the US Federal Reserve, cannot answer the question, who can?

In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

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Cat plays the sharemarket and wins

Tuesday, 22 January, 2013

Does this really surprise anyone? A British cat, named Orlando, managed to make more money on the sharemarket last year than the business analysts, and finance students, he was competing against in a share portfolio challenge organised by the Observer newspaper.

Each team invested a notional £5,000 in five companies from the FTSE All-Share index at the start of the year. After every three months, they could exchange any stocks, replacing them with others from the index. By the end of September the professionals had generated £497 of profit compared with £292 managed by Orlando. But an unexpected turnaround in the final quarter has resulted in the cat’s portfolio increasing by an average of 4.2% to end the year at £5,542.60, compared with the professionals’ £5,176.60.

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I’d never have guessed haircuts caused chaos in money markets

Wednesday, 17 August, 2011

Haircuts, but not haircuts as most of us would know them, apparently played a big part in the recent chaos that gripped the world’s money markets.

The cause, it seems, are “haircuts”, Wall Street jargon for the amount subtracted from the market value of an asset, such as a government bond, that is used as security when a bank borrows cash from another bank. During boom times, haircuts range from 1 to 10 per cent, making it easy for bankers to borrow. Having a cheap and plentiful source of ready cash tempts bankers to gamble it on risky and potentially “toxic” investments, as happened in the run-up to the crash in 2008. But in recession, haircuts zoom up as high as 100 per cent as banks rein in their assets, which can paralyse the financial system through a cash-flow drought.

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Your mission: identify the next bubble and stop it from bursting

Tuesday, 28 June, 2011

Is there anyway to predict when bubbles, whether they be of the financial, housing, or tech sort, will burst – so that not so many of us are burnt – or would trying to find out be pointless, given that it is in our nature to speculate?

To better understand the source of our compulsive speculation, Read Montague, a neuroscientist now at Virginia Tech, has begun investigating the formation of bubbles from the perspective of the brain. He argues that the urge to speculate is rooted in our mental software. In particular, bubbles seem to depend on a unique human talent called “fictive learning,” which is the ability to learn from hypothetical scenarios and counterfactual questions. In other words, people don’t just learn from mistakes they’ve actually made, they’re able to learn from mistakes they might have made, if only they’d done something different.

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A tip for choosing your fund and investment managers

Monday, 2 May, 2011

Hedge funds managed by women showed significantly more return for their investors than those administered by men, according to finanical services company Bloomberg.

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A new sharemarket index indicator, the sentiment on Twitter

Friday, 22 October, 2010

Analysing the mood of Twitter users, based on their tweets, can be used with some accuracy in predicting values of the Dow Jones Industrial Average, the US stock market index, up to as much as six days in advance, after a correlation between the Dow’s values and the general mood of tweets recently came to light.

One tool, OpinionFinder, analyzed the tweets to provide a positive or negative daily time series of public mood. The second tool, Google-Profile of Mood States (GPOMS), measured the mood of tweets in six dimensions: calm, alert, sure, vital, kind, and happy. Together, the two tools provided the researchers with seven public mood time series that could then be set against a similar daily time series of Dow Jones closing values. The researchers then correlated the two sets of values – Dow Jones and public mood – and used a self-organizing network model to test a hypothesis that predicting stock market closing values could be improved by including public mood measurements.

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Invest on the day of a blue moon but not a total solar eclipse

Friday, 24 July, 2009

Apparently many share investors are very superstitious, and tend to refrain from buying shares, and making other investment decisions, on days when there is an eclipse.

Using four broad indices of the U.S. stock market, we uncover strong evidence in support of our superstition hypothesis in four distinct ways. First, the occurrence of negative superstitious events (i.e. eclipses) is associated with below-average stock returns, which is consistent with a diminished buying pressure coming from the superstitious.

So… as I see it, buying shares or stocks on the day of an eclipse might be a good idea as you could be buying at a lower price, which you can later sell at profit once the superstitious investors have returned to the market and buoyed it back up again.

Via Marginal Revolution.

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Recessions and art and $100,000 means something again

Friday, 17 July, 2009

Hmm, one reason investors buy artworks during economic downturns is because a substantial sum of money, such as US$100,000, once again feels like a substantial sum of money.

Art Basel’s buoyancy this year has several causes: the return of fervent collectors who prefer to buy in a down market; the swift reaction of dealers willing to lower their prices to ensure a sale (collectors were in a good mood because “$100,000 means something again”); the perception that art is more solid than some other asset classes; and the keenness of many buyers to divert savings out of their Swiss bank accounts.

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Stradivarius violins proving a good recessionary investment

Thursday, 11 June, 2009

Despite the economic downturn, some classical music instruments are proving to be a good investment for their owners, with values not only remaining stable, but even showing modest increases. At least this is the case for instruments worth more than US$100,000, particularly violins, and especially those made by the likes of Stradivari, Amati and Guarneri del Gesù.

“The instruments that sell for more than $1 million are a small percentage of the overall market,” says Philip Margolis, a string-instrument analyst based in Rapperswil, Switzerland. “These are the ones you hear about, but there are maybe 500 in the world. But musicians use tens of thousands of instruments in the $30,000 to $500,000 range,” says Margolis, who founded Cozio.com, which has information on more than 11,000 instruments worldwide. A small fraction of top instruments surface on the market in a given year, adding a rarity premium to their values.

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One girl could change the world

Monday, 9 June, 2008

The Girl Effect: invest in a girl and she will do the rest.

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