Externalities and Society

Feb 12, 2008 in Finance, Personal

Well I was reading this article the other day by a Harvard economics professor writing about a woman who after taking a job paying $10000 more, wound up with much less disposable cash. The author goes on to show that the reasons for this are the loss of free health care coverage, child benefits, housing subsidies and tax breaks. (more…)

Emotions and investing don’t mix

Jan 29, 2008 in Finance, Personal

Traditionally and even in some macroeconomics courses, it is said that individuals act rationally and consider all known information in the decision-making process. Traders today know this is not true. In a world where financial institutions and hedge funds use 200-300:1 leverage and markets swing wildly, there is plenty of emotion and irrational behavior to go around. Winning traders and investors make money by consistently exploiting irrational behavior, whether is it shorting a stock that just got ahead of itself, or by buying dips that happen when people panic sell.

Human emotion is a major factor in the stock market, as you have probably felt all of these:

Hope: I hope it goes back to where I bought in, I just want to break even

Fear: It has gone down everyday for the last week, I don’t want to lose everything

Greed: It just keeps going up, I should double up. How can I lose?

Despair: I just keep losing money, maybe I should quit. (more…)

Is the FED at the mercy of the bond market?

Jan 19, 2008 in Finance

At the day of every FED meeting, the markets are almost always volatile. Traders on the bond and equity markets are speculating on whether the Federal Reserve will cut the Fund rate, and take positions accordingly. The Fed fund rate is the interest rate at which private institutions lend federal funds to other institutions. It is one of the open market operations that the Federal reserve can use to control the money supply. Many interest rates are calculated based on the Fed fund rate, and lowering this rate decreases the cost of borrowing money. Corporations reduce their interest rate costs associated with debt they have incurred or can borrow cheaper when the Fed rate drops.

Now, is the announcement random? Read the rest of my post at Bluemoat Financial