Tuesday, January 10, 2006

Money and Housing

Good signs

The big financial news yesterday was that the stock market finally rose above 11,000 for the first time since 9/11. As Workers of the World Relax wrote about December 11 the macroeconomy is now making the necessary adjustments to put the economy on a natural, "hard" investment- intead of real estate- oriented footing. This portends well for us workers (and ALL of US are workers, and more than 50% of Americans own stock). A steady but growing stock market means better investment options for our longterm, and it also means that our money is going into productivity-enhancing capital investment which promotes growing wages and standards of living.

Some are worried that we now have an inverted yield curve. An inverted yield curve is where longterm US government borrowings are less expensive than shorter borrowings; this is counter-intuitive to the notion that longer term means higher risk and therefore requires higher returns. An inverted yield curve historically means that the masters of the universe (financial market makers) think that there will be a slow down in the economy. I think that this is just part of the correction from real-estate - which is very interest-rate sensitive - towards equities, which have been below their historic growth trend since at least 9/11, and not a slowdown.

Many make their living recommending this or that or predicting this or that, I am just making some observations. Buy low, sell high and work hard.