Herb, re: Those pesky rates, you try scrubbing, try soaking, and still...
You are absolutely correct, sir!
<...Using the flow of funds theory that money gravitates to the
best investment at any given time . When money goes from stocks
to bonds this will slow down the stockmarket over the short run...>
But to gravitate to the "best investment" (risk vs. return),
interest rates must rise not decline for bonds to be
more profitable (syn: attractive, interesting) than stocks.
<...The above movement of funds, from stocks to bonds, will lower
interest rates and that in turn will be good for stocks over the
long run...>
Yes, we agree, though it bears mentioning that the rate increase
to induce a transition toward bonds will cause a nice
correction in the stock market. There is hope after all.
<...It's conceivable that interest rates will be as much as 1% or
more lower a year from now than what they are today caused by the
shift of funds from stocks to bonds.>
Let us say that a short-term interest hike would calm down
the market, induce the exodus, with the exodus creating the 1%
decrease a year from now. We're sort of getting at the same thing
here, but as our good friend 'Wimpy' (Popeye) once said,
"I would gladly agree with you tomorrow, for a rate increase today."
<...What many people cannot conceive is that money is a commodity
onto itself and the more there is of it the cheaper it will be to
borrow money . When you have money chasing bonds the interest rates
will have now where to go but down...>
Yep, we're almost on the same page finally. But remember, as
a bond issuer, you must offer the attractive rate to get the
money you are chasing. Later, when money is flocking to you, then
the rates can go down.
But -- we've been batting this back and forth all afternoon,
my cyberfriend. Let us instead have a cyberbeer and raise a
cybertoast to our presumable good fortune in the future!
-MrB |
