It’s a word you hear commonly associated with breaking news, interest rate cuts and other tidbits of information flying across your screen.  The market has already “priced in” the difference of a 50pt cut in the overnight federal funds rate.  What is priced in?

The term “priced in” is a fancy way to say that the market expects this event to happen and has already affected the prices on the market before it happens.  Even in this day and age of technological innovation the small trader is left out of the loop of most financial information and by the time it hit’s the public, the difference is already “priced in.”

In this specific example, the interest rate cut of 50 basis points is expected by the market.  Investors would expect no more nor less from the Federal Reserve Board when they meet to discuss the overnight federal funds rate, or the rate at which money is lent to member banks.  The expected cuts are priced in because investors probably made trades on companies based on the cut.  It is likely that bigger investments were made in banks as lower rates means lower foreclosures, or that more money flows into debt ridden companies which will now be able to borrow at low low rates.

The term “priced in” is usually associated with any news or even that has not yet occurred but has already affected the market.  Chances are, before the public heard about Microsoft’s takeover bid for Yahoo, investment dollars were already moving into Yahoo to benefit from the wild speculation.  It is almost impossible for the individual investor to get a hold of information before the market adjusts for it.

You’ll hear the term many more times as we near the FED meeting.  If the FED does cut the rate by .5%, expect little reaction by the Fed.  A cut of just a quarter point might lead people to think the FED is too concerned with inflation and start selling shares.  A larger rate cut might signify that the Federal Reserve is very worried about recession and the market will sell off.  Today’s close is likely the level we will see if the rate cut goes as expected, any divergence will likely bring a massive sell off.

The Federal Reserve Board has the power to manipulate the US money supply through the change of interest rates or by selling off large amounts of credit to member banks. By altering the money supply, the Federal Reserve Board can effectively thwart off recession, or a market contraction.

The Federal Reserve commonly raises and lowers the key interest rates at which it lends money to member banks, or banks that make up the Federal Reserve. Recently, the Federal Reserve lowered interest rates to spur borrowing, increasing the current money supply. Raising the money supply is the most commonly used tactic to offset a market recession or two consecutive quarters of negative GDP growth.

To the markets, the word recession is everything. When word of recession hits Wall Street, the market responds by massive sell offs, wiping off whole percentage points in a matter of minutes. For this reason, it is important to keep economic numbers high and promote GDP growth. 

Gross Domestic Product is equal to consumption + gross investment + government spending + (exports − imports), more simply, all money spent and invested plus all exports. The statistic is based on the dollar, thus an increase in money supply will bring up GDP.

To thwart off the risk of recession, the Federal Reserve Board acted to sell $60 Billion dollars in new credit in January and February. This added $120Billion to the money supply and sent Gross Domestic Product numbers back up, ending the recession by definition. By lowering interest rates, the Federal Reserve hopes to spur borrowing and further add more credit to the system.

For the time being, the Federal Reserve’s actions have put off an economic recession but the long term economics remain the same. The threat of recession is always here with a serious real estate crunch. As home prices deflate the market shrinks, this recession cannot be put off indefinitely by rate changes and market manipulation, investors must own up to economic nature.

Hello everyone,

I’d like to make a quick announcement that we are almost done setting up the forum. We have been very busy setting everything up, hence the lack of posts over the past ten days. So sorry about that, the rate of posting will improve very soon!

So, if you haven’t already signed up to be notified this is the time to do it.

The forum will come online sometimes in January. To be precise, we are aiming for January 10. This forum will be everything you ever wanted from the financial community. We will always be there to answer any financial questions you might have. You will also be able to meet other people with similar interests, exchange investing ideas, tips and tricks, and much more.

There will also be over $1,000 in prizes for members who joined during the first couple of weeks, so make sure you stop by to learn more.

To be notified you can just enter your email address and name here.

And do not worry. We hate spam as much as you do!

Pretty much everyone knows that the name of the game is to get a good rate of return on your money. After all, you do not have to be a genius to know that getting 8% on your money is a better thing than getting a 6% rate of return. But, just how much better is it?

How long until your money doubles?

If you have a 12% average rate of return on your money (say, in an index fund), then your money will, all things being equal, double in just six years. Drop your rate of return down to 10% (still respectable by anyone’s definition) and now it takes a bit over seven years to double. Bump your rate of return up a bit and get a 13% average and your money doubles in 5 and a half years.

If you do not happen to be a math super genius, you can calculate how long it will take your money to double at a given interst rate by useing the rule of 72.

Money invested at 1% interest will double every 72 years. If you get a higher rate of return, just divide 72 by the rate of return and the answer is the number of years until your investment fund doubles.

Example:

I have $1000 and will put it in the bank at 5% interest. How long until I have $2000?

72 divided by 5 = 14.4 years (better not need it soon!).

While not precise, it is accurate enough for quick calculation and quickly shows the value in getting the highest rate of return possible on your money.

Yesterday I got an email from Sharebuilder letting me know that they have been acquired by ING DIRECT. ING Direct is the American banking subsidiary of Dutch-based insurance and banking giant ING Groep NV. I am pretty sure that all Sharebuilder’s customers got this email as well.

Sharebuilder is one of my favorite online brokers and I usually recommend it to Coolinvesting readers, who are mostly beginner investors, mainly because Sharebuilder has no minimum balance to open an account and no inactivity fees.

Time will tell what kind of change this will bring to over 661,000 Sharebuilder’s customers (including myself, and I am sure many of you) who hold over 2 million accounts.

It is still not know what will hapepen to Sharebuilder’s 170 employees, but considering that that the company is looking for a larger office space in downtown Bellevue, it looks like they are about to expand even more.

This acquisition is in line with ING Direct’s aim to become the world’s most preferred consumer bank by expanding geographically and developing its product range, while focusing on growing its mortgage business and investment services,” said Dick Harryvan, ING Group executive board member and CEO of ING Direct, in a statement.

ING paid $220 million to acquire Sharebuilder.

Most of people probably think that the falling dollar will negatively affect American economy. As a matter of fact, there are many good things that will come out of it.

If you are American working for a large company such as Boeing or Ford, this is actually good news for you, because falling dollar should result in higher demand for American products that are being exported all over the world.  In general, falling dollar will be somewhat bad news for the rest of the world since it will cut the competitiveness of exports of other nations, and great news for American exporters since they will be able to snap larger share in the competition in a weakening world marketplace.

The bad side is that if you enjoy driving European cars and eating European food, falling dollar might somewhat lower your living standards. The weaker dollar will definitely result in stronger euro.

Also, falling dollar can raise inflation rate since imports are now more expensive. However, so far this was not the case. Nor has it resulted in any declines in the stock market…yet.

Eric Schwarts, the chief executive and founder of Cambridge Investment Research (a company that has provided comprehensive investment services to both individual and corporate clients sinc 1981) has made Amy Webber the new president of the company. Amy Webber, who already holds the position of chief operations officer, will also keep that title and continue her work through it.

With the change, Mr. Schwartz will be assuming the role of chairman, a role, which he has informed everyone, that he has filled informally in the pastAnother promotion within the company was to make Jim Guy the first executive vice president. Mr. Guy was formerly the chief marketing officer for the firm. The promotions were made in order to prepare for the whole new leadership generation.

The move has been coming for some time, as Ms. Webber already had most of the departments in the firm reporting to her, with the exception of marketing and recruiting. Mr. Schwartz said that the promotion was something that was an outward showing of what had been already happening for a long time.

Last year, Cambridge reportedly had a gross revenue of 193.4 million dollars, which was an increase of almost 29% since the year before. This information is verified by a survey that was given to independent dealer-brokers by InvestmentNews.

…Canadian dollar. Yes it is true. I suppose it was just a matter of time before it happened.

Click here and see for your self.

And here is the chart:

There are many reasons for this so in one of the upcoming posts I will explain why is the US dollar falling so fast.

A few days ago I talked about how rumors of Macy’s (NYSE:M) takeover resurfaced, and how its investors will make nice gains if takeover takes place. On contrary, if takeover does not happen there will certainly be a drop in stock price.

Exactly that happened yesterday to Harman International Industries Inc. (NYSE:HAR) (brands include Infinity, JBL and Harman Kardon), when two equity firms backed out of their $8 billion buyout of the company. Shares of Harman dropped $27.25, or whooping 24.3 percent, to $85. Let me quickly explain why this happens. When company plans to buy another company, often shares of the company being bought go up because the buyer usually buys shares at higher than current price. On the other hand, shares of the buyer go down, because buyer must spend a lot of money to acquire another company.

Some investors use this to their advantage. For example, if the sale is considered imminent, many investors may buy shares of the company being acquired expecting the price will go up. They also sell short shares of the buyer, expecting that the price will go down.

A lot of money can be made this way, but without being very knowledgeable on the whole deal, you are gambling with your money. Just imagine how much money was lost in Harman case, because the deal was cut short.

Is Macy’s (M) about to be sold? There certainly does seem to be something brewing on the horizon. This past Friday, shares in Macy’s stock were up, and it appears that the company could be right at the brink of a takeover.

An analyst for Interactive Brokers Group by the name of Rebecca Darst has said that there have been plenty of rumors that a Macy’s takeover could happen for months now. There are rumors that have recently been renewed that it may be Edward Lampert who is interested in purchasing Macy’s. Mr. Lampert already controls Sear’s Holing Corporation.

The gossip about a possible takeover began in the early summer months, when the stores were showing a decline in sales that had been open for a year or more. As well as Mr. Lampert, another acquirer that has been rumored is Kohlberg Kravis Roberts & Company.

Bloomingdale’s and Macy’s both reported a rise in August sales which far exceeded expectations. These changes were noted in stores that had been open at least a fiscal year.
So, is there a takeover of Macy’s in the works? Will the company be bought out? We can only wait and see if the rumors are indeed true. But one thing is certain. If buyout eventually happens, owners of Macy’s shares can expect nice gains on their investment. If not, the stock price will almost certainly go down.