The most important price in the world is the price of money because it affects the price of everything else. How much does it cost in the future to get enough money to buy that tractor now? A farmer knows how much more corn he’ll get by having a newer, larger tractor. He knows the value of the tractor, but the price he’s able to pay depends on the interest rate. The price of money.
If the farmer decides to buy the tractor now, he’ll improve the productivity of the farm. The tractor maker will show a profit and hire more workers. Those tractor workers will buy cars to get to work. The car maker will show a profit and hire more car workers. Those workers will buy houses. You get the point. Lots of good things will happen in the economy if our favorite farmer decides to buy a tractor.
But there is a small catch. He will pay for that tractor in the future. The tractor he buys today means he can’t buy one next year. There is no free lunch. Sandwiches do cost money and the sandwich we eat today can’t be eaten tomorrow. Tractors are similar. But, the interest rate, will determine when the farmer buys the tractor and at what price. By way of example, if he qualifies for a 72 month 0.9% interest only loan, he will likely decide differently about that $100,000 tractor, then if he must come up with $10,000 in interest each year.
We write all that about farming and tractors to say this. The United States is the center of capitalism for the whole world. However, the very most important price, the price of money, is set by a committee sitting in a dark, smoke filled room. Seriously. Okay, it’s 2017 so the room is probably neither dark, nor smoke filled, but the effect is the same. The unelected Federal Reserve sets the most important price in the world by mandate.
SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR. INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS. ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.