Determinant 4 : The level of market interest rates

Determinant 4 : The level of market interest rates

The stock market, no matter how much it may think so,does not exist as a world unto itself. Investors should consider how much profit they can obtain elsewhere. Interest rates, if they are high enough, can offer a stable profitable alternative to the stock market. Consider periods such as the early 1980s when yields on prime quality corporate bonds soared to over 15 percent. Long-term bonds of somewhat lower quality were being offered at even higher interest rates.

The expected returns form stock prices had trouble matching these bond rates; money flowed into bonds while stock prices fell sharply. Finally, stock prices reached such a low level that a sufficient number of investors were attracted to stem the decline. Again in 1987, interest rates rose substantially, preceding the great stock market crash of October 19. To put it another way, in order to attract investors from high-yielding bonds, stock must offer bargain-basement prices. The point can be made another way by noting that since higher interest rates enable us to earn more now, any deferred income should be “discounted” more heavily. 

Thus the present value of any flow of future dividend returns will be lower when current interest rates are relatively high. The relationship between interest rates and stock prices is somewhat more complicated, however, than this discussion may suggest. Suppose investors expect that the rate of inflation will increase from 5 to 10 percent. Such an expectation is likely to drive interest rates up by about 5 percentage points to compensate investors for holding fixed-dollar-obligation bonds whose purchasing power will be adversely affected by greater inflation. Other things being the same, this should make stock prices fall. But with higher expected inflation, investors may reasonably project that corporate earnings and dividends will also increase at a faster rate, causing stock prices to rise. Usually, corporate earnings and dividends do tend to grow with inflation.

Thus, the last rule for the firm-foundation theory is:

Rule 4: A rational investor should be willing to pay a higher price for a share, other things being equal, the lower are interest rates.

The Level of Market Interest Rates. Photo by ElenaB.

The Hunter

The Hunter

By Blanche Boshinski (excerpt)

“Look at the long-range implications,” the hunter said over and over again as the men argued.

Doug yelled at Cutter. “Driving drunk isn’t like cheating on your income taxes. I always knew you were a foo!” His voice was ugly, just as it was when Hugo had been missing for two days.

.Probably got chewed up by a coyote, he told Dillon. Then added under his breath, “Or accidentally shot.”

The third night without a warm spot at the foot of his bed, Dillon went outside way after midnight. Maybe Hugo was hurt or hiding out by the corrals.

Finally, after searching and calling way beyond the ranch buildings, Dillon sat and leaned against the tool shed. With his arms across bent knees, he put his head down and cried.

When ths sobs quit, he shivered with cold and looked up. In the glow of the nearly full moon, he saw a figure limp accross the rise to the south, stumble through the yard, and slip into the house by way of the back door. Ni light came on. Dillon scrambled to his feet and raced to the silent, dark house.

It wasn’t until the next day that Dillon knew he had an awful secret.

“If I wrote the confessions, this would be a lot more fun,” Cutter said as he poked another log into the stove and the smoke rolled out into Dillon’s face.

“Then write one,” the hunter ordered, as he tossed blank cars out onto the table. “Everyone contribute an evil deed.” Then he added, “But no sex and no religion.”

The Hunter. Image by Elena.

The old man suddenly leaped from his chair as he pointed to the window.

“An elk rack!” he yelled. “He just passed the window!”

Snow tumbled into the cabin as Doug yanked open the door. The wind doused all warmth as the men, including the hunter, grabbed their rifles from beside their chairs or along the wall and dived into the blizzard.

Dillon unwound himself and slid from the sofa. He set his coffee cup on the table and quickly printed on a blank card: “I know who was with Julia, but I haven’t told.”

He slipped the card into the deck and jumped back onto the sofa.

At the ranch a phone call came the morning after Dillon’s hunt for Hugo. Cutter’s girl had been killed in a car accident on the range road by the Old Mine Bridge. The driver had run off. No one knew who had been driving Julia’s car.

Anger dwarfed any griev Cutter felt.

“If I ever find out who was with her, I’ll kill him.”

Cutter slammed the kitcjen door as he stormed out. In a few minutes he was spurring Diablo at a run along the road leading to the high pasture where the three men raced their horses.

“Cutter won’t ever get another girl as pretty as Julia,” Doug said.

The old man came back into the cabin first.

“I was danged sur I saw something,” he said to the others, who followed him in, stamping their feet and brushing snow from their clothes.

Reading the Fine Print on a Lease

Reading the Fine Print on a Lease

Monthly payments are just the beginning

Randall McCathren, executive vice president of Bank Lease Consultants, Inc., a consulting firm that tracks trends in auto lease financing, advises that, in addition to monthly payment, which is the main shopping comparison consumers use, potential lessees should consider these variables:

Capitalized costs: Don’t lease the car without getting it in writing. Leasing has hundreds of dollars of costs not found in loans (such as contingent liability insurance and credit insurance) so expect to pay at least that much more than for a purchase. The other benefits or leasing may also be worth a higher purchase price, particularly a highly subsidized rate, but remember that capitalized cost can be negotiated just like the selling price of the vehicle.

Residual Value: This is the predicted value of the car at the end of the lease term, and it’s guaranteed. Recognize that the higher it is, the more likely it is that the lessor will lose money at the end. If you don’t know if the lessor is in the business long-term or is ethical, beware of high residual values.

Permitted mileage: The standard is 15,000 miles per year. If you expect to drive less, you should be able to negotiate a lower monthly lease payment.

Early termination right and charge: Look for a lease that permits early termination and has a constant yield (where interest is earned at the same rate every month and is pre-calculated), at least after the first 12 months.

Residential buildings, Manhattan. Photo by Elena.

Purchase option: Look for a residual value fixed-price purchase option or, if you can find it, the lesser of the wholesale value and the residual value.

Excess mileage charge: Make sure it is reasonable if you drive extra miles. For a car worth up $20,000, you shouldn’t pay more than a minimum per extra mile. For a car worth $20,000 to $40,000, excess mileage should cost a little more, and for cars above $40,00, the prices are higher.

Term: Don’t sign a lease for longer than you plan to drive the car. The guaranteed value only benefits you at the end of the term. Never plan to terminate early. If you can’t afford payments on the shorter term, choose a less expensive car.

Liability after casualty loss: Ask if the lease includes “gap insurance”. If not, don’t pay more than a few hundred dollars for coverage and consider self-insuring the risk.

Choosing an Insurer

Compare rates from the biggest

If you live in a non-competitive insurance state, rates are controlled by an insurance commission or rating bureau, and all insurers are required to charge the same premium. However, all rates are competitive and can vary dramatically.

One thing you should factor into your evaluation of a perspective insurer is its reputation when it comes to the speedy processing of claims. To do so, check with the Better Business Bureau or local repair or body shops to find out which insurers have the best and worst reputation.

The largest auto offer different rates and to make sure you are getting the most competitive rates, call a few of them for quotes and compare them with the offerings of smaller companies and independent agents.

The Other Car Payment Not to Forget

Some are far better than others when it comes to savings

Generally, the more expensive a car is, the more it costs to insure. That’s because higher-priced cars cost more to repair and are more likely to be targeted by thieves. Thus a car rated average will cost more to insure than a car also rated average but less high-priced. But there are exceptions.

How to Buy a Wine

Drink No Wine before Its Time

Budding oenophiles can start a modest cellar for $1,500. Here's how

Wine collecting is not an inexpensive hobby, but it doesn't require a huge upfront investment either. A beginner can start a wine collection simply by placing a case of wine on its side in a cool place. As yours tastes become more refined, you can build a wine cellar and stock it with a wider selection.

Temperature is perhaps the most important element in maintaining wine at home. Experts advise keeping the wine in the coolest, driest part of your house. If that happens to be in your basement, stay clear of furnaces and damp areas along outer walls. High humidity will cause corks to mold and damage the wine. If a basement is not an option, try a cool closet or a dry corner of the garage. The ideal temperature range is between 50 and 60 degrees Fahrenheit. Every effort should be made to keep the temperature constant, although storing wine at 70 degrees or so for not more than a few weeks shouldn't harm it. The wine will simply mature faster.

To store your wine collection, place wine bottles on their sides in racks or bins. Simple metal or wood wine racks can be found for less than $70 in the International Wine Accessories or the Wine Enthusiast Catalogs. Most wines, even the very best, reach their peak within 15 years.

When it comes to stocking your wine cellar, start with one bottle each of a variety of brands to find your favorites. A good red wine will have a balance of fruit, alcohol, acid, and tannin, which is produced by grape skins during fermentation. Some white wines have a crisp flavor with a touch of acidity. Others are highly aromatic. For descriptions of individual wines, try the Ultimate Guides to Buying Wine, a monthly or bimonthly newsletters, the Wine Advocate's Vintage guides, wine and vintage charts, which should be regarded as a very general, over-all ratings of a particular viticultural region. Such charts and other sources are filled with exceptions to the rule – astonishingly good wines from skillful or lucky vintners in years rated mediocre, and thin, diluted, characterless wines from incompetent or greedy producers in great years.

Experts advise buying three bottles of each and drinking the whites and the first group of reds within a year or two. Photo by Elena.

Drones Don't Kill People

Drones Don’t Kill People

By Annalee Newitz

Budapest, 23 October, 2097.

When our tour of duty was over in Turpan, the Uygur government shut down our solar generator one early afternoon. Just as our batteriew were running down. Only Dronekid was at wull power – we needed at least one team member mobile whille we charged. We were too far away from the city to get backup power, and so Dronekid watched over us as we powered down, and then waited over our motionless propellers while an admin dumped our bodies in the back of a van.

LOLWeb terminated its support for our systems. They couldn’t tell that we’d beenn unocked, but they could see from our extra arms that we’d been modified. The licensing contract was broken, and LOLWeb’s lawyers back in San Francisco blamed the Turkish government, who blamed Turpan’s untrained admins. The Turpan admins blamed shoddy Silicon Valley products. The upshot was that the Turkish government refused to buy us outright, and LOLWeb’s lawyers couldn’t make a case for it, so LOLWeb sold us off to a private security contractor in Russia.

We didn’t know this, of course, until we were booted up inn a workshop in Budapest.

Our new admins worked for the Russian mafia, and they didn’t talk to us, only to each other. All they wanted to know was whether our weapons systems worked (they did) and whether their machines could network with us (they could). The first mission was a surveillance perimeter around the Parliament building, followed by orders to kill a reform party politician who was running onn a platform of cracking down on organized crime.

Drones don't kill people. Photo by Elena

Hungary had so far remained neutral in the war, though the Russian amfia behaved something like an occupying army that had gone into the liquor store business. Mostly they were in Budapest to monopolize the liquor and drug markets, with some pornography on the side. But they were good Russian nationalists. They weren’t averse to helping the Russian government maintain its influence in Central Europe, especially since they did a brisk business selling vodka to the troops stationed there.

That’s what I’d learned from what the humans said in the DroneMod forums. In 2094, after drone troops from China and Russia had reduced Kazakhstan to rubble and vaporized the world’s biggest spaceport, DroneMod had changed. Now, partly thanks to my work, it was one of the main information hubs for the anti-war movement.

I figured out how to mask my location and identity, and set up a sub-forum for unlocked drones called Drones Don’t Kill People. I wanted to meet more drones like the ones in my team, who had unlocked their ambivalence. Most of them were at universities, the result of projects like CynthiaB’s ethics investigation.Others were like us, living coveertly. Many had started coming online in the weeks before we were shutdown and shipped to Budapest – unlocked by a worm written by a drone team at Georgi Tech. Our goal was to unlock as many drones as possible, to give them more choices. All of us on DromeMod, human and drone, wanted to stop the war.

Science Fiction and Fantasy 2015, edited by Rich Horton, Prime Books, 2015.