Pharos-Tribune

Opinion

May 14, 2013

MARCUS: Where to put your money

Snail Smith’s real name is Stanley, but his contorted windup and slow pitches gave him the nickname, Snail, during his short baseball career.

“What?” Snail asked the word slowly but clearly said.

“What what?” I responded.

“What should a person do about it?” Snail said.

“It being what?” I asked.

“Money,” he said. “What should a person do about money? Particularly if they are going up.”

 “What’s going up?” I was getting confused.

“Interest rates,” he asserted.

“Interest rates are holding fairly steady,” I said. “Thanks to the perhaps mistaken policy of the Federal Reserve, interest rates are virtually guaranteed not to rise until 2015.”

“But if they do, what do you do with it?” Snail asked again. “Where do you put it? Different economists have different ideas.”

“Right,” I said. “Some economists will tell you that the stock market will fall if interest rates rise. What they mean is that the price of any particular stock will decline unless the company can raise its dividend rate so that the yield on the stock maintains its risk differential vs. the market interest rate.”

“You understand what you just said?” Snail asked.

“Yes, imperfectly, but yes,” I confessed. “Bonds are similar. If interest rates rise, the fixed interest payment on a bond is less attractive and the price of the bond declines.”

“So bonds and stocks both lose value when interest rates rise,” Snail said.

“More or less,” I said cautiously. “Each firm and each bond offering is different, and you can only expect a general tendency of movement in prices. Plus, if you hold a bond to maturity, its face value does not change and your capital is protected. Then too, stocks can rebound quickly, as we have seen, with changes in expectations about economic conditions.”

“How about gold?” Snail asked.

“Sterile,” I sneered my best economist sneer. “Gold itself pays no dividends or interest. Its basic value rests on the costs of production and the demand for gold in industry and fashion. Then there is the speculative demand for gold, a factor based on fluctuations in fear about inflation and the value of money itself.”

“Will higher interest rates mean higher commodity prices for copper and corn and such?” Snail wanted to know. “Should I put my money there to protect against inflation?”

“What’s this concern with inflation?” I said.

“If interest rates rise, won’t prices in general rise giving us inflation, a decline in the value of money?” Snail said.

“Maybe,” I said. “Modest increases in interest rates do not necessarily bring about inflation or deflation. Much depends on the fundamental factors underlying demand and supply of goods and services in the economy.”

“You know,” Snail said, “In baseball some guys threw a pitch that was hard to hit. It twisted and turned, and we called those guys what I must call you, “Screwball.”

Morton J. Marcus is an economist, writer and speaker formerly with the Kelley School of Business at Indiana University. He can be reached at mortonjmarcus@yahoo.com.

1
Text Only | Photo Reprints
Opinion
  • WILLIAMS: America still the dream Is America really in as bad as shape like many people say it is? I’m 67 and when I look around, I don’t see it.Everything isn’t great but believe it or not, there has never been a time when everything was great, not even in those innocent Fifties we

    July 31, 2014

  • OUR VIEW: Every town that has any sort of waterway -- whether it be a river or a creek or just a stream -- knows it will be used as a trash can. And oftentimes, tires are a favorite trash to be tossed into the waterways. Many organizations and concerned citize

    July 31, 2014

  • WERNER: The mystery of the Indian grave at Dykeman Last summer I contacted Thelma Conrad, executive director of the Cass County Historical Society, to ask her if she had any information on the Indian grave at Dykeman Park. Thelma had heard of it but had never seen the small marker that tells of the I

    July 31, 2014

  • THEIR VIEW: Data confirms our obsession with sports Of the five highest paid employees of Indiana University, three are involved with athletics. That was the case in 2013 as well.In new evidence that spending on athletic department salaries is outpacing the rest of the university, if not the vast majo

    July 30, 2014

  • RAMPBELL: Keeping the sick at home Something strange happened here this week: Lots of workers who’ve never done so before got the right to call in sick. And that’s a good thing.The Big Apple, you see, is joining a handful of other trailblazing cities such as Washington, San Francisco

    July 30, 2014

  • KITCHELL: Patacsil was no ordinary Joe Somebody forgot to tell Joe Patacsil that if he wanted to wrestle at a Big Ten university with black and gold as its school colors ... well, most people who know anything about college wrestling today might have said he picked the wrong one -- Purdue

    July 30, 2014

  • MARCUS: The higher education funding mess Public higher education financing is unsustainable as currently configured. This conclusion was reached by two important groups over the past two years. The National Association of State Budget Officers and the State Higher Education Executive Office

    July 29, 2014

  • PUBLIC FORUM: Are businesses missing out on interns? Are businesses missingout on interns?Admittedly we’re a little biased, but the Indiana INTERNnet and Indiana Chamber teams believe your company is not operating at full capacity if you aren’t hosting an internship program. Missing out on increased pr

    July 29, 2014

  • VILLAGE IDIOT: The state of the reunion “Katy! It’s been so long! How’ve you been?”My God, she’s gained so much weight I didn’t recognize her. It’s a good thing we’re all wearing nametags. I thought it was some distant cousin past due with triplets.“Bob! Long time, no see.”No hair, either.

    July 29, 2014

  • OUR VIEW: Indiana's right-to-work law unnecessary It has been a crime for Indiana employers to enter into labor contracts that require workers to pay union dues since Feb. 1, 2012 — the day then-Gov. Mitch Daniels signed legislation making the Hoosier State a “right-to-work” state.Whether Indiana ke

    July 29, 2014

Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Poll

Should grocery and convenience stores be allowed to sell cold beer?

Yes
No
Unsure
     View Results
Featured Ads
AP Video
Fighting Blocks Access to Ukraine Crash Site Dangerous Bacteria Kills One in Florida Workers Dig for Survivors After India Landslide Texas Scientists Study Ebola Virus Smartphone Powered Paper Plane Debuts at Airshow Southern Accent Reduction Class Cancelled in TN Raw: Deadly Landslide Hits Indian Village Obama Chides House GOP for Pursuing Lawsuit New Bill Aims to Curb Sexual Assault on Campus Russia Counts Cost of New US, EU Sanctions 3Doodler Bring 3-D Printing to Your Hand Six PA Cops Indicted for Robbing Drug Dealers Britain Testing Driverless Cars on Roadways Raw: Thousands Flocking to German Crop Circle At Least 20 Chikungunya Cases in New Jersey Raw: Obama Eats Ribs in Kansas City In Virginia, the Rise of a New Space Coast Raw: Otters Enjoy Water Slides at Japan Zoo NCAA Settles Head-injury Suit, Will Change Rules Raw: Amphibious Landing Practice in Hawaii
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.