Investing: ”How do interest rates affect investment returns?”

<p>Detailed Notes:</p> <p>The Relationship Between Ms. Market, the Currency, and Investment Grade Assets:</p> <p>(Ms. Market is my spin on Warren Buffett's famous Mr. Market references in his annual letters in the 80s and 90s)</p> <p> </p> <p>Interest rates reflect Ms. Market's (the collective mind of all participants) interest in a currency.  </p> <p> </p> <p>For the sake of simplicity, let’s define a currency as the most accepted form of money in an economy for buying and selling goods and services.  </p> <p> </p> <p>For now, the currency for our economy and the global economy is the dollar so for the most part when you are hearing about interest rates in business and financial news they are talking about the rate of interest paid for borrowing dollars in the short term.  </p> <p> </p> <p>Why would anyone need to borrow money in the short term?  There are tons of reasons, but the  most important reason in the context of a large economy is to cover short term expenses for businesses and governments that can’t be covered by the cash they have in the bank.  Because so much business is done through credit (buy now and pay later), it is super common for businesses to need to borrow money to run operations while they are waiting for payment on products they’ve already sold or services they have already performed.   </p> <p> </p> <p>I like to picture the relationship between Ms. Market’s interest in dollars vs her interest in investment grade assets as a seesaw with dollars on one end and investment grade assets on the other. Higher than expected short interest rate, reflects Ms. Market’s higher interest in owning dollars and her lower interest in owning investment grade assets (stocks, real estate, cryptocurrencies, etc).  Lower than expected short term interest rates reflect her lower interest in dollars and her higher interest in investment grade assets.</p> <p> </p> <p>The Consequences of Manipulating Ms. Market</p> <p> </p> <p>The Federal Reserve (The Fed) is the banking organization for the US Government.  It