Market Influences
What investors want
Investors look for ways to make money in return for use of their money. How much they expect to make is influenced by the risk they are taking, what their alternatives are, and their perception of prospects for the future.
Variety of investments
There seem to be no limits on the kinds of investments that can be thought up. Investments can be loans to be paid back with interest or an ownership stake (equity) in a business venture, or a combination. Loans can be secured, convertible (into equity), have variable interest rates or none or some combination of the above. Equities come in just as many flavors with classes of common and preferred shares.
Business cycles
Business cycles show up in interest rates, economic growth (Gross Domestic Product [GDP]), unemployment, monetary growth, and inflation. In the past 100 years we have seen long periods of economic contraction, including deflation and panics; long periods of expansion; periods of inflation; long periods between recessions; and short periods between recessions. These all influenced their investment climate and were influenced by government policies of intervention or laissez faire or some combination.
Central banking & Government influences
In the U.S. our banking system is regulated by the federal government which delegated much of the oversight and administration to the Federal Reserve (the Fed) central banking system. We can get deeper into the Fed sometime, but for now, just know that the Fed manages our money supply and influences interest rates. Rest assured, the government is taking care of things for you.
I can see the government is taking care of things for us. The U.S. Adjusted Monetary Base went up 75% in the 4th quarter of 2008. I suppose if they just inflate prices that will prop up the real estate values and solve everything. It inspires such confidence.
It’s kind of like Reagan said the words you never want to hear are “I am from the government and I am here to help you.”