Investing Adventures

MSNBC has released a Q&A regarding liquidity injections into the market, how it works, and what the results of a liquidity injection are.

How does Fed ‘inject’ money into the system?

The Fed operates a trading desk in New York through which is can buy or sell bonds. If it buys bonds, the broker-dealer that sold them gets cash in return. That cash then flows through the system. If the Fed wants to soak up money, it sells bonds from its account — taking cash from the dealer that bought them and taking it out of the system (or “draining” money.) The Fed maintains its own account, so any money being “injected” into the system is not coming directly from the tax dollars collected by the Treasury.

Sometimes, the Fed will restrict these transactions to short-term “repurchase agreements” (or repos) which means the party on the other end of the trade agrees to reverse it after a few days or weeks. This means the shot in the arm is temporary — after the market settles down the money comes back out of the system to avoid pushing inflation higher.

It’s amazing how the market and the country’s economy work. It almost renews my passion for going into business! It’s a great article. If you’re looking to learn the basics of Fed liquidity, check it out. If any of you have other sources (websites, books, articles) dealing with the Fed and the markets drop me a line here. I’m always interested in picking up new material.

I stumbled upon this while over at Spectator Consumer’s blog.  It’s a map from the Wall Street Journal depicting the recent troubles the world markets have been having.  Check it out!

Wall Street Journal – Global Blowup

Their motto is Beat the market. Earn money. TheUpDown.com site is another paper trading (i.e. no money involved) stock simulator with basic functions (buying, selling, shorting, and covering). No options appear to be in play. The site has three methods of earning real money. The first involves beating the S&P 500 for the month. The payout takes into account the spread at which you beat the S&P and your past performance. It appears that making up for lost ground in previous months can add to the earnings. Their second method of earning money involves giving stock analysis. Like or hate a stock? Tell them why. The community votes on your analysis. I can see this process being easily abused. Their last method involves referral signups. For every person you refer, The UpDown will give you 10% of that person’s earnings. Who’s to prevent referring a stock market junkie to the site. There’s a thought!

I’ve been involved with TheUpDown.com for about a week now. Once the month rolls over I’ll let you all know what kind of payouts they’re giving. It may be worthwhile. TheUpDown is currently in closed beta. If you would like to try it leave me a comment and I’ll e-mail you an invitation. It appears that’s the only way they’re letting folks in currently (similar to Google’s Gmail invitations a few years back).

CNBC asked this question on their website yesterday. I submitted a question, and to my surprise, CNBC posted it. Score one for the college grads! See if you can find it on their website.

CNBC Economic Question of the Week