The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

PART 2

INTEREST RATES, COMMODITY PRICES, REAL ESTATE, AND INFLATION

As an economics undergraduate, I had trouble getting a handle on interest rates. They always seemed somehow mysterious. Were they a cause or a result? It seemed that the professors had conspired to make the whole subject complex. But interest rates are nothing more than what you pay to rent money—the price of money, if you will—which isn't much different from the price of anything else. The same kinds of phenomena that boost other prices tend to boost interest rates, too. In this section you will not only learn about interest rates, but about many of those other prices too, like commodity prices, wholesale prices, real estate prices, and inflation in general.

Interest Rate Movements

One of the beauties of graphic visualizations is that you can see at a glance what took others years to learn. For starters, you will see that long-term and short-term interest rates tend to go up and down at the same time, but not by the same amount. Short-term interest rates, such as rates for 90-day Treasury bills, tend to be more volatile than for 30-year Treasury notes. That makes sense when you understand how emotional the financial markets are. Wall Street has a uniquely hysterical way of thinking that the world will end tomorrow but be fully recovered in the long run, and then a few years later believing that the immediate future is rosy but in the long term the subway still stinks.

Also, you will see that short-term rates are ...