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Thank you for subscribing to the Blue Haven Capital newsletter. We welcome your questions and comments and can be reached via email at info@bluehavencapital.com
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Question: Which would save more energy?
A) A car tuneup and properly inflated automobile tires.
B) Using every single one of the 70 million acres on which corn was grown in 2006 for ethanol production.
Click here for the answer!
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| THE MARKETS
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Stock index performance (Domestic and International)
Domestic Index Performance Year to Date:
Dow Jones Industrial Average................-2.63%
Standard & Poor's 500..........................-5.03%
Russell 2000.......................................-6.12%
International Index Performance Year to Date:
MSCI Japan (in $US)............................-1.11%
MSCI Pacific xJapan (in $US).................-5.99%
MSCI Latin America (in $US).................. 7.26%
Interest Rates:
10 year US Treasuries...........................3.77%
10 year AAA rated municipal bonds..........3.74% |
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| FED FUNDS RATE AND DISCOUNT RATE
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What is the Fed Funds Rate?
We often hear about the Federal Reserve Funds Rate, or "Fed Funds Rate", especially lately: "The Fed has lowered the Fed Funds Target Rate from 2 1/4% to 2%..." But what is the Fed Funds rate exactly?
Banks are required to maintain a certain amount of money "in reserve" so to speak. The money that is held in reserve is actually held at the Federal Reserve and tends to be approximately 10% of what the bank holds overall in things like savings and checking accounts for its clients. Let's imagine a bank that holds $100,000 in checking and savings accounts for all its clients. It is probably required to keep a approximately 10% (or $10,000) in reserve at the Federal Reserve. Now imagine that someone comes and borrows some money from the bank to buy a car. Now the bank has less money "in reserve" and must go get some money to bring its reserves back up. The fastest way for a bank to do that is to go to the Federal Reserve and borrow money from another bank's reserves- a bank that may have excess reserves. The borrowing is done overnight and through the Federal Reserve, which is why the Fed Funds rate is also called the "overnight rate." The next day, the bank that made the car loan may find that some extra money got deposited to its checking and savings accounts and that it will no longer need to borrow "overnight." The Fed Funds rate, or "overnight rate" is actually just a target rate...the actual Fed Funds rate is agreed upon by the borrowing bank and the lending bank which both transact their business at the Federal Reserve.
What is the Discount Rate?
Let's go back to our example above. Let's say that our bank still needs to borrow money...but that there are no other banks around with excess funds to lend at the Federal Reserve. Our bank still needs some money to keep up its reserves, so it actually borrows from the Federal Reserve itself. Our imaginary bank goes to the Discount Window at the Federal Reserve and borrows directly from the Fed. The rate charged is the "Discount Rate" and is set by the Federal Reserve. The Fed's Discount Rate is usually slightly higher than the Fed Funds rate.
The Fed most recently lowered the Fed Funds Target Rate and the Discount rate on April 30, 2008. Currently, the Fed Funds target rate is 2%, and the Discount Rate is 2 1/4%
Why does it matter?
Money is like anything else. When it is cheap, people want more of it. They borrow it to start new businesses, to buy new cars, bigger houses, etc. By lowering both the Fed Funds Target Rate and the Discount Rate, the Fed makes access to money cheaper, and this stimulates the economy. |
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| ECO RESPONSIBLE LAWN MOWING
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Reel Mowers
With gasoline prices quickly approaching $4 per gallon, and with an increased sensitivity to air and noise pollution, many people are curious about the reel type push mower for their lawn care needs.
First, the mowers that are being sold these days are very different than the heavy, difficult to handle mowers from years ago. Clean Air Gardening in Dallas offers reel mowers manufactured by Brill of Germany. The Brill Razorcut 38 weighs in at just 17 pounds and operates so quietly that the manufacturer claims you can carry your phone while mowing and actually hear your phone ring. It cuts a 38cm wide path, which is approximately 15 1/4", and works very similarly to the way scissors works. Have you ever noticed that scissors cut without ever having the blades come in contact with each other? The Brill is like that. The blades come to within less than 1mm of the cutting area (called the bedknife), but because the blades never contact the bedknife, noise and friction are reduced significantly versus a more traditional reel mower. Also, because there is no metal versus metal contact, the blades remain sharper for longer. The 17lbs weight of the Brill is a bit of a curse however if you have thicker grass or the heavier bladed grass common in the southern US. For this, you may want to look at a heavier reel mower like the Scotts Classic Reel Mower which weighs in at approximately 30 lbs. Although heavier, the 20" cutting path is over 30% wider than the Brill. Also, because it is heavier, the Scotts Classic tends to resist riding up and over thick grass. The Scotts Classic is sold locally at Ace Hardware of Geneva.
Electric Mowers
An alternative to the reel mower "workout" is the electric lawnmower. American Lawn Mower now offers a 24 volt cordless electric mower with a 20" wide cutting path. Years ago the only electric mowers were 12 volt machines which tended to be very underpowered. More recently on the scene were 18 volt mowers, and for 2008 American Lawn Mower is now offering a 24 volt mower. We caught up with Mike Dickson of Ace Hardware in Geneva recently and he said that sales of both reel and electric mowers have taken off this year.
For those who are up early and like to get yardwork done before the day starts, the quietness of a reel mower may be just what you are looking for. For those who want to produce less noise and air pollution while also getting a bit less workout, the electric mower may be exactly what you need. As gasoline approaches $4 a gallon, and is expected to rise steadily until labor day, a reel or elecric mower could save you quite a bit of money on your gas purchases.
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INTEREST RATES
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Interest rates begin to rise
Interest rates have begun to rise a bit lately in anticipation of a better economy, the surprise of lower unemployment numbers, and the expectation that the Fed is done lowering interest rates for the time being. The dollar has been slightly stronger, which is welcome news to those Americans traveling overseas this summer. As expected, municipal bond yields are once again less than Treasury yields, and the market's volatility (as measured by the VIX on the CBOE) has fallen significantly in the last 30 days. We may not be out of the reccession woods, but we see glimpses of daylight ahead!
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Blue Haven Capital is a registered investment advisor focusing on socially responsible investment management for individuals, private foundations, and public charities. If you know an individual or group who might be interested in our services, please forward this email to them!
Best Regards,
Donald Cummings
Principal
Bill Moucka
Principal
Blue Haven Capital LLC
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