Glossary
   
Commodity Market Futures & Options Terms & Definitions Campbell R. Harvey's Hypertextual Finance Glossary
The iTulip glossary. The Devil's Derivatives Dictionary



A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z








Agnotology
Culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth. Derived from the Greek root agnosis by Stanford historian of Science Robert Proctor.
Source



Amero
The current name (as of mid 2006) of a proposed common currency for the U.S., Canada and Mexico that will replace the dollars and peso. See the North Amereican Union.



Arbitrage
Attempting to profit by taking advantage of temporary price differences of identical or similar financial instruments in different markets. This helps to keep markets trading at equivalent levels.



ASEAN
A group of countries, composed of Brunei, Cambodia, Indonesia, Laos, Malaysia, Phillipines, Singapore and Thailand,



Asset allocation
The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to optimize the risks and rewards. It is based on individual specific situations, goals and how the possible future of the investments could turn out.
One rule is to never buy or keep an investment that causes too much worry or causes one to lose sleep. It also is generally unwise to buy a higher risk investment with money intended for a college education or similar goal when the money will be needed soon.



Backwardation
A fancy term for the current cash price of something being higher than a future price. This happened a number of times with oil in late 2004 and early 2005. Sometimes this is caused by holding back a commodity in storage from the market, and sometimes it represents fear of supply disruptions. The opposite is contango



Bagehot's Rule
"...very large (domestic) loans at very high rates are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain.



Balance of payments deficit
See trade deficit



Banana
An acronym standing for "Build Absolutely Nothing Anywhere Near Anyone", and used by those who feel environmentalism has gone too far in areas like oil and gas refinery or nuclear plant construction, etc. "Nimby" is a similar term and stands for "Not In My Back Yard".



Banana republic
A dictatorship with an unstable government and an economy dependent either on the export of a single product or on external financial support or help, or both.
Also, "a pejorative term that refers to a politically unstable country dependent upon limited agriculture (e.g. bananas), and ruled by a small, self-elected, wealthy, corrupt politico-economic plutocracy or oligarchy. The term banana republic originally denoted a "servile dictatorship" that abetted (or supported for kickbacks) the exploitation of large-scale plantation agriculture, especially banana cultivation." Source



Bank credit
Credit available from a bank.
In a money measure sense though, it means the borrowing capacity made available to an individual or company by the banking system, in the form of credit or a loan. The total bank credit the individual or company has is the sum of the borrowing capacity each lender provides to that individual or company .



Bear
Someone who thinks an investment will be going down, as in "I'm bearish on stock X".
Also, a bear market is one where prices are going down. Some think that at 20% drop or more is what officially defines a bear market.



Ben S. Bernanke
Chairman of the President's Council of Economic Advisers as of early 2005 and replaced Alan Greenspan in early 2006 when he retired as Chairman of the Federal Reserve. Here are some of his words from a speech given in November 2002, given in the context of trying to settle down fears of a depression and of the general economic future:
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

And from another speech on November 8th, 2002 at a birthday party for the economist Milton Friedman he said this: “...let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton: regarding the Great Depression, you’re right; we did it. We’re very sorry. But thanks to you, we won’t do it again.” (source)



B.I.S.
Abbreviation for the Bank of International Settlements.
An international bank that helps move money between central banks of member countries. Its a banker's bank in a way. It primary stated purposes are to promote cooperation among central banks and provide additional facilities for international financial operations.
It's headquartered in Basel, Switzerland and was founded in 1929, for the purpose of overseeing reparation payments owed by Germany as a result of the Treaty of Versailles that ended World War I. The founders include the central banks of Belgium, France, Germany, Japan, the U.K, Italy, and the U.S. banks J.P. Morgan, First Bank of New York and First Bank of Chicago.
It currently holds 7% of the world’s available foreign exchange funds, whose unit of account was switched in March of 2003 from the Swiss gold franc to Special Drawing Rights (SDR), an artificial fiat “money” with a value based on a basket of currencies (44% U.S. dollar, 34% euro, 11% Japanese yen, 11% pound sterling).
BIS gold reserves were listed on its 2005 annual report (the most recent) as 712 tons (about 23 million ounces). How that breaks down into member banks’ deposits and the BIS' stash is unknown.
The BIS is also free from oversight. By rights granted under its agreement with the Swiss Federal Council, all of the bank’s archives, documents and “any data media” are “inviolable at all times and in all places.” Furthermore, officers and employees of BIS “enjoy immunity from criminal and administrative jurisdiction, save to the extent that such immunity is formally waived... even after such persons have ceased to be Officials of the Bank.” Finally, no claims against BIS or its deposits may be enforced “without the prior agreement of the Bank.”
The bank was a major player promoting the adoption of the euro as Europe’s common currency. There are rumors that its next project is persuading the U.S., Canada and Mexico to switch to a similar regional money, perhaps to be called the “amero,” and it’s logical to assume the bank’s ultimate goal is a single world currency (the intor?). Wikipedia entry on the BIS



Black Swan
In financial areas, an unexpected, rare and usually negative event.
It's also a large Australian swan having black plumage and a red bill.
Wikipedia entry, in which it's defined as "a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations.".



Bond
A certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date.
The pricing and true yield of bonds is one of the most frequently confusing and misunderstood areas of investing.



Boskin Commission Report
A report by a U.S. Senate appointed group in 1996 containing accepted recommendations to lower the CPI rate of change, with the avowed intention to more accurately reflect reality.
The government view, a middle view and a less favorable view.



BRIC
An acronym that stands for the countries of Brazil, Russia, India and China.



Broad money
The most inclusive measure of money reported by the central bank of a country. It does not include credit.
Also see money measures for M2 or M3 in the U.S.



Bubble
In investing, something that goes MUCH further up than is justified by normal history or existing facts. The term is used because, like a bubble, the prices will reach a point at which they pop and collapse violently. Another workable definition is when asset price inflation rises well beyond what incomes can sustain.
(Technical definition for the math inclined - prices more than two standard deviations away from the historic trend. One standard deviation can be very very roughly thought of as ±20-50% away from the underlying trend. For the very math inclined, it's a measure of dispersion in a frequency distribution, equal to the square root of the mean of the squares of the deviations from the arithmetic mean of the distribution.).

“A bubble may be defined loosely as a sharp rise in the price of an asset or a range of assets in a continuous process, with the initial rise generating expectations of further rises and attracting new buyers – generally speculators interested in profits from trading in the asset rather than its use or earnings capacity.”
Charles Kindleberger (Professor Emeritus at MIT, and author of “Manias, Panics, and Crashes”), The New Palgrave, A Dictionary of Economics



Bull
Someone who thinks an investment will be going up, as in "I'm bullish on stock X".



Business cycle
A somewhat predictable pattern or cycle with periods of alternating economic growth (recovery) and decline (recession). Some of its elements are changing employment, industrial productivity, capacity utilization and interest rates.
Its also called the economic cycle and its length averages about 4 years.



Call
An option contract that gives the holder the right to buy a certain quantity of an underlying security (usually 100 shares), at a specified price (strike price) up to a specified date (expiration date).



Cap or Capitalization rate
In real estate and in simple terms, its rent divided by the property price. The higher the better for owners, and vice versa for renters and for companies who lease.



Capacity utilization
The percentage of the available production capacity which is actually used, over some period of time.



Carry trade
Borrowing at one interest rate, then investing the funds into something different that has a higher interest rate yield or profit potential. Profit is made by the difference in the two rates or asset, and assumes no major price changes in either underlying asset.



Cartel
A small group of producers of a good or service who agree to regulate supply in an effort to control or manipulate prices. One example is OPEC (Organization of Petroleum Exporting Countries) and another is the Federal Reserve System.



CD
Certificate of Deposit. A short or medium length interest bearing financial instrument, normally bought through a commercial bank.



Collateralized Debt Obligation, CDO
A complex and potentially quite risky derivative product that groups together various debts like corporate loans/bonds or bank loans or other derivatives in order to earn higher returns and gain leverage.
Wikipedia link



Central bank
A country's "government" bank. In the U.S., its the Federal Reserve Bank.



Chart painting
Methods of market manipulation that present false signals for technical analysis based traders. See the FAQ for an historical quote. We think one of the better books on manipulation is "How to Make the Stock Market Make Money for You" by Ted Warren.



Chartalism (cartalism)
Also called the "state theory of money". A 19th century monetary theory, based on the idea that legal restrictions or customs etc. can or should maintain the value of money, rather than intrinsic content of valuable metal or metal or commodity backing.
Wikipedia defintion: an early-20th-century monetary theory advocating the use of fiat money instead of commodity money.
For more on cartalism, see The Creditary/Monetarist Debate in Historical Perspective by Michael Hudson.



Composition of Official Foreign Exchange Reserves (COFER)
An IMF report that shows how much and of what currencies the various main central banks of the world have.
Source here



Commercial paper
A short-term unsecured promise to pay issued by a finance company or a relatively large business. They're popular investments for money market mutual funds. Used interchangeably with the term paper.



Competitive devaluation
Competition between nations to keep their currency values similar as their currencies become worth less (see inflation), in order that their international trade isn't hurt.

Basically, if nation A's currency drops 5% in value, the nation B will try and devalue their currency about 5% so that their country's exports aren't priced too high in international trade. It can be quite a vicious cycle.



Conspiracy
This can be a very loaded term, since it can imply "smokey back rooms" and "evil plots". But there's also another definition that can open some doors to better understanding:
A joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas
. In plain English, a "conspiracy" can be based on simple differences of opinion or possession of facts or education.
Conventional political ideas and views have not exactly always led to the best outcomes, and we have strong opinions that the "very best people" are misguided at best.



Contango
A fancy term for the current cash price of something being lower than a future price. This is the normal condition of prices. The opposite is backwardation. Note that when the intermediate and longer term futures prices are consistently much higher than the cash prices, then inflation and/or inflationary expectations have become a major factor.



Contrary opinion theory
Broadly, buying when others are pessimistic and selling when they're optimistic. But using it effectively is obviously not that simple. One way that many successful investors use to determine when to apply it is to do the opposite of what is on the news. If a story has hit 'page one' or is on magazine covers then its much more frequently a time to sell, at least on the short term, than a time to buy.



Conundrum
An insoluble or difficult problem; a dilemma: "the conundrum, thus far unanswered, of achieving full employment without inflation" (Arthur M. Schlesinger, Jr.).



Copulas
A very exotic math concept, usually applied to value certain derivatives, that helps to establish relative values between a number of roughly similar bonds or other financial instruments.



COT - Commitments of Traders Futures Market Reports
The Commitments of Traders charts can be very useful as an investing aid. They show the directions in which three different types of investors (Commercials, Large Speculators and Small Speculators) believe the price will be in the futures market, and can help in determining if one wants to buy or sell or stand aside.

Commercials or hedgers are people or companies that deal with the actual commodities as part of doing business. Their trades are intended to hedge against the risks they run in that business. An example is farmers in the corn or wheat or cattle markets, another is bankers in the interest rate markets.

Large Speculators are investing professionals who trade in large enough volume that they must report their positions to a government agency called the CFTC (Commodity Futures Trading Commission). Frequently, they are investment funds.

Small Speculators are generally the individual small public investors or traders.
More data here from Software North.

An example: according to CFTC Form 40 instructions and schedule 1 of the form, the following could be considered commercials for financial futures (bonds, notes, bills, eurodollars, stock indices, foreign currencies):
Arbitrageur, broker/dealer, market maker, Commercial bank, Swaps/derivatives dealer, Mortgage originator, College endowment, trust, foundation, Mutual fund, Corporate treasury, Pension fund, Insurance company, Hedge funds, Managed accounts/commodity pools, other (might include central bank or savings & loan). Source

As of October 2009, the new disaggregated reports replace the old, discredited "commercial" and "non-commercial" categories with a new four-way classification: (a) producers, merchants, processors and users; (b) swap dealers, including index operators; (c) money managers, including trading advisers, pool operators and hedge funds; and (d) other reportable traders not included elsewhere.
The most important changes are to remove swap dealers from the old commercial category, and break out managed funds of various types from the old non-commercial category as a separate class.



Corralito
Literally, a small corral.
It was what the Argentinian government called the imposition of financial controls in order to prevent bank runs and try to get the economy and culture stabilized after the large currency crisis in 2001. It involved closing banks, preventing access to ATMs or bank accounts, moving money out of the country, and other actions.



Coupon Pass
The direct purchase of treasury notes or bonds by the Federal Reserve from the U.S. Treasury . This adds money to the system/economy and is usually inflationary.



CPI
Consumer Price Index - An indicator that is supposed to accurately measure the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. It is published monthly by the US Bureau of Labor Statistics, and is also sometimes incorrectly called or promoted as a cost-of-living index.

"Core" inflation is basically regular CPI, with food and energy costs removed.
Also see our Frequently Asked Questions page.



C.R.B. - Commodity Research Bureau
A long term price index assembled and managed by the CRB that represents a broad mix of commodities. Some of the ones included are; oil, corn, beef, copper, gold, cotton and lumber. The CRB has existed since 1934, and their web site is here.



Credit
An agreement to borrow something of value and repay it later.

Federal Reserve Bank credit is how much money the Fed has loaned to the banking system.



CRMPG
An abbreviation for Counterparty Risk Management Policy Group. Their home page is here and they are mentioned on our False Data page under Moral Hazard (highly recommend reading).



Crisis
1. A crucial or decisive point or situation; a turning point.
2. An unstable condition, as in political, social, or economic affairs, involving an impending abrupt or decisive change.



Current account balance
A country's difference between its exports and its imports. If its importing more than its exporting, it's current account balance is negative. Capital/money flows also affect a country's position, but only it affects the reserves of the country.



Current account deficit
See trade deficit



Currency
In the U.S., physical paper dollar bills or coins.



Currency crisis
A sudden and usually large decrease in the value of the currency of a country, accompanied by an inability to get any or all of one's money out of any bank or financial institution.
It can also happen during a deflation or depression, like the bank runs in the early 1930's in the U.S., as well as in an inflationary environment with an excessively free spending government such as what happened in Argentina with their 'corralito' in late 2001 (we do not intend this as a political statement about what happened in Argentina since there are many reasons for it beyond excessive government spending).



Current account
Also frequently called the capital account, an account that tracks the movement of funds for investments and loans into and out of a country. It makes up part of the balance of payments.



Custodial account
When applied to the Federal Reserve, a group of accounts that contain money from foreign central banks. It is a direct measure in our opinion of how foreign central banks view the stability and value of the dollar, and the current monetary policies of the US. It frequently shows changes in major financial trends far ahead of "the crowd's" awareness.

Also called foreign official dollar reserves.

The general definition is an account set up for the benefit of a minor (person under 18 or 21 in the U.S.) at a bank or other financial institution.



Cycle
A periodically repeating sequence of events. Examples are the 22 year sunspot cycle, or the approximate 4 year US business cycle.



Czar
A person having great power; an autocrat or tyrant (person with unlimited power or authority).



Debt deflation
See source



Debt to GDP
A ratio of total debt (government, business and individual loans of all types) owed divided by the total GDP in an economy.
Just like almost anything, too much is not good. An historically high ratio frequently means that debt is being used inappropriately and the economy is fragile.



Dark pools
Dark pools lexicon



Deficit
See trade deficit



Debt ratings
Moody's debt ratings here



Deflation
Less money created than there are goods available to buy with it.
Most prices generally go down during a deflation. The best recent large example is the worldwide depression of the 1930s. Lack of demand and fear also play a part in exiting a deflation.



Delta
(ignore this unless you're into or curious about options - it's very much for investing nerds)
The change in price of an option for every one-point move in the price of the underlying instrument. A higher delta means the price changes faster on an option than on the underlying instrument.



Demand deposits
A fancy way of basically saying checking accounts. A demand deposit is generally one which you can demand and then receive the money immediately and without any penalty, as opposed to waiting for it to mature like a CD.



Depression
A period of drastic decline in an economy, characterized by decreasing business activity, falling prices, and unemployment. They used to be called panics or crises before 1930.
An alternate and general definition is a period when most people's standard of living drops very significantly.
Economists disagree on the difference between a recession and a depression but in general a depression lasts much longer than a recession. Another way to tell the difference is to look at the changes in GDP. Many believe that a depression is any economic downturn where real GDP declines by more than 10% and a great depression is 20% or more. Others believe that it must include more than two sequential quarters of GDP shrinkage from the year earlier period.
Also see Inflationary depression



Derivative
A financial instrument whose value is based on something actual, in other words its value is derived from that underlying "real" thing.
In plain english though, they're "investments" only in the broadest of definitions since not only is the leverage truly huge with them, but also they're uncontrolled and untested in any kind of economic shock. Their supposed purpose is as a hedge. Note that these comments only apply to the unregulated markets, not the regulated options and futures markets.
Examples are options contracts, futures contracts, or literally any agreed upon pricing index or item (the movement over time of the Consumer Price Index, freight rates, weather or whatever).
The approximate world wide total of derivatives as of March 2005 is $500 trillion, and leverage averages about 16:1. There is $280 trillion dollars in futures contracts & similar, $220 trillion in unregulated financial contracts. For comparison, the grand total GDP of the entire world is $50-60 trillion dollars.
More definitions are available here or here.

An excellent article and warning, along with additional data, is The Derivative Conundrum by Jim Sinclair.



Discount Rate
The interest rate at which the Federal Reserve lends non temporary money to commercial banks.



Disposable Personal Income
Personal income minus tax payments and government fees. The income also includes welfare and other government payments. Basically, the income amount available for saving and spending.




Dollar Index
The value of the dollar when expressed as a combination of other currencies, and composed of - Euro 57.6%, Japan/yen 13.6%, Britain/pound 11.9%, Canada/dollar 9.1%, Sweden/krona 4.2% & Switzerland/franc 3.6%.
By far the most complete definition is here, but its also not a simple one.

Also note that there is more than one definition of the dollar index. Another frequently used one is the "broad trade weighted dollar", but the dollar index definition above is the most frequently used one (more data and weights are available here for the broad trade weighted dollar). Another index is also available called the major currency dollar index, which has components between the "regular" USDX and the broad trade weighted index.



Durable goods
Any product that can be used for a years, like refrigerators, stoves, TVs, furniture and bathroom fixtures.



DYODD
An acronym standing for "Do Your Own Due Diligence", or do your own work and don't just take someone's else's opinion.



Economics
The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems.
The original meaning of the word was the art of managing one's own household, from the Greek: oikos (house) + nomine (to deal out).



Entry and exit points
The price at which an investment is bought and sold.



Equity
See stock



Exchange Stabilization Fund
A fund of the U.S. Government whose general purpose is to manage the value of the dollar in international markets. They also have the legal right to trade in any U.S. security, per Jim Sinclair.

A little known fund run by the U.S. Treasury and its Secretary whose purpose is to help implement financial policy, and includes doing dollar intervention in international currency markets. More data is available here. As of mid 2004, the official balance in the fund was about $42 billion.
ESF Wikipedia entry



ETF
Exchange Traded Fund. A fund not unlike a mutual fund that tracks an index, a group of stocks, or some commodities, but can be traded like a stock.
Because ETFs are traded on normal stock exchanges, they can be bought and sold at any time during the day unlike most mutual funds. Their price will fluctuate from moment to moment, just like any other stock's price, and they may be bought as well as sold much like a stock.



Euro
The name of the currency shared by many European countries such as Germany, France & Italy.



Eurodollar
An American dollar held by a foreign institution outside the U.S., usually a bank in Europe and often as a result of payments made to overseas companies for merchandise, and also applies to oil payments to the Middle East.



Expiration
(ignore this unless you're into or curious about options or futures- it's very much for investing nerds)

The date on which an option or futures contract expires. With an option, it becomes worthless if not sold or tendered. A futures contract becomes due for delivery of the underlying commodity.



Fannie Mae
Fannie Mae is a business that sort of has financial backing from the US Congress. It lends money for the purchase of new and existing housing.
It's also a financial intermediary (an enterprise whose assets and liabilities consist almost exclusively of financial instruments).



Fascism
1. a. A system of government marked by centralization of authority under a dictator, stringent socioeconomic controls, suppression of the opposition through terror and censorship, and typically a policy of belligerent nationalism and racism. b. A political philosophy or movement based on or advocating such a system of government.
2. Oppressive, dictatorial control.




Federal Open Market Committee
The committee that established monetary policy for the Federal Reserve System. More data is available here.



Fed Funds Rate
The rate at which banks can do temporary borrowing to meet their legal reserve requirements.



Federal Government size growth
Date   Gov't size
Prior to 1930   12%
1947   22%
2004   43%
Source



Federal Reserve System or Banks
A system of federal banks that are not actually part of the government, charged with regulating the US money supply, mainly by buying and selling US Treasury bonds and bills (these are called open market operations), and setting two interest rates, the Discount Rate and the Fed Funds Rate.

Their avowed purpose and objective, as stated in many laws including the Federal Reserve Act or 1913 and the Humphrey-Hawkins Act of 1978, is "include economic growth in line with the economy's potential to expand; a high level of employment; stable prices (that is, stability in the purchasing power of the dollar); and moderate long-term interest rates." Source

The Goals of U.S. Monetary Policy, an article from the San Francisco Fed shows them as "...promote full employment and production, increased real income, balanced growth, a balanced Federal budget, adequate productivity growth, proper attention to national priorities, achievement of an improved trade balance . . . and reasonable price stability..."




*Political comments follow:*
President Woodrow Wilson, who signed the Federal Reserve Act in 1913 was quoted as saying in 1916, “I have unwittingly ruined my country. The growth of the nation, and therefore all of our activities, are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world” (source - “National Economy and the Banking System," Senate Documents Co. 3, No. 23, 76th Congress, 1st session, 1939.) Note that Wilson was a definite proponent of large, centralized government.
"If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children wake up homeless."
-- Thomas Jefferson



Fiat currency
Money printed by a government as legal tender which is not redeemable in anything, such as silver or gold.



Fibonacci ratios
  1. Percentage relationships (23.6%, 38.2%, 50%, 61.8%, 76.4%) that describe likely points, when based on previous high and low prices, at which a trend will reverse or pause. See example here, and do note that the Fibonacci tool at stockcharts.com does not show or support the 23.6% or 76.4% percentages, and that 50% is also not usually considered an "official" Fibonacci number.
  2. A math related number sequence which goes like this: It starts with the number 1 and then adds that number to itself to get the next number. It then takes those two numbers and adds them together to get the next number in sequence. Each number next in sequence is the sum of the prior two numbers in the sequence, ad infinitum. Thus the sequence looks like this: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, etc..
  3. Note also that Fibonacci ratios apply above 1.0 too, as in 1.236, 1.382, 1.50, 1.618 and 1.764




FIRE
An acronym standard for Financial, Insurance and Real Estate - a.k.a., the FIRE economy. Term coined by Eric Janszen at iTulip.com.



Fisher equation
Simplistically, bond yields move in the same direction as inflation. From the work of the economist Irving Fisher. Wikipedia entry has lots more. data



Financial distress
"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revivial, but finally giving up in the final collapse."
Charles P. Kindleberger, "Manias, Panics, and Crashes: A History of Financial Crises"



Force Majeure
A common clause in contracts which essentially frees one or both parties from liability or obligation when an extraordinary event beyond the control of the parties, such as war, strike, riot, crime, act of God (e.g., flood, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. Time-critical contracts may be drafted to limit the shield of this clause where a party does not take reasonable steps (or specific precautions) to prevent or limit the effects of the outside interference, either when they become likely or when they actually occur. Note also that a force majeure may work to excuse all or part of the obligations of one or both parties. For example, a strike might prevent timely delivery of goods, but not timely payment for the portion delivered.



Forward (contract)
A quite exotic financial contract that is both cash based and unregulated. They're similar to unregulated futures contracts
More complex & detailed InvestorWords definition



Fractional reserve banking
The practice of banks of retaining only a fraction of their deposits to satisfy demands for withdrawals, and then potentially loaning out the remainder.
This practice allows the banking system to actually "create" money, since if they only have to retain 10% of a deposit the other 90% can be loaned out, and then 90% of that 90% (81% of the original) can be loaned out when its deposited in another bank account by the borrower. And then 90% of that 81% can be loaned out, creating more money... and so on as deposits are made in other banks of the borrowed amount. In effect, one dollar deposited can allow a bank to create at least eight dollars of money (.90 + .81 + .73 + .66 + .59... adds up to over eight).

Diagram it out on paper if you're having trouble, it is a pretty squirrely process to understand. More data and a fuller explanation is available here.

Now you also know why banking can be so profitable. From an original $1,000 deposit and overly simplying it, they can loan out at least another $8,000. If the interest rate is 6%, that means the income per year on that $8,000 is $480 (6% of $8,000 is $480)... not a bad deal getting a $480 income per year on a $1,000 "investment".

Two last points... as of 2005, the actual fraction is much lower than 10%. Depending on which deposits are counted, the fraction is between 1% to about 6.5%. Also, most banks do not loan up to their maximum reserves - that and other factors mean that they do not create anywhere near $8 for every $1 of deposits as the example above implies.
Wikipedia entry, for more detail and explanation



FRED database
FRED stands for Federal Reserve Economic Data, and is a database of financial and economic facts at the Federal Reserve bank, available here. There's also a massive quarterly Statistical Release called the Z1 available here



Fundamental analysis
Analyzing an investment via supply and demand factors alone. Some examples are financial statments of a company, increasing or decreasing sales trends of a company, news, a good or poor economy overall, etc.
Many people, including us, also include political or geo-political issues and events under the fundamentals area, and also under those factors that influence sentiment.



Futures
Contracts to buy or sell a commodity, or various indexes at a specific price and on a specific delivery date. Leverage is available but does not have to be used. One profits from price movements and exits the contract well before the contract delivery date.
It's *extremely* difficulty to get 1000 pounds of pork bellies delivered to your front yard, to hopefully put one piece of false data to rest.

Differences between forward, futures and options



G-7
A group of seven large industrialized countries: U.S., Japan, Great Britain, France, Germany, Italy, and Canada. G-7 meetings involve discussions of economic policy issues and sometimes market moving statements by senior finance folk from the seven nations.



G8
The United States, Canada, Japan, Britain, France, Germany, Russia and Italy. The G7 plus Russia.



G20
The G8 nations plus the European Union as a bloc, as well as Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey.



Gamma
(ignore this unless you're into or curious about options - it's very much for investing nerds)
A measurement of how fast delta changes, given a unit change in the underlying instrument (stock or whatever) price. If a gamma is high, the delta will also likely be high.



GDP
Gross Domestic Product - the total value of all goods and services produced in a given country. It consists of total consumer, investment and government spending, plus exports and minus imports, and including earnings from foreign sources (also GDP = private consumption + gross investment + government spending + (exports - imports)).

Note that a switch was made in November 1991 from using GNP (Gross National Product) to GDP. A major difference is that GNP does not include earnings from foreign sources and GDP does. That factor can make the growth rate over 1% higher all by itself. Another difference is that the payments the government must make to service the national debt are missed in the GDP numbers, which again causes GDP to be higher than it actually is.

From the economic formula view GDP = C + I + G + X - M, where C = personal consumption expenditures, I = gross private domestic investment, G = government consumption expenditures and investment, X = exports and M = imports.

Also see hedonics, which is the biggest cause (of many causes) of GDP being over stated when inflation adjusted GDP figures are viewed (our 'real GDP' chart on our forecast page attempts to adjust for this).
Numbers Racket Why the economy is worse than we know - KEVIN PHILLIPS - Harper's Magazine v.316, n.1896 1may2008




GDP deflator
The adjustment that is made to GDP in order to correct for inflation, and produce real GDP statistics that are supposed to be comparable over long periods of time.



Gibson's paradox
Gibson's Paradox was the observation that, during the gold standard era, the rate of interest and the general level of prices were observed to be correlated.
More at Wikipedia, from which the above was copied.



Gini Index
A handy numerical way to compare levels of income equality and inequality in countries around the world. Corrado Gini invented it.
Wikipedia - Gini coefficient
Wikipedia - list of countries, sorted by wage equality



Global liquidity
Plenty of available low priced credit world wide, also known as "easy money". Characterized by relatively low interest rates and the ability to buy and sell internationally with relative ease.
Also see Liquidity



GNP or Gross National Product
GNP is the total value of all final goods and services produced in a country, and includes income earned by all its resident and non-resident citizens, and subtracts income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of where they are.



Government Securities Dealers Statistics
Per the Fed, "The Bank trades U.S. government (and select other) securities with designated primary dealers, which include banks and securities broker-dealers.... The purchase of Government securities in the secondary market by the Open Market Desk adds reserves to the banking system; the sale of securities drains reserves."

In plain English and generally, this is one of the relatively smaller ways the Fed can control the money supply's rate of increase or decrease, as well as help stabilize the financial system after events such as 9/11. It is another aid to help determine what the Fed is doing and what effects they want to create.
Here is a list of the current primary dealers with which the Fed does these transactions.



Goodhart’s Law
Although Goodhart's law has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator or other surrogate measure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role. The law was named for its developer, Charles Goodhart (a chief economic advisor to the Bank of England).

Source



Greeks
The name for the class of items that are used to measure various things about options. They're called that since Gamma, Theta, Delta & Vega etc. are actually names of letters in the Greek alphabet.



Alan Greenspan
The Chairman of the Federal Reserve System and the most powerful banker in the world. His term is up and he's expected to retire in early 2006.

Alan Greenspan does not like to be reminded of his essay from 1966, when he wrote, "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation."



Hedge
An investment made in order to reduce the risk of price movements, by taking an opposing position in a related investment, such as an option.



Hedge find
A very broad class of about 8,000 public and private funds that are not mutual funds and therefore are exempt from many of the rules and regulations governing mutual funds, so can invest in derivatives and other exotic financial instruments.
They usually are quite highly leveraged and are therefore risky. They also almost always having very high minimum investment requirements of at least $250,000 and frequently over $1,000,000.



Hedonics
Literally it means relating to pleasure. But in an economic sense in US statistics, it involves adding or subtracting values to important government statistics like CPI or GDP that cause them to be false or incorrect.
One general example is in the computer area. If you bought a $2000 computer 3 years ago, and then replaced it with another $2000 computer today that is twice as fast, it can (but isn't always - this is a general example only) be counted as roughly a $4000 computer in the GDP since its twice as fast. This completely ignores that a computer that is twice is fast does not double the amount of work done by or with that computer, or even close.
According to Pimco’s Bill Gross, the US Bureau of Labor Statistics has expanded the use of hedonic adjustments and applies these adjustments to everything from computers, DVDs, automobiles, washers/dryers/refrigerators to college textbooks. Hedonics is used to adjust as much as 46% or more of the weight of CPI.

Another example is in housing. The government currently assumes that housing costs are about 40% of the Consumer Price Index (source, PDF file). Prior to 1982, the housing cost numbers were based upon what you actually spent for the house and the related mortgage. After 1982, the Bureau of Labor Statistics (BLS) began to use what is known as "owners' equivalent rent of primary residence" for the housing portion of the CPI. This is based on an economic theory that says that homeowners are essentially leasing the houses from themselves and paying implied rent for that service. In June 2005, for example, just this factor alone caused CPI to be understated by over 4% for the month. Various studies have shown that "Owner's Equivalent Rent" adjustments can compose as much as 24% of changes in the CPI.
The Role of Hedonic Methods in Measuring Real GDP in the United States (BLS, PDF file)

"Using BLS statistics, health care costs are about 17.5% of consumption, but it is weighted much less in the CPI calculation. Healthcare is 4.6% of CPI; healthcare commodities are 1.5% of CPI. Healthcare is reportedly 15 to 17% of GDP. This presents a huge discrepancy in CPI weighting. If CPI healthcare costs were in tune with reality AND they had an accurate weighting, CPI would be substantially greater"

There is also something called "substitution bias" that is used by the US Bureau of Labor Statistics to falsely adjust the CPI. One example is meats like beef, chicken or pork. If beef price goes up a lot and chicken doesn't, the BLS assumes that more chicken is bought and adjusts the food portion of the index. This is a false activity, even though it may reflect what people actually do, since it prevents valid longer term comparisons due to the actual index having different things in it over time. Its also false since it hides the price rise in beef. Another example is cars - if SUV prices go up a lot and smaller cars don't, the BLS assumes more smaller cars are bought. This is also false since it also hides that the standard of living is going down - eating chicken instead of beef, or buying smaller cars is generally considered to be evidence of a lower standard of living (setting aside any political or environmental type issues).
Source 1 Source 2

Another issue with hedonically adjusting for better or faster products is that the reverse is not done. In other words, if the quality of something drops over the years no adjustment is made for it. One example would be solid wood furniture versus using a thin veneer.

Many elements of the CPI are also adjusted on a "geometric weighting" basis. In plain english, that simply means that items where the prices are going up the fastest receive a smaller weight in the CPI than in previous periods. Items that are going down fast have their weights increase.

See the CPI lies page for more data. Also see Statistical Wizardry and Inflation calculation in the USA.CPI watch

Additionally, any one who has retired and has lived on Social Security for years knows without any doubt that CPI adjustments don't even come close to allowing a consistent standard of living.
Lastly, even the BLS response to the facts about CPI being understated (the CPIU-RS series) shows the CPI peak in 1980 at an annual peal inflation rate of 11.8% (CPI-U peaked at 14.8%), and virtually anyone paying bills then knows it was at least 15%. In other words, the minimum understatement is 3% based on actual BLS numbers.




HELOC
Abbreviation standing for Home Equity Line Of Credit.



Neuristic
"Experience-based techniques that help in problem solving, learning and discovery. A heuristic method is particularly used to rapidly come to a solution that is hoped to be close to the best possible answer, or 'optimal solution'. Heuristics are "rules of thumb", educated guesses, intuitive judgments or simply common sense."
Source



Humphrey-Hawkins Act
Also known as the "Full Employment and Balanced Growth Act of 1978", it's Federal legislation that, among other things, specifies the primary objectives of U.S. economic policy as "…maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates." At least theoretically, those items are the goals of Federal Reserve policy and plans and actions.

It modified the "Employment Act of 1946", which specified "maximum employment, production, and purchasing power" as the goals. Also note that Public Law 96-10, attached to H.R. 2283 as of May 10, 1979, amended the Humphrey-Hawkins Act to include Federal outlays as a proportion of the gross national product when calculating numerical goals - a factor that we believe institutionalizes and locks in government spending to the broad economy, an unwise action.



Hoovering
Synonym for "sucking up" or pandering.



Hyperinflation
A period of high and rapid inflation that leaves a country's currency relatively worthless. By survey, we gather that a hyperinflation starts at a rate of about 15-25% but there is no clear agreement amongst economists for a rate, although a rate of 50% per month has some agreement (Phillip Cagan, 1956), as does "a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)" by the International Accounting Standards Board. It is also defined by a very rapid rate of increase of money in the country. Note that the official rate on U.S. inflation peaked in March of 1980 at about 17%.
Also, a large loss in confidence in the currency - not unlike the old kids game called "Hot Potato".
Here is a view of the hyperinflation in Germany in the early 1920s, and here is a book on Amazon that goes into great economic and social depth on it.

A fuller definition and more data is available at Wikipedia.org.



Hypothecation
A borrower pledging collateral to secure a debt. The borrower retains ownership of the collateral but is 'hypothetically' controlled by the creditor, who has a right to seize possession if the borrower defaults.
Re-hypothecation occurs when a bank or broker re-uses collateral posted by clients, such as hedge funds, to back the broker’s own trades and borrowings.



I.M.F.
Abbreviation for the International Monetary Fund.
An international organization set up near the end of World War II to help lower trade barriers between countries, to stabilize currencies, and to lend money to developing or troubled nations. IMF home page

What is the IMF? "The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other."



Industrial policy
A set of actions executed by interventionist countries in order to affect the way in which factors of production are being distributed across national industries (industrial policies contain common elements with other types of interventionist practices, such as trade or monetary or fiscal policy, which bias markets away from true freedom of action of the various participants - usually to benefit the ruling oligarchy or plutocracy or "elite").



Inflation
More money than goods, assuming a relatively constant population.
If more money is created than there are products manufactured on which to spend that money, prices go up. Its made lots more complex than that by various folk, but its the basic truth. Think of inflation as the value of money going down, not prices going up.
The institutions that are allowed to create money include the Federal Reserve (created in 1913, a private corporation and not part of the US government), commercial banks, etc. See here for more detail on how money is created or destroyed, its not a simple or intuitve process as you might imagine.

More precisely, inflation is an increase in the quantity of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level, that increase in the quantity of money caused by government, the Federal Reserve Banks, other banks and financial institutions. Velocity is also a factor.

Strong demand, an increase in population (and therefore overall demand) and lack of fear also play a part in inflation. A long but very good article about inflation is here.
Other less precise definitions of inflation include "a falling value of the currency" and "broadly higher prices".




Here's an economics formula relating to inflation - ignore it if you don't care for math.
According to the Quantity Theory of Money created by the economist Irving Fischer, MV = PT. And from The Creditary/Monetarist Debate in Historical Perspective by Michael Hudson.:
"Anything that can be collateralized is potential credit by the banking system and financial markets – the gamut of stocks, bonds, mortgage liens and other debt instruments. Under the creditary approach, “M” should be represented by the entire credit supply, and “P” should signify the price of assets – stock market, bond and real estate prices – as well as commodity prices. “Q” should refer to the volume of assets (“A”) as measured by clearing-house volume, or perhaps a weighted volume of transactions in these assets as compared to the much smaller volume of trade in final goods and services. As prices for the latter are derivative and much smaller in economic importance, they might almost be dropped altogether. In this formulation, Credit x the ever-tautological “V” = PA, that is, a weighted index number for asset prices multiplied by the volume of transactions “A.""



Inflationary depression
A depression, except with rising prices. Also, stagflation with the volume turned up.

It occurs generally when the central bank creates money at a very rapid rate to try and stimulate an economy, and it and other banks try and encourage more public assumption of debt, but the general public have lost relative confidence in holding the currency of the country and companies have lost confidence in the future real growth of the economy.



Investment
Buying or selling something from which an income or profit is expected in the ordinary course of trade or business. Also, the allocation of capital toward productive processes with the expectation of making a profit on production.



IRA
Individual Retirement Account. A tax deferred or tax advantaged U.S. retirement account that allows individuals to put aside money every year.



IV or Implied Volatility
(ignore this unless you're into or curious about options - it's very much for investing nerds)
A theoretical value designed to represent the volatility of the stock (or whatever) underlying an option. as determined by the price of the option. In other words - someone's best guess on future volatility of the underlying instrument.

See here for more on options volatility.



Kondratieff cycle
An economic theory that generally says that economies moved up & down on about a 60 year cycle.
Much more here.



Leading economic indicators
A set of numbers that tries to forecast the future condition of an economy.

In our opinion, it is quite useful to use in judging how other investors view the possible future and in judging approaching recessions. Recent numbers in a press release are available here.

Technical definition: its computation involves the use of ten items, namely: (1) Average weekly hours, manufacturing; (2) Average weekly initial claims for unemployment insurance; (3) Manufacturers' new orders, consumer goods and materials; (4) Vendor performance, slower deliveries diffusion index; (5) Manufacturers' new orders, non-defense capital goods; (6) Building permits, new private housing units; (7) Stock prices, 500 common stocks; (8) Money supply, M2; (9) Interest rate spread, 10-year Treasury bonds less federal funds and (10) Index of consumer expectation. See more detail if desired here and here.



Leverage
The ability to control large dollar amounts of a investment with a comparatively small amount of capital. It also can apply to using borrowed money.



Liquidity
1. A measure of how easy it is to convert an investment to cash, the most liquid and eaily spendable form of money.
2. A synonym for money and/or credit creation, as in 'excess liquidity', and is simply another way in our opinion to spin that its not relative inflation (or deflation) created by central bank activity and its effects.
3. A high level of trading activity, allowing buying and selling with minimum price disturbance. Also, a market characterized by the ability to buy and sell with relative ease.
4. Level of ease of access to borrowed funds.

Also see Global liquidity



LTRO
Long Term Recovery Organization



M3
One of many money measures published by the Fed.
M3 consists of M2 plus (1) balances in institutional money market mutual funds; (2) large-denomination time deposits (time deposits in amounts of $100,000 or more); (3) repurchase agreement (RP) liabilities of depository institutions, in denominations of $100,000 or more, on U.S. government and federal agency securities; and (4) Eurodollars held by U.S. addressees at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Large-denomination time deposits, RPs, and Eurodollars exclude those amounts held by depository institutions, the U.S. government, foreign banks and official institutions, and money market mutual funds. Seasonally adjusted M3 is constructed by summing institutional money funds, large-denomination time deposits, RPs, and Eurodollars, each adjusted separately, and adding this result to seasonally adjusted M2. Source
Also see money measures and newer defintions of M1 and M2, etc.




Market sentiment
Things that attempt to measure whether investors think something will be going up or down.
Opinions of well respected and successful investors like Warren Buffet is one, and there are sentiment measures like this one that measures the bullish/bearish sentiment of the S&P 500 stock index, and this one that measures the Dow Jones Index. The basic rule is that when there are too many investors thinking the same thing, the market tends to go the other direction.
Also see Contrary opinion theory.



MACD
Moving Average Convergence Divergence - it graphs two different moving averages, like 26 and 12 period, on the same graph. It produces an oscillating line and can indicate or confirm trend changes by showing relative price changes between a longer and shorter period. See example here.



Macro
Large in scope or are covered. Examples: a macro analysis of many reports or macro economics.



Mania
An excessively intense desire or craze. Also, an irrational but irresistible belief or action.
An example is the a mania for dot com stocks in the late '90s.

A great book in the area is "Extraordinary Popular Delusions & the Madness of Crowds" (Amazon.com link) by Charles Mackay. Download a 700k zip file with text files inside here, originally from Project Gutenberg.



Manufacturing index
A monthly number issued by the ISM (Institute for Supply Management) that measures manufacturing activity in the U.S.



Manipulation
Shrewd or devious management, especially for one's own advantage.
Yes, all markets are manipulated to a greater or lesser and that has been going on for all of recorded history. The point is both to "get over it" and then find who is doing it and get on board, assuming you want to invest in whatever is being manipulated. Getting on board is just another way of saying follow the correct trend.



Margin
In stocks or bonds, using borrowed money to purchase them.
In the futures market, the minimum amount needed to be allowed to trade in a given market. It ranges from about 5% to 50% of the total value of the the futures contract.
Also see leverage.



Maturity
The date on which a financial instrument becomes due for payment or receipt.



Mortgage backed security
Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization. (source)



MFI (monetary financial institution)
Financial institutions which together form the money-issuing sector of the euro area. These include the Eurosystem, resident credit institutions (as defined in Community law) and all other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credit and/or invest in securities. The latter group consists predominantly of money market funds.
(from Bank of England glossary)



Mining terminology


Airborne Magnetic Survey: Airborne magnetometer surveys map local disturbances in the earth's magnetic field that are caused by magnetic minerals in the upper regions of the earth's crust. If no magnetic minerals were present in the crust the earth's magnetic field would be very smooth because it originates within the earth's core and therefore comes from a very great depth. Source: http://www.geoexplo.com/airborne_survey_workshop.html#airborne_magnetic_surveys

Airborne radiometric survey: Radiometric surveys detect and map natural radioactive emanations, called gamma rays, from rocks and soils. All detectable gamma radiation from earth materials come from the natural decay products of only three elements, i.e. uranium, thorium, and potassium. Source: http://www.geoexplo.com/airborne_survey_workshop_rad.html

Alluvial: Pertaining to soil and gravel deposited by water action; related to gravels, silt and mud formed and deposited by water movement. Alluvial (or bench) deposits contain untapped potential for finding gold because such areas have never been worked before. Source: http://www.e-goldprospecting.com/html/a.html

Altered intrusive: A mass of rock that has been forced into or between other rocks. having been forced between those preexisting rocks or rock layers while in a molten condition. Source: http://dictionary.reference.com/search?q=intrusive&x=36&y=13 and http://www.e-goldprospecting.com/html/i.html

Altered volcanic: an igneous rock produced under conditions involving intense heat, as rocks of volcanic origin or rocks crystallized from molten magma. Source: http://en.wikipedia.org/wiki/Volcanic_rock and http://dictionary.reference.com/search?q=igneous&x=54&y=15

Anomalous: above or below the range of values considered to be normal. Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html

Argillic alteration: Argillic alteration is that which introduces any one of a wide variety of clay minerals, including kaolinite, smectite and illite. Argillic alteration is generally a low temperature event, and some may occur in atmospheric conditions. Source: http://www.dmtcalaska.org/course_dev/explogeo/class08/notes08.html

Chip channel sample: A chip channel sample consists of small chips of rock collected over a specified interval. The objective is to obtain the most representative sample possible for the specified sample interval. Most of the time chip channel samples are collected in succession along a sample line which is laid out in advance using a tape. This provides a great deal of information about the width and other aspects of the geometry of a mineralized zone. Often the chip channel samples are collected along the floors or walls of trenches or adits. When chip channel sampling along walls, sometimes a piece of canvas or plastic is laid out for the material to fall on so as to avoid contamination and make the collection easier. The freshest material possible is sampled, preferably chipping directly from bedrock. Sample intervals are set at a specified width, usually ranging from 1 to 20 feet. For example, in a five foot interval, at the end of the first foot, 20 % of the sample bag should be filled, at the end of the second foot the bag should be filled to 40 %, etc... Due to the method of sampling, chip channel samples tend to be rather large (up to 20 pounds for a five foot interval). Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html

Composite sample: A composite sample consists of small chips of uniform rock material collected over a large area (generally > 5 feet across). These are the ideal “representative” samples. The procedure is to collect small pieces of rock over a large area (usually at least 10 feet across) and to make the sample as homogenous as possible. A composite sample might be collected to determine the background values of trace elements in a particular type of rock, or to determine if ore grade mineralization is present over a large area. Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html

Concession: right to use land: an official license granted by a landowner or government that allows work such as drilling to be carried out in a specific area of land. Source: http://en.wikipedia.org/wiki/Concession Cut-off Grade: The lower limit of concentration acceptable for making a profit when mining. Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html

Epithermal: Formed within the earth's crust: describes veins of gold or silver originally formed deep within the Earth's crust from ascending hot solutions. Source: http://ca.encarta.msn.com/dictionary_1861608893/epithermal.html

Geochemical Sampling: Geochemical sampling methods are methods which involve collecting and analyzing various types of geological materials (such as soils, stream sediments and rocks) or certain biological materials (such as plants). Historically these methods have been some of the most productive in of any methods used in mineral exploration. Sometimes mineralization can be extremely subtle, if not impossible to recognize, in hand specimen. Without the use of geochemical sampling methods, many known ore deposits would probably not have been discovered. Source: http://www.dmtcalaska.org/course_dev/explogeo/class12/notes12.html

Grab Sample : A grab sample is a sample of rock material from a confined area (< 1 foot across). It can be a single piece of rock. These are the most common types of samples collected. If it is not specified otherwise, one usually assumes that is the sample type. The sample usually consists of a single piece of rock, or chunks, which are representative of a specific type of rock or mineralization. Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html Grade : the concentration of the substance of interest, usually stated in terms of weight per unit volume. Source: http://www.dmtcalaska.org/course_dev/explogeo/class02/notes02.html

Hydrothermal alteration: Rock alteration simply means changing the mineralogy of the rock. The old minerals grow are replaced by new ones because there has been a change in the conditions. These changes could be changes in temperature, pressure, or chemical conditions or any combination of these. Hydrothermal alteration is a change in the mineralogy as a result of interaction of the rock with hot water fluids, called “hydrothermal fluids”. The fluids carry metals in solution, either from a nearby igneous source, or from leaching out of some nearby rocks. Hydrothermal alteration is a common phenomena in a wide variety of geologic environments, including fault zones and explosive volcanic features. Source: http://www.dmtcalaska.org/course_dev/explogeo/class08/notes08.html

High Grade Sample: A high grade sample consists of selective pieces of the most highly mineralized material, in which an effort is made to exclude less mineralized material. Consequently, a high grade sample is generally not representative of the overall mineralization type. A high grade sample might be collected to get an idea what the best possible values are, or to provide material for certain types of trace element analyses. If a such a selective sample does not return good results, then it is unlikely that valuable mineralization is present. When a high grade sample is collected it is important to note that it is a high grade sample so its values will not be misinterpreted as representing the “average” values. Source: http://www.dmtcalaska.org/course_dev/explogeo/class13/notes13.html

Igneous Rock : Igneous rocks are those which form by crystallizing from molten magma (melted rock). Igneous rocks are one of the most important groups of rocks because they make up about 95 % of the earth’s crust. Igneous rocks in the form of melts also comprise everything below the crust, for example, the mantle, outer and inner core zones. Source: http://www.dmtcalaska.org/course_dev/explogeo/class04/notes04.html Induced polarization ground survey: I.P. surveys are a special type of resistivity survey. Current flowing through the ground causes some rocks to become electrically polarized or “charged” the way a car battery is charged by an alternator when the car is running. Chargeability is measured by sending a pulsating current through the ground. This creates an exchange of ions between the mineral grains and surrounding pore fluids. The exchange actually creates a voltage which acts as a barrier to current flow. Extra voltage, called “overvoltage” is necessary to drive the current through the barrier. When the current supply is suddenly stopped, the voltage drops immediately to an intermediate value, and then gradually dissipates. The behavior is called “induced polarization” or “I.P.”. Chargeability is related to the ratio of the overvoltage value to the intermediate voltage value, and the lapse time it takes the ground to “uncharge” after the electrical charge is cut off at the transmitter. Source: http://www.dmtcalaska.org/course_dev/explogeo/class14/notes14.html

Limonitization: Limonite is a hydrated iron(III) oxide-hydroxide of varying composition. Limonite has been known to form pseudomorphs after other minerals such as pyrite, meaning that the chemical weathering transforms the crystal of pyrite into limonite but keeps the external shape of the pyrite crystal. It has also been formed from other iron oxides, hematite and magnetite; the carbonate siderite and iron rich silicates like some garnets.

Mineral Deposit: similar to an ore deposit, but is implied to be subeconomic or incompletely evaluated at present. Source: http://www.dmtcalaska.org/course_dev/explogeo/class02/notes02.html

Mineral Occurrence: anomalous concentration of minerals, but is uneconomic at present. Source: http://www.dmtcalaska.org/course_dev/explogeo/class02/notes02.html

Ore: the rock material or minerals which are mined for a profit. Source: http://www.dmtcalaska.org/course_dev/explogeo/class02/notes02.html

Orebody or Ore Deposit: naturally occurring materials from which a mineral or minerals of economic value can be recovered at a reasonable profit. Source: http://www.dmtcalaska.org/course_dev/explogeo/class02/notes02.html

Resistivity survey: When two electrodes are placed in the ground and voltage is applied across them, current flows from one electrode to the other. The source of current is a “transmitter” attached to one of the electrodes. The other electrode is attached to a “receiver”. In a homogenous conductor, the electron “flow lines” are perpendicular to the lines along which the potential is constant (Figure 14 - 4). Zones of abnormally high or abnormally low conductivity cause the current flow lines to become distorted, causing variations from the predicted values. These variations, or anomalies, can then be mapped out to try to locate buried ore deposits. Source: http://www.dmtcalaska.org/course_dev/explogeo/class14/notes14.html

Stockwork: A lattice-like network or ore veinlets in fractured rock. Source: http://www.e-goldprospecting.com/html/s.html

Sulphide ore: A sub-group of refractory ore - mineralized rock in which much of the gold is encapsulated in sulphides and is not readily amenable to dissolution by cyanide solutions associated with sulphide minerals (primarily pyrite) that have not been oxidized. Some sulphide ore may require autoclaving or roasting prior to milling. Source: http://www.e-goldprospecting.com/html/s.html

Trenching: Trenching is a kind of dissection of the ground. A backhoe makes the incision, a ditch tens of meters long, a meter or so across and 3 to 5 meters deep. First braces are installed so the walls don't cave in, then people climb down and scrape the trench walls clean. They take samples, photograph everything, and make a detailed log of the various layers and features. Then the braces are removed and the hole is filled in. Source: http://geology.about.com/od/geophoto_tours/a/haywardfaultour.htm

Vein channel: A well-defined mineralized zone within a confined space. a vein is a finite volume within a rock, having a distinct shape, filled with crystals of one or more minerals, which were precipitated from an (aqueous) fluid. Veins are formed by fluids carrying mineral constituents into a rock mass as a consequence of some form of hydraulic flow within the rock. Usually this is the result of hydrothermal circulation. Source: http://www.e-goldprospecting.com/html/v.html and http://en.wikipedia.org/wiki/Vein_(geology)

Original sources and here and here.



Minsky moment
Wikipedia



Moral hazard
A dilemma that arises when government officials take steps to bail out countries or businesses that are in serious financial trouble. Although the action may help prevent widespread financial turmoil, thereby protecting innocent parties, it creates an expectation that governments will always come to the aid of failing countries and companies, potentially increasing risky behavior because there is no penalty. (Webster's Dictionary)



Moving Average
Moving Average - an average of data for a certain number of time periods. It moves since its based on the last "x" periods.



Monetarism
An economic theory which holds that inflation and other economic changes are caused by changes in the money supply.



Monetize
Printing money to pay off some type of government debt or obligation.
When the U.S. Treasury receives money from the Federal Reserve system, this is known as "monetizing the debt". The debt referred to is the U.S. Government debt and is caused by the government having spent more than it takes in for many decades. The basic transaction of monetizing that debt is literally an accounting entry in a computer at the Fed - one side shows the purchase of U.S. Treasury paper securities (bonds and notes) and the other represents the Fed literally creating money out of nothing. The long term effect is inflation.
Do note that other central banks can monetize US debt too. See here for one example chart showing what other central banks are doing.



Money
A way or medium of exchange for goods and services.
A way to measure value.
A store of value.
Coins & currency
An idea backed by confidence.
The final means of payment in a transaction.




Money market fund
A mutual fund that invests in short term instruments such as CDs, commercial paper or Treasury bills.



Monetary Base
The currency and central bank deposits that together provide the base for the money supply. Also defined as currency in circulation plus banks' required and excess deposits at the central bank (reserves).



Monetarism
An economic theory holding that economic variations within a given system, such as changing rates of inflation, are most often caused by increases or decreases in the money supply.





Money measures
The group of ways to measure total money is the U.S., including M1, MZM, M2 & M3 and others. They measure money by degree of liquidityThe definitions below are very general and are intended to produce a working understanding, not a precise economic definition.

Money Supply September 2004 (billions of dollars) (not seasonally adjusted)
M1
Currency 688.2
Demand Deposits 321.0
Other Checkable Deposits 319.5
M2
Savings deposits 3,472.5
Small-denomination time deposits 795.6
Retail money funds 729.5
M3
Institutional money funds 1,071.6
Large-denomination time deposits 1,018.2
Repurchase Agreements 537.3
Eurodollars 322.2
Sum 9,311.7




Moral hazard
A problem whereas investors, after being insulated from the consequences of risk by intervention, might pay insufficient attention to similar risk the next time, or operate on the expectation of official intervention.



MSM
Main Stream Media.
An abbreviation for the main radio, tv and news companies.



Money multiplier
Technically, GDP divided by M3.
But generally, its a economic concept to reflect that since a given dollar moves through an economy more than once per month or year or given period, that given dollar is multiplied so it looks and acts like more than one dollar in an economy.



Mutual fund
A fund operated by an investment company which raises money from shareholders and invests in a group of assets, per a stated set of objectives.



Natural interest rate
"There is a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them." -- Knot Wicksell, 1851-1936, Swedish economist



Negative selection in politics
Negative selection, in politics, is a process that occurs in rigid hierarchies, most notably dictatorships.

The person on the top of the hierarchy, wishing to remain in power forever, chooses his associates with the prime criterion of incompetence - they must not be competent enough to remove him from power. The associates do the same with those below them in the hierarchy, and the hierarchy is progressively filled with more and more incompetent people.

If the dictator sees that he is threatened nonetheless, he will remove those that threaten him from their positions - "purge" the hierarchy. Emptied positions in the hierarchy are normally filled with people from below - those who were less competent than their previous masters. So, over the course of time, the hierarchy becomes less and less effective. As this happens relatively often, once the dictator dies, or is removed by some external influence, what remains is a grossly ineffective hierarchy.

Source



Nominal
"Face" value.
Of, relating to, or being the amount or face value of a sum of money or a stock certificate, for example, and not the purchasing power or market value.



Nonfeasance
The intentional failure to perform a required duty or obligation. Source



Non financial debt
An odd term used in Federal Reserve statistics that basically means debt in the non banking sector and includes items like household debt.



North American Union
A future plan to combine the U.S., Canada and Mexico in a similar way as has already occured in Europe. The Euro is the common currency, there is a common government and borders are much less of an issue.
Here's the very off most folk's radar US government site, showing its progress and status. Both Mexico and Canada are actively participating.



Natural interest rate
"There is a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them". Knut Wicksell, Swedish economist



NPL
Non Performing Loan. A fancy way of saying a loan on which the borrower isn't paying some or all of the required payments.



Odious debt
In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.
Rest here (source)



Open Interest
In the futures or options markets, the total number of contracts that are "open" or live. In COT terms, its the total of small speculators, large speculators and commercials or hedgers contracted positions.



OMO
Abbreviation for Open Market Operation



Open Market Operation, abbreviated OMO
The buying and selling of government securities, such as Treasury bonds, by the Federal Reserve Bank.
Frequently when the Federal Reserve bank buys U.S. Treasury bonds or bills, they literally pay for it and create the money by just making an accounting entry on the books of the Federal Reserve.
Just to put it in perspective, the approximate total balance in the Open Market Accounts at the Federal Reserve Banks as of mid 2006 is about $750 billion dollars. The grand total of the U.S. economy in mid 2006 is about $13 trillion dollars so the balance in the Open Market accounts is about 6% of the entire economy. Source data is here.

In open-market operations the Federal Reserve buys or sells U.S. government securities (T-bills or T-Bonds) in the secondary market (not directly from the U.S. Treasury). When the Federal Reserve buys securities, it creates the funds with which it buys them by literally paying with a check drawn on itself. When a commercial bank submits this check for payment, the bank gets reserves that did not previously exist. The process by which the Federal Reserve creates bank reserves parallels the process by which banks create money.
Basically, Open Market Operations are the main way the Fed adds or subtracts reserves and liquidity from the entire banking system, and therefore indirectly controls credit creation. OMOs can also have an effect on interest rates, depending on whether the Fed is buying or selling Treasury securities.

There are also many things the Fed can affect with the various OMOs, and there exist some strong correlations between OMOs and money supply as well as stock market levels, etc.


Some source data links from the Fed are temporary repos, permanent repos and securities lending. As of 2008, there are other OMOs as represented by the TAF, PDCF and TSLF - all of which are designed to help banks etc. through the "credit crunch" by making inexpensive loans available per the Fed's role as "lender of last resort".
"Open market operations are not another weapon in the Fed's arsenal, but the only weapon in its arsenal." - Monetary Trends, St Louis Federal Reserve, August 2003.



Option
A way to buy or sell a given stock, commodity, currency, or other financial instruments with leverage and a limited risk. Very generally, one would buy a call when one expects the price to go up, and buy a put when one expects the price to go down.

In short, options are the right to buy or sell a particular commodity or stock at a certain price for a limited amount of time. The 'call' option gives the holder the right to buy the underlying security, while the 'put' option gives the holder the right to sell it. And the price at which the commodity or stock may be bought or sold is called the 'strike price'. The 'expiration date' refers to the date the underlying commodity or stock has to reach or exceed the strike price.

See here and/or here for a full explanation of a complicated investment product. Also see the greeks, and here for a tutorial and here for another tutorial.



Output gap
An output gap appears when a significant number of productive members of society are not able to find employment because producers are not hiring because consumption demand (desire + purchasing power) across the population as a whole is insufficient to motivate producers to increase payrolls.
Source



OTC
An abbreviation for Over The Counter, and most frequently means stock transactions that do not go through a normal exchange like the New York Stock Exchange (NYSE) or the Chicago Board of Trade (CBOT) but rather are traded in a less formal way. It can also apply to large private financial transactions.



Overbought
A condition when prices are considered too high by some, but does necessarily mean its time to be bearish. It merely is an indication that the item has risen too far too fast and might be due for a move down in price.



Oversold
A condition when prices are considered too low by some, but does necessarily mean its time to be bullish. It merely is an indication that the item has fallen too far too fast and might be due for a move up in price.


Another view:
What is Oversold? It starts when an asset class gets sold aggressively. Then it moves on to one (or more) of these three measures based on Valuation, Technicals, or Psychology. (The same holds true for "Overbought").

Following the selling, I define the phrase "Oversold" in any of these measures:
• Oversold on a Valuation basis is simply when an asset gets sold to the point below its intrinsic value. That can happen when downside momentum runs away.

• On a Technical basis, an asset is oversold when it hits the lower boundary of an oscillator. Think Bollinger Bands, or a Stochastics. Many technicians will consider an asset oversold when it is two standard deviations away from a recent price or moving average.

• The Psychology measure is trickiest, as it is the least quantitative. I think of an asset as oversold simply when too many people are on that side of a trade. Beyond consensus, a unanimity of view often leads to an asset being oversdold from a sentiment perspect

Source here, from The Big Picture blog.



P/E ratio
Overly simplified, it's how many years it will take to pay for the stock from its profits or earnings. In other words, if a P/E ratio is 15 then it will take 15 years of earnings to pay for the stock.

Technically, its the sum of a corporation's long-term debt, stock and retained earnings) divided by its after-tax earnings over a 12-month period



Paper trading
Practice trading on paper or with a computer, without using real money, for the purpose of increasing one's ability to make successful investments or trades.



Peak oil
"Peak oil" is the term used to describe the situation when the amount of oil that can be extracted from the earth in a given year begins to decline, because geological limitations are reached. Extracting oil becomes more and more difficult, so that costs escalate and the amount of oil produced begins to decline. The term peak oil generally relates to worldwide production, but a similar phenomenon exists for individual countries and other smaller areas.
Source



Perception management
Actions to convey and/or deny selected information and indicators to foreign audiences to influence their emotions, motives, and objective reasoning as well as to intelligence systems and leaders at all to influence official estimates, ultimately resulting in foreign behaviors and official actions favorable to the originator's objectives. In various ways, perception management combines truth projection, operations security, cover and deception, and psychological operations.
Source - DOD



Pivot, or pivot point
A technical analysis term which defines the point at which resistance disintegrates and the price begins to rise past the prior resistance level. This point can be considered the optimal time to buy as the bulls are gaining strength, or vicer versa as a sell signal.



Plutocracy
A government or state in which the wealthy rule. Excellent short Wikipedia article



Potemkin village
A pretentiously showy or imposing façade intended to mask or divert attention from an embarrassing or shabby fact or condition.



Plunge Protection Team
More officially know as the "Working Group on Financial Markets" or "President's Working Group (PWG)", it is a group of four very senior government officials that was formed soon after the stock market crash in October of 1987 (about a 30% loss in one week), and whose apparent purpose was to avoid or prevent large drops or crashes in the future.



Here is the text of the enabling legislation under President Reagan:

"Executive Order 12631 - Working Group on Financial Markets - Mar. 18, 1988; 53 FR 9421, 3 CFR, 1988 Comp., p. 559.
By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:
Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.







Section 2. Purposes and Functions.
(a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.
(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.



Section 3. Administration. (c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions."



Here is a 2007 press release from the PWG, for what its worth.



Primary dealers
A term used by the Federal Reserve to represent the few major multi-national banks and securities firms with whom they deal directly - more data here. As of mid 2005, some examples are Goldman-Sachs, J.P. Morgan & Chase, UBS Securities and Lehman Brothers - current list here.



Program trading
Trading or investing or speculating done by a computer program. The program is designed to process price data and apply buy or sell rules based on what the designers think is a winning strategy. As of 2005, over 50% of stock trades done on the New York Stock Exchange are done under the control of computer programs.
Another specific definition we've seen is "the purchase or sale of at least 15 different stocks with a total value of $1 million or more. This includes but is not limited to stock-index arbitrage.".



Proxy
Authority to act for another; an agent or substitute.
More normally, the written authority to act or speak for another party as in a stock proxy.



Psychopath
A person with an antisocial personality disorder, manifested in aggressive, perverted, criminal, or amoral behavior without empathy or remorse.
Psychopaths' Brains Wired to Seek Rewards No Matter the Consequences



Put
An option contract that gives the holder the right to sell a certain quantity of an underlying security (usually 100 shares), at a specified price (strike price) up to a specified date (expiration date).



Recession
An extended decline in general business activity, sometimes defined as occuring after two or three consecutive quarters of falling GDP. The average length of a US recession since WWII is 9-12 months per the National Bureau of Economic Research.
The FAQ on recessions from the NBER.
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) examines four different coincident economic variables, namely nonfarm payrolls, inflation adjusted personal income less transfer payments, industrial production, and inflation adjusted volume of sales of the manufacturing and trade sectors to establish the peak and trough of a business cycle.
The current and changed recession definition is "... recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." from the National Bureau of Economic Research". Source

Our understanding is that, per the IMF, global recessions are defined are global GDP growth under 4% per year.



Registered and eligible
On commodity futures warehouses, numbers listed as registered mean that the commodity is fully available for delivery and has been registered with the futurs exchange for delivery in satisfaction of a standard contract. Eligible amounts have not yet been registered but otherwise meet the required specifications to be registered and then delivered.



REIT
An abbreviation for Real Estate Investment Trust. A corporation or trust that uses money from many investors to purchase and manage income property and/or mortgage loans. REITs are traded on major exchanges just like stocks.



Repo
Short for repurchase agreement, a usually very short term financial instrument. Basically, its a complex way to say a loan.
Its an important tool of central banks like the Federal Reserve to exert short term control of how much money is in the system, since commercial banks will buy repos from a central bank in order to meet short term money needs.

The technical definition is a contract giving the seller of a security (such as Treasury bills) the right or obligation to buy that security back after a stated period of time and at a stated price, and the buyer keeps the interest.

Temporary Open Market Operations (TOMOs) have a life of between 1 and about 60 days, and Permanent OMOs (POMOs) do not have a fixed life. They're a permanent addition of money to the overall economy.
Fed definition and usage is here.

There is also another source of temporary repos - the commercial banks. As of late 2006, the outstanding balance is about $650 billion per the Fed's weekly H8 report (the total of lines 14 and 18, and please note that the line numnbers may change over time).

A short article on repos here.



Republic
A form of government in which power is explicitly vested in the people, who in turn exercise their power through elected representatives.

Today, the terms republic and democracy are virtually interchangeable, but historically the two differed. Democracy implied direct rule by the people, all of whom were equal, whereas republic implied a system of government in which the will of the people was mediated by representatives, who might be wiser and better educated than the average person. In the early American republic, for example, the requirement that voters own property and the establishment of institutions such as the Electoral College were intended to cushion the government from the direct expression of the popular will.
(Source: American Heritage dictionary)



Reserves
Funds set aside for emergencies or future needs or plans.



Reserve requirements
The requirement for commercial banks to always have a certain percentage of deposits held as actual safe/vault cash or on deposit at the Federal Reserve bank. It averages roughly 8% as of late 2004. The measure of "excess" reserves shows much of how the Fed views both the need for credit easing and how concerned they are about economic conditions.

More current & fuller data on current requirements here.



Reset
A period of time during which very large changes occur in major social, economic and geopolitical areas. They usually includes wars, financial crises, economic and political power changes, revolutions and large revaluations of currencies and asset values.

One example is the Great Depression in the 1930s, which was followed by World War II. Another was the fall of Rome. Others include the Weimar Germany experience or Argentina in 2001-2.



Resistance
Price points on a chart at which upward moves are likely to pause or reverse trend.



Revolving credit
An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid. The best example is credit cards.
Non revolving credit is similar except that the full amount must be paid back and may not be borrowed again without a new agreement. A normal loan like a mortgage is a good example.



RSI
Relative Strength Index - a mathematical formula that produces an oscillating graph, and based on recent price action. It is plotted on a scale from 0 to 100, values above 70 being considered overbought and values below 30, oversold. When prices are over 70 or below 30 and diverge from price action, a possible trend reversal can occur.See example here.



S.D.R.
An acronym standing for Special Drawing Right. It's an artifical currency invented by the IMF (International Monetary Fund) in 1969, and serves as their currency as well as for a few other international organizations. It also acts as a reserve for central banks. Its value is determined from a mix of the Euro, Yen, US dollar and the British Pound.

The IMF's SDR page
"The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members."

Also see the Bancor and the Intor, or the concepts of the "Terra" and "EBCU" mentioned by Margrit Kennedy and others.



Schadenfreude
Pleasure derived from the misfortunes of others.



Sentiment
An opinion about a specific matter. See Market sentiment



Secular
Long term, not temporary. Used of the stock market, as in secular bear market.



Securities lending
A very specialized portion of what the Federal Reserve banks do (warning: this is an extremely specialized area with many technical terms - be sure to look up any unfamiliar words). Here's their definition from here:
"The Bank provides a secondary and temporary source of securities to the Treasury financing market through a Securities Lending program to promote smooth clearing of Treasury securities. The program offers securities for loan from the System Open Market Account (SOMA) portfolio in accordance with program terms and conditions. Securities loans are awarded to primary dealers based on competitive bidding in an auction held each business day at noon eastern standard time."

In plain English, the Fed loans Treasury bonds, bills and notes to major banks or securities firms and collects interest on those loans. In our opinion, those major banks or securities firms sometimes use the securities loaned in order to make money in the general stock and bond market, and sometimes at the expense of general investors. It's primary function though, per the Fed itself is "a secondary and temporary source of securities in the Treasury market" - it helped a great deal in the markets after 9/11/2001 to keep them functioning. (Source, about 9/10 of the way through)

In plainer English:
SecLend is short for Securities Lending and is the name for one of the general areas that the Fed operates in. In this sense, securities are only T bonds and T Bills, not stocks.

It's the Fed lending to the 22 or so primary dealers of the Fed - multinationals like Goldman Sachs or JPM or even CountryWide. The interest rate at which they're lent (all lending operations are one day operations) is very low, usually around 1%. It's neither OTC or regular market, since one must be a member of the Federal Reserve System in order to participate.

Their home page is here.

As far as what our SecLend chart on the Fed Watch page is all about, it's our primary chart for estimating what the Fed wants to happen (and it usually succeeds, especially with the larger operations) with interest rates on the short term. The black line is the 10 year interest rate and the green lines measure rate of change (both annual and on a 13 week basis) in actual daily volumes of money involved in the SecLend ops. There's serious money involved every day - the daily average since 2002 is over $2 billion and it's not terribly unusual for it to go over $10 billion.

It's literally one picture of how the Fed manages/affects/controls/manipulates real world interest rates, and shows what they're actually doing as opposed to what they're saying.
"...the Federal Reserve has the capacity to operate in domestic money markets to maintain interest rates at a level consistent with our economic goals” -- Ben Bernanke, Fed Chairman, March 26th 2007 to the Senate Banking Committee.



Seven deadly sins
Pride, envy, anger, sloth, avarice, gluttony and lust.
-- Pope Gregory the Great, Sixth Century A.D.



Short
To 'short' (sell) is the opposite of 'long' (buy). To go long is buying something, going short is selling something (like a stock or index).

The raw fact is that prices in virtually any market go down as well as up, and profit may be made via selling or shorting as well as via buying.

In recent years, products have become available that allow any investor to much more easily make profits when a market or markets are dropping. See our false data page for an entry under "You can only lose money or stand aside in cash if the stock market is moving down" for a few examples of funds that profit when the stock market drops,as well as a mention of call options that can also generate a profit when something drops in price. As an aside, some sophisticated investors use a short position to hedge their positions too.

We wish to note in passing that some feel that shorting is less than honorable or moral, and that there have been and are less than ethical market participants... but also that it can be a valid approach at times too.



Short selling
A generally risky way or technique to make a profit when a stock or other investment item drops in price.
A much more detailed description is available here and/or here.



Sight account
Like a U.S. standard checking account. A demand deposit.



SIV
Structured Investment Vehicle.
Another name for derivatives.



Social Security
"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power." -Alan Greenspan (Chairman of the Federal Reserve), appearing before the Senate Banking Committee on Feb. 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.



Solvent
Having more assets than liabilities.



SPDR
An acronym for Standard & Poor's Depositary Receipt, pronounced spider. A security designed to track some portion of the S&P Index, consisting of a group of stocks. See ETF.



Speculation
Buying or selling something with the purpose of reaping a relatively quick profit by a sudden rise in the market price of something. Things are bought merely in order to be held till it can be sold again. Compare it to making an investment.

Also, a speculator is simply someone who sees, or anticipates distortions in the marketplace and positions himself to take advantage of them. He can do that because he understands their causes, and their effects.



Spot price
Just another name for the cash price.



Stagflation
Inflation, combined with high relative unemployment and a relatively poor economy. The word was invented by Harry Browne in the '70s and literally means stagnation plus inflation. An inflationary recession is another way to look at it.



Statistician
A person who can have one leg in a boiling pot of water and the other in a vat of ice water and tell you that on average he's comfortable. ;-)



Sterilize
In banking between central banks of different countries, doing open market operations to balance or counteract effects of the international flows of money between them, in order to minimize impact on the value of the country's currency.

That's way more than you wanted to know about international banking... but the process can hugely affect both forecasting and investing.



Stochastics
A momentum and oscillating indicator that measures the price relative to the high/low range over a set period of time. The indicator moves between 0 and 100, below 20 being considered oversold and above 80 being considered overbought. See example here.



Stock
An instrument or certificate that represents an ownership position in a corporation, and represents a claim on a proportional share in the corporation's assets and profits.



Stop or stop loss
A price point at which one wants to get out of a trade, either to prevent more loss or to take a profit.
Its also an order to buy or sell a certain quantity of a certain security or investment if a specific price is reached or passed.



Stop out rate or price
The lowest interest rate that applies during a Fed or Treasury auction.



Support
Price points on a chart at which downward moves are likely to pause or reverse trend.



survivorship_bias Survivorship bias
A statistical issue that frequently makes performance comparisons logically invalid, unless its taken into account or at least mentioned.
Investor words definition here.



SV or Statistical Volatility
(ignore this unless you're into or curious about options - it's very much for investing nerds)
The percentage change likely to occur in an option contract's price over a one-year period, in other words - someone's best guess on future price movement percentage change.

See here for more on options volatility.



Swap
An exotic and potentially very complex financial contract. They can be done with bonds, currencies, interest rates, assets, liabilites or almost any financial instrument. They're basically an agreement to exchange payments (interest payments versus cash flows) over a period of time.
Follow the links at the InvestorWords definition for a more complete understanding of the area, but fair warning - they can be quite complex and difficult to understand.

Is GS Tempting The Interest Rate Black Swan With 1,056% Risk Exposure?

"Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received. Gold swaps are typically undertaken when the cash-taking monetary authority has need of foreign exchange but does not wish to sell outright its gold holdings (at least not on their own books - Jesse). In that manner, gold is a leveraging device. Gold swaps sometimes involve transactions where one of the parties is not a monetary authority (usually it is another depository corporation). Gold swaps between monetary authorities do not usually involve the payment of margin."
Repurchase Agreements, Securities Lending, Gold Swaps and Gold Loans, An Update



System Open Market Account (SOMA)
Per the Fed, the System Open Market Account (SOMA), managed by the Federal Reserve Bank of New York, contains dollar-denominated assets acquired via open market operations. These securities serve three purposes:

* Collateral for U.S. currency in circulation and other reserve factors that show up as liabilities on the Federal Reserve System's balance sheet
* A tool for the Fed’s management of reserve balances
* A store of liquidity in the event an emergency need for liquidity arises

In plain English and generally, increases in the balance of this account shows the the Fed is creating money literally out of thin air (frequently via the direct purchase of US government debt in the form of Treasury bonds). The rate of increase and decrease in this account is one key way to judge how much relative inflation or deflation is coming in the future.



Sophistry
Plausible but fallacious argumentation.



Sweeps
A program started in 1994 that allows U.S. banks to reduce required reserves and make additional income by moving checking account deposits into money market accounts when the bank isn't open (overnight or weekends). The money is "swept" from checking into money market accounts.
Also see Sweeps Distort M1 Growth



Tanstaafl
An acronym standing for "There Ain't No Such Thing As A Free Lunch".



Taylor rule
An extremely specific and high level, complex way to determine what the Fed Funds rate should be.

Professor Taylor’s original specification of his Rule:
Fed funds = Equilibrium (Neutral) Real Short Rate + Actual Inflation + 0.5(Actual Inflation – Target Inflation) + 0.5(Actual GDP – Potential GDP)

"Mr. Taylor assumed the neutral real rate to be 2%, and the Fed’s implicit target for inflation (the core PCE deflator) to be 2%. Thus, if the economy was in perfect equilibrium – inflation at target and zero output gap, which implies actual unemployment at the “full employment” rate, also known as NAIRU – then the neutral nominal Fed funds rate would be at 4%, according to Taylor." More data here.



Technical analysis
Analyzing an investment via price and volume data alone. See examples here.
See the glossary at stockcharts.com, a good one for a Technical Analysis definition, and their Chart School is decent too.



Term Auction Facility (TAF)
A Federal Reserve facility to temporarily loan money to the banking system to aid banks with liquidity and trust issues. It's most similar to temporary Open Market Operations, except that more financial institutions may participate.
Data available here, announcement here.



Texas ratio
Wikipedia link to texas ratio



Theta
(ignore this unless you're into or curious about options - it's very much for investing nerds)
The ratio of the change in an option's price to the decrease in its time to expiration. Theta is also called time decay. A high theta means the price moves quite fast in the direction of the price of the underlying financial instrument when the expiration gets close.



Treasury International Capital or TIC
A set of reports from the U.S. Treasury that shows virtually all the flows of money into and out of the country, for stocks and bonds.
The TIC data are indirectly the basis of the Federal Reserve Board's Flow of Funds accounts for financial positions and flows of the Rest of the World sector, so they are key in showing the position of the U.S. in the world financial area.
More data is available at the U.S. Treasury TIC pages here. The TIC FAQ is here.



TIO, an abbreviation for Term Investment Option
A way for the Treasury to make extra income. From the treasury site here, the "Treasury will periodically auction excess operating funds to participants for a fixed term at a rate determined through a competitive bidding process."




Trade deficit
What its called when a country imports more than it exports.
When its very large as a proportion of the economy and continues to grow, its a signal of danger for the future economy.
Also called current account deficit and balance of payments deficit. Trade surplus is the opposite.



Trading
Buying and selling securities or commodities on a short-term basis.
Day trading is making multiple trades on the same day, trading can range from over a day to weeks or months.



Trading range
A relatively narrow band of prices, within which an investment trades. Prices eventually will break out of the range.
One can have increased chances of success and profit via buying at the bottom and selling at the top of the range.



Tranche
A piece or section of a group of bonds, each piece having an increasing amount of risk. The word is French for "slice".
Wikipedia link



Treasuries
An abbreviation for interest bearing instruments issued by a government to finance its actions. In the U.S., there are Treasury Bills and Bonds.



Treasury Bill
An interest bearing instrument issued by the U.S. government, having a maturity or term of one year or less, and exempt from state and local taxes. The original amount invested can not decrease, unlike a bond, so they are considered very secure.



Trend
The general direction in which something moves.



Trend line
Straight lines drawn on a price chart that connect high prices during a down move or low prices during an up move. They both help to determine the strength of tne trend, and frequently can indicate a trend reversal when the line is broken. See example here.



Triffin's dilemma
Notes the problem with using a national currency as an international reserve currency, and how that situation creates conflicts between short-term domestic and long-term international economic objectives thereby creating tension between national monetary policy and global monetary policy.
Triffin's dilemma, Wikipedia



Triple Witching day
The third Friday of March, June, September and December. Its the day on which stock index futures, stock index options, and stock options all expire every quarter and is a very volatile day, especially during the last hour.
Double witching day is when two out of the three expire on the same day,



Trust
A legal arrangement and contract in which an individual (the trustor) gives financial control of property to a person or institution (the trustee) for the benefit of the beneficiaries.



Types of investments
In no particular order, and probably not exhaustive but:
Cash, T-bills, money market funds, silver, gold, jewelry, diamonds, semi-precious gems, coins, stamps, stocks (preferred, common, REIT), bonds (corporate, treasury, state, municipal, tax or tax-free), options, futures, education, antiques, paintings, other art, commercial paper, equipment, real estate (home, vacation/2nd, condo, rental, raw land, commercial, agricultural), business (individual proprietor, LLC, partnership, corporate), barter goods, foreign currencies, foreign stocks, foreign bonds, other non precious metals like copper or lead or zinc, charitable donations.



Vega
(ignore this unless you're into or curious about options - it's very much for investing nerds)
The change in the price of an option that results from a 1% change in volatility. A higher vega for an option means the price moves move than 1% when the volatility of the underlying is higher than "normal".



VWAP
Volume Weighted Average Price.
A measure of the average price of an instrument over a period of time, usually one day. It's the ratio of the dollar value traded to total volume traded.



Velocity of money
Simply, the speed that money of all types circulates through an economy. It measures how long a person, bank or company holds on to the money before spending it. An example - when money decreases in value during a noticeable inflation, people hold onto it for a shorter period than when there is little or no inflation.
Velocity defined at Wikipedia



Volatility
The relative rate at which the price of something moves up and down. If it moves up & down rapidly in a short period of time, the thing has high volatility. Also, liable to change rapidly and unpredictably, especially for the worse.



VWAP
Volume Weighted Average Price.
The price at which the majority of a day's trading in a given security occurs.



Warrant
A long-term call option allowing the holder to acquire the underlying common stock at a specific price. It expires on a specific date in the future.



Williams %R
Yet another momentum and oscillating indicator for measuring overbought and oversold levels. The scale is from 0 to -100. 0 to -20 are considered overbought, and -80 to -100 considered oversold. See example here.



World Bank
An international organization, senior to the B.I.S., whose purposes are to help stabilize banking reserves of all countries and keep the balance of trade between nations relatively stable over time.



Yield
The annual rate of return on an investment, expressed as a percentage.



Yield curve
A graph showing the difference between two interest bearing items over time. Its most often expressed as the difference between the 10 year Treasury bond a 3 month Treasury Bill interest rates.

When the difference is negative (interest rate on the 3 month is higher than the 10 year), it shows a higher concern than normal about future interest rates directions, and it is also one key indication that a recession is possibly or probably ahead.



YMMV
An acronym, standing for "Your Mileage May Vary" or you may have a different opinion.