On the interest rate environment

The 'Rate Gap' Is Rising (http://online.wsj.com/news/articles/SB10001424052702304384104579143450479627172?mod=djemITP_h)
The gap between deposit rates and borrowing rates is higher than it's been in 32 of the last 40 years. by Andrea Coombes


Low interest rates have been bruising savers for years, but for a while those same low rates
were proving a boon to mortgage borrowers.

Not anymore.

In fact, the gap between the interest consumers earn on a savings account and the rate they pay on a 30-year fixed-rate mortgage is its widest in two years—and among the highest in more than 40 years—according to data analyzed by MoneyRates.com.

The widening spread also is a sign of the hurdles faced by retirees and other savers who are trying to generate income from relatively conservative investments.


For the month of September, the spread between the average rate on a 30-year fixed-rate mortgage (4.49%) and the average rate on a one-month certificate of deposit (0.06%) was 4.43 percentage points, according to data from the Federal Reserve and Federal Deposit Insurance Corp.


Since 1971, the average gap between those rates has been 2.83 percentage points. In 2007, the gap hovered around one point.

The gap has been higher than average since November 2008, shortly after the onset of the financial crisis, coinciding with efforts by the Fed to push short-term rates lower to stimulate the economy. Then the difference shrank to less than four percentage points for most of the past two years.


The problem for savers is that rates on savings accounts, money-market funds and certificates of deposit are tied very closely to short-term interest rates. But other interest rates are subject to a variety of market forces that tend to drive those rates higher, including lenders' perception of risk from inflation and default.


"If you're a bank and you're going to make a 30-year commitment, you don't want to be caught receiving a substandard interest rate," says Richard Barrington, a senior financial analyst at MoneyRates.com. "You're going to be pretty quick to raise your rates on any hint that mortgage rates might be due to go up."


The highest gap recorded since 1971 between 30-year fixed-rate mortgages and one-month CDs was 6.2 percentage points in August 1982. But back then, a one-month CD paid more than 10%. Today, by comparison, "the income-producing ability of your savings has virtually disappeared," Mr. Barrington says.

Consumers have a few options. Consider owning only shorter-term CDs, so you don't lock yourself into meager payments for the long run. Look into online savings accounts, which have fewer restrictions than CDs yet may pay the same or better rates right now. And consider shorter-term mortgages, since they tend to have lower interest rates than 30-year loans do.

From http://on.wsj.com/15ApOsp    Why Tough Teachers Get Good Results

Psychologist K. Anders Ericsson gained fame for his research showing that true expertise requires about 10,000 hours of practice, a notion popularized by Malcolm Gladwell in his book "Outliers." 

The rap on traditional education is that it kills children's' creativity. But Temple University psychology professor Robert W. Weisberg's research suggests just the opposite. Prof. Weisberg has studied creative geniuses including Thomas Edison, Frank Lloyd Wright and Picasso—and has concluded that there is no such thing as a born genius. Most creative giants work ferociously hard and, through a series of incremental steps, achieve things that appear (to the outside world) like epiphanies and breakthroughs.

Prof. Weisberg analyzed Picasso's 1937 masterpiece Guernica, for instance, which was painted after the Spanish city was bombed by the Germans. The painting is considered a fresh and original concept, but Prof. Weisberg found instead that it was closely related to several of Picasso's earlier works and drew upon his study of paintings by Goya and then-prevalent Communist Party imagery. The bottom line is that creativity goes back in many ways to the basics. "You have to immerse yourself in a discipline before you create in that discipline."