Exchange-Traded Funds (ETFs) are securities that trade like stocks but are supposed to track the price of an index like the Dow or S&P 500 instead of an individual company, or they may be designed to track the price of a commodity like oil, gold, or silver.

M2 is a broader (than M1) measure of the supply of currency in an economy. It includes M1 plus most savings accounts, money market accounts, retail money market mutual funds, small denomination time deposits (i.e., certificates of deposit of under $100,000), overnight repurchase agreements, and overnight Eurodollars.

Quantitative easing is central banker speak for creating currency to buy debt or other assets. The process of quantitative easing is fairly simple—it involves printing currency and buying assets from banks—but it can take many different forms. Central banks can use Q.E. to buy relatively safe treasury securities, pumping cash into their vaults to stimulate lending; or they can buy assets that have lost value (think mortgage-backed securities) in order to make banks whole and attempt to shore up their balance sheets. Central banks can also target certain maturities of the assets they purchase, to push down the cost of short-term, medium-term, or long-term borrowing. 

The Efficient Market Hypothesis is a theory that says  says that the market is efficient for two reasons. (1) We believe it is inefficient. (2) Everyone is constantly trying to beat the market and make money. The theory gasically because people believe the market is inefficient (i.e. you can beat the returns of the market) the market becomes efficient. Say you are attempting to beat the market. Your very act of trying to attempting to make money (Mauricio Explain the theory, I cant do it) It is important to note, this theory doesn’t exclude the possibility that you can beat the market. What it is suggesting is that you only do so by taking on, what the market views as, higher risk. This is because the market (or hundreds of millions of people) are also trying searching for the best deal and trying to learn all the possible information.

A market in which the primary price trend is upwards 

The front side of a coin which contains the principal design; the “heads” side of a coin

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

Open Market Operations are one of the most powerful and the most frequently used monetary policy tools given to the U.S. Federal Reserve under the Federal Reserve Act of 1913,  and the Great Depression was the Fed’s first major experiment in wielding this tool. The experiment ended in abject failure. Through Open Market Operations, in an attempt to manipulate short-term interest rates and ease the country’s suffering, the Fed sold U.S. securities to private banks. The securities sales sucked up excess cash, leaving even less to lend, and contracted the money supply even further, ravaging America’s economy.  Activist government responses such as this one prevented the free market from healing itself, turning a bad recession into the Great Depression.

The Consumer Price Index (CPI) is a measure generated by the U.S. Bureau of Labor Statistics (BLS) by tracking the cost of a standard basket of goods and services over the years. At one time, the CPI was a valid yardstick of prices, based on the actual price of the same items year after year. But for the past few decades, the CPI has been comparing apples and oranges, so to speak. Under the methodology used to calculate CPI since 1982, when the price of one item—say a pound of steak—rises significantly, BLS simply substitutes another, less costly item—say a pound of chicken breast. In other cases, BLS uses a technique called hedonic regression, by which its statisticians guesstimate, for example, that an item—say a home computer—built today is probably faster and better than a home computer built 10 years ago. So they adjust the price increase downward to compensate for the assumed higher value of the newer item.

Long-Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether (the former vice-chairman of Salomon Brothers). On its board were Myron Scholes and Robert Merton, who shared the 1997 Nobel Prize in Economics for developing an option pricing formula called Black-Scholes. Under the guise of academic conservatism, LTCM was able to raise equity of $4 billion while amassing derivatives positions with a notional value of $1,250 billion ($1.25 trillion). Their leverage was over 300:1.  By September 1998, LTCM was in dire straits, and required a bailout organized by the Federal Reserve Bank of New York in order to prop up the wider financial markets.

The number one most used indicator for the economy is Gross Domestic Product, or GDP. GDP measures the output of all goods and services in an economy. Even if a hammer or a computer was made, but never sold and sat on a storeroom shelf, it is still included in GDP. GDP is used to determine if an economy is growing or shrinking—economies go through long cycles of expansion and recession, and the best way to tell where we have been in that cycle is with GDP. Oftentimes it is listed as GDP per capita (output per person) or as a growth percentage. Sometimes it is listed in nominal or real (or chained) dollars. Suppose a company says it sold $11 worth of gloves, 10% more gloves than last quarters’ $10 sold. It is unclear whether they actually sold more gloves this quarter, or simply raised prices 10%. If they simply raised prices, the true volume of gloves sold is no more than last quarter, or $10. In this case, the glove factory’s nominal GDP would be $11, and its real or chained GDP would be $10, because real GDP takes out the effect of rising prices.     GDP is a backward-looking indicator because it tells us what the economy has done, but it is limited in its ability to tell us how the economy will do in the future. It is also limited because it is not very timely—GDP in the U.S. is only released on a quarterly basis, one month after the quarter has ended. After it is released, it is revised one month later, and then annually at the end of July. These revisions almost always change the first number, making GDP at best a rough gauge of how the economy is doing.  

A human tendency to attach higher probabilities to events after they happen than before they happen.

Leads us to look for and put stock in evidence that confirms our pre-existing opinions and to dismiss evidence that proves we were wrong.

A bias that causes us to make decisions based on pre-conceived value judgments, or “rules of thumb,” rather than on an objective assessment of costs and benefits. It is akin to “going with your gut.” This phenomenon is common at election time, when a voter who has always voted for a certain political party, whose family has always voted for that political party, and who just generally has warm feelings for that party, sure enough votes for the candidate of that party—even though the candidate’s positions may be contrary to the voter’s best interests.

This causes us to be overly confident that we will answer a question or solve a problem correctly.

Leveraged lending is the risky process of using a small amount of cash reserves to lend much larger amounts.      

These are private financial institutions (i.e. Fanny Mae and Freddie Mac) created by Congress intended to increase the availability of credit in the economy. While the GSEs were not explicitly backstopped by the government, they enjoyed low borrowing costs—just like government entities—implying to investors that they would get a government bailout if it were ever needed. Investors would eventually be proven correct. 

Stagflation is a portmanteau of the words stagnation and inflation—a condition that was unexplainable by Keynesian/activist economists–who wrongly believed that inflation and recession were mutually exclusive. Keynesians believed that a recession would ease pressure on prices, and increasing prices would heat up economic activity—but to have recession and inflation together was simply an impossibility.

The basic format of an economic cycle is expansion, leading to crisis, followed by recession, and finally recovery, which leads back to expansion. The timing of basic economic cycles can be predicted with some regularity.

The frequency with which a unit of currency is spent.

A dividend is an annual payment made to stockholders from the company’s profits. The dividend yield is calculated by dividing the annual dividend by the price paid for the stock, to determine the percentage dividend yield. For example, if you pay $10 per share for a stock and receive $0.60 in dividend payments annually, then your dividend yield is 6%.  

Futures are really nothing more than IOUs. Futures contracts are just standardized agreements to deliver a specific commodity, in an agreed quantity, at an agreed price, on an agreed date, someday in the future. They are traded like stocks on numerous commodities exchanges around the world. They differ from buying stocks in that you agree to a transaction at some point in the future.

The tangible things that we eat, use and/or buy. Commodities that are traded include Cattle, Cocoa, Coffee, Copper, Corn, Cotton, and Crude Oil, just to cover the Cs. Gold, silver and platinum also are traded on the commodities exchanges as futures contracts.

When the price of a commodity costs more for delivery today than it does for delivery in the future.

Ben Bernanke is current Chairman of the Federal Reserve Board. He succeeded Alan Greenspan as Chairman in 2006, following his nomination by former President George W. Bush. He is an economist and former professor at Princeton University. Nicknames include "the bernank," and "Helicopter Ben."  

Paul Volcker is an economist and former Chairman of the Federal Reserve between 1979 and 1987, when Alan Greenspan took the reigns of the Fed. 

From CFTC's Website: "Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000."

The shadow economy is a fuzzy area of trade that includes legal activity hidden purposefully from the authorities in order to transact business outside the auspices of a prying government greedy for its tax share. When someone clandestinely sells a good or provides a service hidden from the prying eyes of the government, they are participating in the shadow economy.

  The amount or difference between the initial purchase price of your investment and what you received after selling your investment sometime in the future.