Uh oh, I'm going to talk about a topic that makes many people say "Huh, why do I have to know about that?" I want to reveal some insider secrets to help you profit in our current climate and that means talking about interest rates.

1. Why are interest rates a key to understanding market direction?

In a low interest rate environment, which we are currently facing, you need to take notice of what is happening to the financial markets around us. Low interest rates equate to slim returns on our savings accounts, CD's or fixed interest rate products. The Federal Reserve has pressed rates to historic levels to help inject dollars into the U.S. economy all in hopes to stave off a collapse in our banking system. Old news, right?

By looking at what is happening to prices of our global markets you can begin to develop a sense of market direction. Maybe you haven't noticed but low interest rates drags the value of the U.S Dollar down. It's Economics 101; Supply and Demand. When we have so much supply, prices fall. We are seeing this weakness as the Euro vs. the U.S. Dollar (EURUSD) soars to new yearly highs as you read this. Other commodity prices like Gold, Silver, Oil and Grains benefit from low rates as well. Note: be careful day trade rs as news most times does not correlate moment to moment like we hope, we are talking macro or the big picture here. Risk accordingly!!

2. What does this mean to us?

INFLATION and higher prices!! Don't worry, let's learn how to take advantage. Low interest rates help commodity prices. We are seeing Gold hit the roof again probing the $1,000 mark. Oil hit bottom near $50 after a much needed correction from the overbought highs at $150 only to see it creep higher near $80 again as interest rates stay low. What does this mean to us, higher gas prices at the pump and a jobs report inching toward 10% unemployment. This is the highest in nearly 25 years.

Ahhh, why all the negative, let's spin this and make some money. For the layman out there, go to some gold parties and sell your unwanted jewelry for big cash. For you potential traders out there, let's look to make our cash from the financial markets.

First we need a gauge that tracks interest rates. We want to follow them, because the cliché "what goes up must come down"; well, what goes down also comes back up. If you are a believer in the U.S economy, interest rates will rise again. We turn to futures traders and the Fed Funds Futures Market (www.cmegroup.com) to find some clues as to when this might happen. As futures traders we are always anticipating 3, 6, 9 and even 12 months out.

Fed Funds futures prices differ from the prices you hear in the news reports. So, let's break it down for you. The Federal Reserve has set the Interest Rate at 0.25%. The Fed Fund Futures are pegged from a neutral price of 100 or a base interest rate of 0.00%. At a 0.25 rate we will see current month Fed Fund prices trading near 99.75 or 100 - 99.75 = 0.25 (the current pegged rate). As we move into future months, we will see prices moving closer to 100 or moving lower than 99.75. If prices climb higher than 99.75, traders are still betting that economic conditions are still weak and the Federal Reserve will keep rates locked and even lean toward cutting further. If prices begin to fall from 99.75 in upcoming contract months, traders are seeing improved economic conditions on the horizon. As the economic climate improves the Fed will begin to take money out of the system by naturally increasing interest rates. When rates begin to rise and they will again, we will see gold and oil prices reverse and our U.S Dollar begin to strengthen.

3. What else can give us clues to improved economic conditions?

Listen to the financial news the first Friday of every month at 5:30am Pacific. This is when the government releases last month's employment data to the public. When jobs begin to return to our economy and the unemployment rate begins to drop, you will see the Fed move rates back up.

Reading the Outlook Chart (below):

100 - Futures Price = Forecast Rate