Disseminating Analyst Opinions

By regulation, stock brokers must give analytic opinions to all investors at the same time. However, some do offer special services where they may offer securities information earlier to substantial clients.

Though the information may be disseminated to a group, rather than to individuals, the broker may still get into trouble with the SEC.

But then again, I find most analytical advice is not worth that much. What analysts get from a company is already so widely known and relatively insignificant, it makes little worthwhile difference for choosing securities or not.

Analysts have no real knowledge of what actually goes on in any company from the outside, despite all their pompous discourse about corporate activity.

That is why I always suggest the purchase of unmanaged, index mutual funds or exchange traded funds (ETFs).

Timing the Securities Markets and Discipline

Market-timing is hardly ever successful. Yet everyone, whether they are market professionals or complete amateurs, will believe themselves experts at timing, experts at when to buy and sell stocks and bonds.

Occasionally investors will actually luck out in their efforts. Or merely boast how they bought or sold “just in time.” But you can be assured that this success is temporary. If they are truly lucky to have sold in time, they most often never will get back into the market in time.

My observations confirm this. From having studied over 1500 investing strategies over the years, along with their pros and cons. More importantly, I have investigated the discipline of strategy use, Discipline is much more essential than strategy usage and upsets the market timing plans of the overwhelming majority of investors.

Iron-clad discipline must be part of each strategy. The reason to buy a security has to be an integral part of the eventual reason to sell.

Coin Collectors Beware

I recently saw a report about how supposedly profitable it has recently been for investors in old American coins.

Included in the report was information on how some collectors have profited by having those coins regraded. That is a process of getting higher condition evaluations.

I have collected coins and I have studied and written about the ramifications of rarity and condition, along with supply and demand. I will sum up a very complicated investment as simply as I can.

Coin collecting is only for long term investing because of the spread between what the seller gets and the buyer pays.

Regrading of coins is highly speculative. Especially when the coins are taken from hard plastic casings, for evaluation by grading services. This is done hoping for a higher grade. However, the grade could actually be lowered in the process.

I find that coin grade often is too subjective. And only depends on the partisan eye of the buyer or seller.

So, coin collectors, as is the case with all investors, ought to always be beware about advice in the media.

The Media and the Residential Mortgage Scare

The public forgets that 20% of all homeowners have no home mortgage Only 5% of all Americans are not current in their mortgage or have problems with their payments. Moreover, 33% of Americans rent and have no mortgage concerns,

Yet, the mortgage foreclosure problem rules headlines, mars public psychology and tars the overall economy.

Thus the focus persists on a small amount of events, but obviously a very noteworthy amount. That is because of the economic impact produced by those events.

I have said, and say again, it would have been cheaper for the taxpayer in so many ways, to have the government buy and raze the homes that were started and never finished, just to get rid of that excess home inventory overhanging the market early on.

It is something the experts that run our government never fully considered. Yet, it has to do with the simple rule of supply and demand.

Disclose All Government Debt in Total Public Debt and Budgets

Many items of public debt are never kept on the books for the public to see. Items such as Fannie Mae and Freddie Mac obligations, for example.

As long as Uncle Sam guarantees the payment of any obligation, that debt ought to be part of each year’s budget calculation and the entire public debt.

Remember Enron? And Citigroup, as well as other big banks who were bailed out with taxpayer funds? Keeping heavy debts apart from regular government business is what hides real problems that eventually catch up with financial reality.

Financial hocus-pocus such as this is the means whereby politicians are able to hoodwink the public. In private business, the culprits would all wind up in jail.

Be Careful of Special Investment Products When Diversified Alternatives are Available.

Direct Participation Programs are being sold to investors who want to invest in real estate investment trusts. However, they are not fully regulated and, most important, are not as liquid as a diversified mutual fund or ETF that specializes in real estate investment trust holdings.

What is more, Direct Participation Programs generally have high sales commissions and their management fees are exorbitant.

This is yet another instance when it is best to stick to plain vanilla investments and to avoid the sharp pencil, brainy guys on Wall Street.

Investigate Economist Opinions

Never, never, never, take an opinion of any economist unless you first know the background of that economist.

I use my own fast screening process before I get into details. Not everyone has the time nor the inclination, nor the job for getting into the details. So the fast screen is essential for public use.

Find out if the economist believes in free markets. If he or she is a favorite of a left-leaning politician, you know the economist fails that test.

Note: As a further test, I find out if the economist has had entrepreneurial or an industrial or business background. A free market economist, such as Milton Friedman, never came from industry, but he fully understood industry’s optimum needs.

High-Frequency Trading

About 70% of securities trades now arise from high-frequency trading procedures. Anyone with fast computers can play the game, so it is not so exclusive a financial club as some critics make it out to be, And not a devilish cabal that must be abolished.

The bottom line: High-frequency trading helps lower costs and pricing for all investors, large and small.

As I have noted here before, Wall Street appears to be there for a left-leaning political purpose these days. To be attacked.

It is little understood and the media does a poor job of educating the public that the politicos love to rile up.

Individual’s Money Spent on Health Vs Government Spending on Health

Leftists in this country are worried that Americans spend too much money for their health. They do not appear to similarly care much about our outlay on food, housing, automobiles or clothes, as they do on health.

But what Americans spend on different items always varies. We spend more on health because our health providers offer better services than do those in countries where such expenses are less. And we have more and better doctors and testing, as well as health facilities.

This does not indicate waste, as the left-leaning Obama administration wants us to believe. The only waste is in over-testing and that can be sharply reduced with tort reform, which the left will not touch for its own political reasons.

This should have nothing to do with anyone not able to get medical care. The poor can be given assistance, the way food stamps and other forms of help are provided.

What ought to be considered is that government health spending will control one sixth of our entire economy, while taking individual choice away.

“Flash Orders” and Trading

Wall Street is there for a purpose. Why not attack it? That’s what left-leaning politicians think.

Flash trading orders appear quoted for a split second. Customers with extremely fast computers get a quick look at pricing. But anyone with a fast computer can play. There is no way you can monopolize that information that is picked up about securities’ supply and demand.

Right now, only about 3% of trades are flash orders. Nevertheless the SEC is proposing a ban on them.

Nothing succeeds in the current administration’s Great Recession bumbling, except activity of little consequence.

Common Stockholder Rights Need Changing?

This is a matter brewing in the U.K. but it also comes up from time to time in the U.S. It has to do with the voting rights of shareholders in U.S. stocks.

There are some corporations with two types of common shares, voting and non voting. The New York Times family, for instance, has special voting stock that controls ownership. Other non-voting company shareholders cannot vote.

There has been clamor for change. For example, talk that shareholders who hold their common stock for a longer period should have more voting power than those who buy shares for shorter periods, for purposes of trading. Or restrictions on those who buy them to exercise control for company takeovers.

The conventional wisdom in the past was, if you did not like management you simply sold your stock, instead of trying to take the company over.

“Dark Pools” and the Investor

Tens of millions of shares are traded each day in what are referred to as “Dark Pools.” Quotes are listed after the trades are done. The pools are automated and enable institutional investors such as pension and mutual funds to quietly buy and sell their holdings. This helps them execute very large transactions without divulging their intentions.

The upshot? Pension and mutual funds and their small investor clients, benefit from lower cost transactions and lower prices.

But as you would expect. the Securities and Exchange Commission, in its bureaucratic wisdom, has just recently come down on the side of more disclosure, for disclosure’s sake. Politics for the masses, to the detriment of the masses.

Government Regulation Over Venture Capital Funds

The Government now says it would like to regulate venture capital funds because VCs advise the startup companies they finance, The Securities and Exchange Commission would supervise the regulation.

Naturally, bureaucrats feel venture capitalists “advise.” But that makes the slippery slope even more slippery. That would also make every member of a company’s board of directors an “adviser.” Or place every major bank lender into this category, and so on.

There would be no end to such regulation. It would open up the job market for all those civil servants who never operated a pushcart, but know how to run any business assigned to them for meddling.

Why is Leveraged Secured Debt Still Permitted?

The U.S. Securities and Exchange Commission had no experience in the models that created the leverage that subsidized collateralized loans. So they permitted leverage to get higher and higher. Leverage went up from 10% to over 30%, which made the loan values more volatile.

What can make us now believe that more regulation will help solve the current financial mess we are still in, from that miscalculation? While we are still unsure of the type of loans we are permitting homeowners to have in our weak economy?

The Government is Meddling with Our Banks, Again

The Obama administration is attempting to get banks solvent, so they can make loans to the consumer and industry. However, banks appear to continue to hold back.

In its widely publicized effort to “clean up the books” of so-called “toxic waste,” the government has made bank executives gun shy. A hesitant bank executive does not tend to make loans. He or she would rather play it safe.

The government helps this timidity along by making the spread of government investments (cost of borrowing from the government and return from investing in government bonds) a sure thing. So why should bankers make risky loans?

Yet loans to consumers and business are the recipe, the stimulus, the means, of getting us out of the deep recession.

Not government handouts.

How Long Will America Be Number One?

This is a sobering thought. We take it for granted that America will always be the guiding light for the world. With our Constitution and its Bill of Rights and our expansive economy We have been truly Number One world-wide and it has helped others when you look at, for example, both 20^th century world wars.

We forget that the British once held this vaunted position. They relinquished it when they became a debtor nation. The U.S. today is well on its way to become such a monetary-debased country.

And we know at least one creditor nation in the Far East, ready to take over our past role, if we do not mend our ways.

What is Insider Trading Abuse?

What is Insider Trading Abuse?

It is important to clarify what actually is insider trading we read and hear about so much in the headlines. Much is actually misinformation that feeds on the anti-Wall Street sentiment the media loves to spew.

It is difficult to accuse individuals of being guilty of insider abuse unless you make some basic distinctions. I do this by first distinguishing what is abuse of proprietary information, and what information is being ferreted out by legal securities analysis.

A way of investigating the insider trading concept: If you get the information from someone who is under a contract from his or her employer not to divulge information received while on the job, it is stolen insider information. If you do your own analysis to get the information, your information is legal.

The Regulation Of Derivatives

More regulation of derivatives is being contemplated by Washington, whereby trades will have some form of collateral and will include margin. What was transacted in the past obviously did not work satisfactorily. But then, there was little regulation, nor collateral required.

There is no doubt that derivatives are essential to trading of securities for any orderly financial securities market. Derivatives are financial instruments derived from other assets, instead of trading the underlying asset itself. One basic example is a futures contract: An agreement to exchange an underlying asset at a future date.

Derivatives are frequently leveraged, so that a small movement in the underlying value can cause a large difference in the value of the derivative.

They can be used to speculate for profit or to hedge in order to reduce risk in that underlying asset.

Regulators are attempting to create more collateral backing for these contracts, to avoid past problems. This makes theoretical sense.

But I wonder how practical such efforts will be, as the nature of derivatives may make such restrictions too binding to be practical.

Be Careful Of Currency Speculation

Some advisers , columnists and brokers make currency speculation and trading sound easy. But it is not.

Currency trading is not for the faint-hearted. And it can be dangerous to your financial health unless you have lots of capital. And know-how.

Secondly, Currency trading success depends on trends that can be reversed suddenly. Quick changes can blip out equity when down payment margins are so small in commodity contracts.

And thirdly, value in a currency is not easily discerned, even by experts. A currency is valued in relation to another. The dollar, in relation to the British pound, the Euro, the Chinese yuan and the Japanese yen, as examples. And they can be temporarily overvalued or undervalued by volatile markets.

I would suggest any investor who would like to trade currency first become a student of this highly complicated game. That means that one must first read all that they can about the subject’s mechanics.

That also requires knowledge of the futures markets and all those intricacies. Read the literature available on the internet and from organizations that comprise the options industry,

And once you feel you know those technicalities, do sessions of what I refer to as “dry-runs.” Make fantasy trades without real money just to see approximately how well or poorly you would have fared with actual investments.

Only then do you trade. With your fingers crossed.

Do Professional Investors Attempt to Use Too Much Data?

Wall Street financial models have been able to resort to what is known as data mining. Whereby information on various investing strategies of the past are collected. This is called back-testing when the strategies used in the past are used to see what would happen, hypothetically, as a strategy, when projected into the future.

All this is based on many assumptions that the mathematical models are supposed to predict.

I have made a career of looking at over 1,600 investment strategies used by investors over the years. I have investigated their pros and cons.

And I can tell you this: There are some worthwhile concepts as well as gibberish out there. But all in all,no panacea exists. I would say that most of the data mining is useless, except for their use to market investment management services.

Financial Problems in State Governments

State governments have budget problems that are unique to them. Unlike Uncle Sam, states cannot print money. Yet, their political overseers have the same bad habits of spending too much.

One major example: Expensive pensions, especially when they are not properly funded, if funded at all

These recession days, states’ tax revenues are lower which make their financial burdens even more onerous. Business tax incentives have not worked out and Income taxes on business and individuals are too high for them to be easily raised. It is becoming more difficult to keep looking for this source of easy state revenue.

The solution? States will have to cut back much of what they are now offering, and begin tightening their belts. This includes resisting federal mandates that require spending by edict from Washington.

Indexed CDs are Back Again

Certificates of deposit, with returns tied to the stock market, are back again. As in the past. A Reminder: Investment instruments of this kind really are too complicated for the average investor. They serve a purpose primarily for brokers who market them and not the true interest of investors.

If you want simplicity without headaches, you are always better off with plain-vanilla investments. Forget about the sharp-pencil boys who come up with the complicated stuff on Wall Street. If you want stocks or bonds buy them. If you prefer CDs, choose them. Avoid indexed CDs unless you really understand their terms..

Mixing the two in combination can be done in a portfolio, not as a package that can complicate your planning.

A Super Regulatory Agency?

I have said in the past that strict government regulation by itself does not work. However, one problem we have is we may have too many agencies working with conflicting objectives.

A suggestion with possible merit might be to have the Federal Reserve in charge of all the banks and insurance companies, instead of the various agencies now supervising the many institutions. There is also a question of SEC duties and how hedge funds are kept under control, and whether they, too, ought to be under that all-in-one supervisor.

Transparency always works best. However, that is also a matter of political talk more than practice. Transparency is what politicians mention only in their campaign banter.

A better look at the balance sheets of public companies would be of help. More legislation such as the Sarbanes-Oxley Act is not the answer. The latter legislation has been an expensive failure because it has not done what the politicians wanted, apart from keeping many foreign businesses away from American shores.

Can You Stop a Financial Bubble?

Listen to a politician after a financial bubble and you see a sharp finger pointing at someone, usually anyone appointed by a member of the opposite political party or the denizens working on Wall Street.

Then you get a solution. More regulation, to see to it that the regulators catch the next bubble before it starts. Nip it in the bud, so to speak.

It cannot be done, except in fantasy political circles. Bubbles are hard to recognize in advance. They are only easy to recognize in retrospect, as the residential housing bubble. Then, Congress went out of its way to do what amounted to nothing as a future preventative.

There was actually legislation introduced years ago to reduce Fannae Mae and Freddie Mac leverage. That would have definitely reduced the fuel that fed the fire under the recent financial bubble in housing. And it was turned down by politicos who thought the country did not want to squelch the boom that supposedly was giving the lower classes the opportunity to own homes. As it turned out, homes they could hardly afford.

So all talk about regulating bubbles is mere political. It has followed each bubble we have ever had.

Investment Bankers Make Money Either Way the Market Goes

As I have mentioned with regard to some hedge funds, money will continue to be made by a decided minority over the shorter term, from aberrations in the economy, and not growth.

On the other hand, investment bankers make money with corporate marriages and divorces.

On the AIG breakup, nearly $1 Billion for IPOs or underwritings, and consulting for breaking AIG eventually apart is BIG money in any economy. Managing so-called toxic assets and handling other financial meltdown arrangements are huge sources of capital under any financial conditions.

What other business pays so well for those who give poor advice?

Hedge Fund Fees Under Pressure?

Those conventional hedge fund fees of the past, 2% of assets under management and 20% to 25% of profits generated, are being trimmed down. It’s getting tougher for hedge funds to find as many clients as before. Many are taking smaller-size amounts for investments.

But considering the recent financial meltdown, I still say hedge fund fees have been more stable than you would have expected them to be, a mere six to eight months ago.

Some hedge funds will continue to make big money. But they will be a decided minority, compared to the past. Money over the shorter term will be made from aberrations in the economy, not corporate earnings growth.

Who Believes in Capitalism More--The Communist Chinese or The Obama Administration?

The Chinese government, run by its Communist party, constantly reminds the U.S. that we have too huge a budget deficit. The Chinese are troubled because they now own about $800 billion in U.S.Treasury obligations. And they see what is becoming a poor investment, what with the U.S.A. going ever further into debt. They realize that this cheapens the value of the bonds they own.

This is more than can be said about how the Obama administration treats the subject of sound money.

Is Japan Getting Away With Deficit Spending?

Japan has been priming the pump for years, trying to get out of economic stagflation. They keep financing their spending to get out of a deep recession that began decades ago, by constantly issuing bonds.

They are able to do this because they are not as dependent as the U.S. on foreign countries to buy and keep owning their debt. The U.S. bond market depends to a much greater extent on other countries holding U.S. Treasury bonds as an investment. And the U. S. dollar has historically been far more a reserve instrument than the Japanese yen.

Still, prices in Japan are high, and consumer and business conditions are dismal. Not where you can say Japan is getting away with deficit spending.

Should You Buy Individual Corporate Bonds?

If you are an individual investor, any advice to buy individual corporate bonds is not for you. Use a low-cost mutual fund or exchange traded fund (ETF) instead. Despite any so-called media-directed suggestions.

For the following reasons:

One: You would have to purchase at least thirty to fifty bonds to get some semblance of diversification in the event of possible future defaults.

Two: You could never buy bonds directly, as cheaply as does a fund in volume. Any low cost fund fees would be far cheaper in the long run than your efforts from the figures I have seen.

Three: Buy your bond funds by their duration. The duration is to be about the same as your intended holding period. (If you are not aware of the term, learn about it before you take any advice on bonds.)

Four: The interest to be paid semi-annually should be automatically reinvested in the fund. Such periodic re-investments would be very impractical with direct purchases.

I have looked at the research, and am convinced that individual purchases of corporate bonds is a misstep for both large and small individual investors.

Economic Illiterates in High Government Circles

Politicians for the highest offices, the House of Representatives and the Senate in Washington, and particularly the Office of President, do not have to take a test to see if they understand basic economics. And it shows. In their comments. legislation and opinions.

Many are economic illiterates. Whether they speak off-the-cuff, from notes or a teleprompter. They may get words from some staffer who is literate on the subject. But when the comments are extemporaneous, the gaffs become even more evident.

It would help if more politicians came with business/entrepreneurial experience. Being a lawyer, as many are, is of little help, especially if that background involved fighting business and industry tooth and nail.

Politicians speak as if they are campaigning for office when they orate. Exaggeration is taken for granted. The problem is that they must get serious once in office. Words can have consequences and psychological effects.

You can profess free market economics but you cannot have policies that spell unfettered socialism. It might appeal to a flak that helped get you nominated and elected but it won’t keep you in office. And it will have created immense damage while in office.

Because socialism has never worked where it has ever been tried. Except in the classrooms of colleges, even the fancy ones.