Wall Street and High Taxes

The media gets it wrong as usual.

Those on Wall Street who make $10 million a year are jealous of those who make $20 million; those who make $50 million a year a jealous of those who make $80 million. It’s a matter of psychology.

Taxes mean less to them. In fact, a majority are registered Democrats who could care less for high taxes; they profit from big government. Its largess and their ability to influence such big government attracts the Wall Street insiders.

True business people, especially those on Main Street, fear taxes for what they do to smaller and medium size business they are in.

Never confuse true business people from stock pickers. ( See the Earl J Weinreb NewsHole® comments.)

Supply/Demand of Securities

Never buy securities on the basis of public recommendations. Thousands, maybe hundreds of thousands, are receiving the message at the same time or may have gotten it earlier than you. That same advice.

Remember the effect of everyone acting at once. And the law of supply and demand. That law will be working against you when everyone acts on the same news at the same time. (See the Earl J Weinreb NewsHole® comments.)

Financial Advertising

There always is a conflict of interest when an ad or public relations announcement gives financial advice. Especially with the repetition of ads and announcements.

All you get is one side of the story, one financial idea or strategy’s slant. But there is always a negative factor in every financial idea or strategy, Maybe more than one. Obviously, they’re never mentioned.

And media financial advertising provides so much “education’ for the average investor. (See the Earl J Weinreb NewsHole® comments.)

Mutual Fund Expense Totals

The fundamental differences among mutual funds, aside from investment class and specialty, is cost. The lower the cost of operation, the better the fundamental choice. Relative cost makes a lot of difference in accumulated investment value over the years.

The average expense ratio for all mutual funds is about 1.3% per year. Many charge more than 2% This covers only fixed costs, such as salaries, marketing and overhead.

There are variable costs such as brokerage commissions and trading spreads. While funds pay lower commission rates than you, the more the fund trades, the more it spends on brokerage. And the less you earn.

Those expenses are not included in the Expense Ratio or are they mentioned in the prospectus, They are in the fund’s Statement of Additional Information,

In 2007, an analysis by researchers at Virginia Tech, the University of Virginia, and Boston College, in a sample of 1,706 U.S. equity funds from 1995 to 2005, found the average fund had annual trading expenses of 1.44% per year Added to the 1.32% average expense ratio for funds, the average mutual fund expense ratio becomes a total cost of 2.76% per year. (See the Earl J Weinreb NewsHole® comments.)

Misleading Financial Headlines

Financial headlines can mislead. Reasons they give why markets go up or down are often pure fiction. There may be many causes of stock market moves but the financial headline writers manage to have set answers.

It is almost impossible to know after a trading day’s closing, the moods and sentiments that drove that day’s market, nor the supply and demand of securities over the global markets that would have had an impact.

Short of a major calamity or importantly market-impacting event, the media does not know. But is ready with answers, as if a market crystal ball has somehow telegraphed some secrets to them. (See the Earl J Weinreb NewsHole® comments.)

Hedge Funds and Dodd-Frank

Larger hedge funds must now register with the Securities and Exchange Commission.

Despite popular impressions, hedge funds are a stabilizing factor in market trading, but a mostly inept media never gets this point across. Thus, politicians are able to pin blame for market problems on the wrong parties. Besides, the SEC has had a rather poor record in checking out fraud in the past.

Hedge funds tend to work off the extremes of the market. This keeps prices in line. Dodd-Frank however, did nothing but exaggerate the too-big-to-fail problem. (See the Earl J Weinreb NewsHole® comments.)

Financial Adviser Cost

Here is Christmas gift information the media overlooks all the time.

It has to do with how your financial advisers are being compensated. There may be a big difference between what they earn and what you pay them.

I am not only referring to the fact that they may be getting referral fees for recommending you as a client. That would be a conflict of interest harmful to your interests.

No, I am calculating actual cost to you.

You will pay the advisor’s fee, on the management of your assets, It can be1% to 3%, but generally 1½%. That’s $1,500 for every $100,000 they manage.

(Note the asset-management fee may not be the only cost. You pay other charges, which include mutual fund and exchange-traded fund fees for management. And if you use a hedge fund, you may also pay about 20% or so of fund earnings.)

The problem is that 1 ½% management costs add up to a considerable chunk of your annual returns. After all, you’re lucky if you earn $5,000, or 5% for each $100,000. The advisory fee, in other words, is 30%.( See the Earl J Weinreb NewsHole® comments.)

Broker and Adviser Supervision

So much information is available online about securities. There had been a fine line distinction in the way brokers and advisers dealt with clients. Years ago, brokers were more likely to give advice than they do today. Commissions are much lower.

Investment advisers are regulated by the Investment Advisers Act of 1940. Brokers are regulated by the Securities Act of 1934. In theoretical terms, investment advisers are expected to have a broader view of the investment picture. After all, much of broker training has to do with securities law basics, rather than investment research. I find that in practical terms, investors ought to treat the differences academically, but also cynically.

However, under Dodd-Frank, the Securities and Exchange Commission wants to make brokers more responsible for information they give, treating them as fiduciaries. That may dry up that source of information. ( See the Earl J Weinreb NewsHole® comments.)

Market Analyst Gibberish

As I have often mentioned before, I have made a unique mini-career of looking at almost 1,600 investment strategies used by investors over the years. I have investigated the advantages and disadvantages of each.

And I can tell you there are some worthwhile concepts as well as gibberish in all. But no panacea exists among them.

I always recommend the use of index mutual funds and established ETFs (Exchange Traded Funds).

Analysts are constantly looking for stock market winners. My comments hold for efforts of the so-called fundamentalist analysts who evaluate individual companies, seeking investment opportunities.

This certainly applies to market technicians as well. They have a whole panoply of theories about market direction that have little to do with corporate earnings and mostly to do with market swings, ( See the Earl J Weinreb NewsHole® comments.)

Timing Securities Transactions

It’s an investor’s dream and the financial media’s constant theme: Selling securities at their high and buying at their lows.

Of the over 1,600 strategies I evaluated along with their pros and cons, this could be basic.

The problem: The idea does not work in practice. Blame it on human psychology. Or the blur of constant financial news with new buying and selling suggestions. Or your need for occasional cash for urgent needs.

Research shows that very few professionals can time the market, except by accident.

Be especially careful with bonds because you are bound to get wrong information from “experts” about the risk of holding them during inflationary times. Investors generally get poor advice about the practical usage of duration principles, as a tool for bond profits during inflationary periods. (See the Earl J Weinreb NewsHole® comments.)

Gold Has Not Been Behaving as Advertised

Gold hasn’t been behaving as gold –selling ads have been promising. Gold value generally goes up when the dollar goes down, when compared to other currencies. It goes down when the dollar rises. The same with the Euro. But lately, it’s been down while the Euro is down.

When the economy becomes sounder, gold also will not fare as well; Its attraction is primarily related to a weaker economy where the dollar is being further hurt by government action.

At times gold moves in unison with stocks. following the rise and fall of common shares.

Gold produces no earnings in the form of interest or dividends. It also costs you money for insurance or storage if you buy bullion or coins, and you want it stored or insured as a safeguard. ( See the Earl J Weinreb NewsHole® comments.)

Government Venture Capital Regulation

The present U.S. administration would like to regulate more entities than it does; venture capital funds are not exempt from that view.

VCs advise startup companies they finance; The Securities and Exchange Commission would supervise and regulate the VCs as advisers.

Naturally, bureaucrats feel venture capitalists “advise” their clients when they lend funds or invest in them. But that makes for a slippery slope. That would also make every member of a company’s board of directors an “adviser.” Or place every major bank lender in this category.

There could be no end to such regulation. It would open up to meddling the job market for civil servants who never operated a pushcart, but think they know how to run any business assigned to them. Every bureaucrat would be able to evaluate and parse the meaning of financial and managerial advice that lenders and investors suggest. ( See the Earl J Weinreb NewsHole® comments.)

“Dark Investor Pools” and the S.E.C.

Populist politics for the masses, without truly benefiting the masses.

Multi-millions of shares are traded daily in “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 holdings. This helps them transact very large contracts without divulging intentions. Pension and mutual funds and their small investor clients, benefit from lower cost transactions and lower prices.

The Securities and Exchange Commission has come down on the side of more disclosure, for disclosure’s sake. However, the commission has notoriously failed to discover serious Ponzi schemes before its eyes.( See the Earl J Weinreb NewsHole® comments.)

How to Buy Gold if You Must

Gold has not acted well over the past few weeks despite the fact the Euro currency has been in dire straits.

As your know from reading my financial blogs, I am not an outright gold enthusiast. I have given my reasons in the past.

But if I opted for gold investments, I would choose an ETF (exchange traded fund) and not gold coins or bullion form, The latter have to be stored and insured against theft, and undue expense for an investment which earns no income. Gold investment market prices can easily be gauged in ETFs. ( See the Earl J Weinreb NewsHole® comments.)

Leveraged Secured Debt Despite Dodd-Frank

Today we still employ leveraged secured, collateralized debt in heavy volume. It’s an integral part of our commercial system despite the notoriety it received during the 2008/2009 financial meltdown.

What can make us now believe that more regulation under the Dodd-Frank Act will help prevent any future financial mess from miscalculation? While we are still unsure of the type of loans we are currently permitting?

Besides, we still permit homeowners to have special low down payment deals in our weak economy. All we are building is yet another bubble. (See the Earl J Weinreb NewsHole® comments.)

Equal Corporate Voting Rights

Some corporations have 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 New York Times company shareholders cannot vote that class of stock.

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

Conventional understanding in the past was, that if you did not like management you sold your stock, instead of trying to take the company over. (See the Earl J Weinreb NewsHole® comments.)

The U.S. on a Slippery Financial Slope

We take it for granted that America will always be the world’s financial standard and leader. With our Constitution and Bill of Rights and our expansive economy, we have been truly Number One world-wide. At the same time, the U.S. has helped others around the world when asked.

We forget that the British once held this vaunted position. They relinquished it when they became a debtor nation. We also are observing the plunge of Europe into a financial abyss caused by debt. 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 don’t mend our ways. ( See the Earl J Weinreb NewsHole® comment.)

Banks Fear Government Meddling

Banks continue to hold back making loans to avoid risks in an uncertain economy. The government has made bank executives gun shy, particularly with the 2010 Dodd-Frank Act. A hesitant bank executive does not tend to make risky loans.

The Fed 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.

Consumers have to want to spend and borrow, and business should want to expand and thus borrow. They have not been doing this as much as they would in a flourishing economy. Fear of government-imposed uncertainties and taxation are the problems. ( See the Earl J Weinreb NewsHole® comment

An Insider Trading Definition

It’s difficult to accuse individuals of being guilty of insider trading violations unless you make some basic distinctions.

First distinguish what is abuse of proprietary information, and what information is being ferreted out by legal securities analysis.

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.

It is important to clarify what insider trading actually is. Much comment we get from the media is actually misinformation that feeds on the anti-Wall Street sentiment the media purveys. ( See the Earl J Weinreb NewsHole® comments.

Federal Reserve Questionable Decisions

If the Federal Reserve were held to the same standards as were doctors, malpractice claims would have made headlines.

Much of the responsibility of our financial problem, in addition to that of the Congressional handouts of Fannie Mae and Freddie Mac largess, rests with the easy-money policy of the Fed. Congress wanted everyone in America to have a home, whether they could afford one or not. The Federal Reserve made money available.

The Fed thus created the world-wide bubble by continuing its easy money dogma.

Easy money policy today is certainly not helping a recovery of this country’s Industry, particularly small business. But it’s developing the next bubble and collapse. And assuring future super-inflation. ( See the Earl J Weinreb NewsHole® comments.

The Use of Indexed CDs

Certificates of Deposits or CDs, with returns tied to the stock market, can be offered by banks. Or in forms tied to variable life insurance annuities.

Investment instruments of this kind are complicated for the average investor to understand.

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 varieties. If you want stocks or bonds buy them. If you prefer CDs, choose them. Avoid indexed CDs and other convoluted financial instruments even in annuities, unless you really understand them. ( See the Earl J Weinreb NewsHole® comments.)

The Media and Recession Scapegoating

Many members of the vast media are stupid or often lean too leftward to report basic economic historical facts.

Good media reportage would refute the Obama administration’s ongoing claim about it inherited a “Bush recession.”

Bush never mentioned the downturn he “inherited” from Clinton, nor did Reagan harp on the mess he got from Carter.

Historical economic fact without political impact: The deeper the recession, the faster and sharper the bounce back into a boom. ( See the Earl J Weinreb NewsHole® comments.)

Blame For Our Current Recession

All economists agree: A sharp economic downturn usually produces a very brisk economic upturn. It’s only a demagogic ploy for an American president to blame his predecessor for any economic recession he may have “inherited”, yet cannot handle.

The worse an inherited downturn may have been, the better it makes a new president look, as the inevitable, impressive rebound occurs. All without government change and budget-busting stimuli.

However, bumbling, fumbling and meddling administrations can create a deeper recession out of what should have been a normal, quick recovery.

They instead can seek a convenient, political scapegoat. Certainly it’s not a classy effort, and it’s plain dumb.

The financial and general media who should know better and who has economic facts on hand permits this to happen. ( See the Earl J Weinreb NewsHole® comments.)

Corporate Regulations are a Failure

Washington exerts constant pressure to regulate business. The only result dampens economic activity in dire need of more productive jobs that only these targeted businesses can produce.

More legislation such as Sarbanes-Oxley and Dodd-Frank are not the answer. The latter legislation has been an expensive failure because it has not done what the politicians wanted.

There is a better way for achieving corporate transparency without oppressive regulation. Example: A better independent look by financial analysts of the balance sheets of public companies. ( See the Earl J Weinreb NewsHole® comments.)

The Derivatives Scapegoat

Regulation of derivatives is covered by the Dodd-Frank Act where trades have special collateral and margin.

Past regulation did not work satisfactorily for Washington; then there was little regulation, nor collateral required. However, independent studies have shown that they had little to do with the 2008/2009 financial meltdown.

Derivatives are essential to trading of securities for any orderly financial securities market. Derivatives are financial instruments derived from other assets. instead of trading that asset itself. One basic example is a futures contract, an agreement to exchange an underlying asset at a future date.

Derivatives are 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.

These bureaucratic regulatory efforts are actually too binding to be effective. (See the Earl J Weinreb NewsHole® comments.)

Trading in Currency

Currency trading is not for the faint-hearted; it can be especially dangerous to your pocket book unless you have the capital and know-how.

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

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

Any investor who would like to trade currency, should first become an expert in the intrigues of this highly complicated game. That means that one must first read all that he can about the subject’s mechanics.

That also requires knowledge of the futures markets and its intricacies. And once you feel you know the 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. ( See the Earl J Weinreb NewsHole® comments.)

Deflation Fear When Inflation Lurks?

The Federal Reserve is on a mission to counter deflation and recession more than rising prices which are more apparent to most Americans.

In the media facts are often rewarded with obscurity or superseded by public relations article placements that need not have too much factual content.

Therefore, some of the deflation and pump-priming information has to do with economist comment, or technical aspects of Treasury bond price history, or the Japanese bond markets of the past two decades, none of which are fundamental analysis of current U.S. inflationary/deflationary factors.

They fill up media space and content. But they confuse and never enlighten the public. Deep recessions don’t necessarily produce deflation. Most often, it can be stagflation or runaway inflation.(See the Earl J Weinreb NewsHole® comments.)

Options For Life Insurance Proceeds

For years life insurance companies have placed life insurance proceeds into a money market type account at interest if the beneficiary did not ask for a lump sum right away. It was a viable and correct option.

Many do not want large sums right away. They haven’t fully decided their investment options.

What is more, these days of “easy money” the insurance companies pay a little more interest on such accounts, even more than do banks.

But politicians on the Left always need to demagogue and a financial institution always suits the purpose. Why should giant life insurance companies profit, they say, by holding insurance proceeds of the little guys? ( See the Earl J Weinreb NewsHole® comments.)

Back-Testing Financial Strategies

Financial back-testing is when the strategies of the past are used to see what would happen, hypothetically, when projected into the future.

Wall Street financial models often use such data mining; Information for investing strategies of the past. They’re collected and tested on a “what if’ basis.

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

As I’ve noted before, I have made a unique mini-career of looking at well over 1,600 investment strategies used by investors over the years. I have investigated advantages and disadvantages of each.

And I can tell you there are some worthwhile concepts as well as gibberish in all. But no panacea. Most of the data mining is therefore useless, except for their marketing of investment management services. (See the Earl J Weinreb NewsHole® comments.)

Regulators Stop Financial Bubbles?

Regulators talking about financial bubbles get it all wrong, usually scapegoating Wall Street.

Then you get political solutions. More regulation, to see to it that the regulators catch the next bubble before it starts.

It cannot be done, except in political circle imagination. Bubbles are hard to recognize in advance. That’s only easy in retrospect.

Example: The residential housing bubble. Then, Congress went out of its way to actually exacerbate a future problem.

There was legislation introduced years ago to minimize Fannie Mae and Freddie Mac leverage. That would have reduced the fuel that fed the fire under the housing financial bubble. And it was turned down by politicians who did not want to squelch the boom that gave lower classes an opportunity to own homes they could not afford. ( See the Earl J Weinreb NewsHole® comments.)

Hedge Fund Fancy Fees

Conventional hedge fund fees still average 2% of assets under management and 20% to 25% of profits generated.

True, it’s getting tougher for hedge funds to find as many clients as before the recession but demand is still good.

Considering the 2008/2009 financial meltdown, hedge fund fees have been more stable than expected. Some hedge funds continue to make big money. But they are a decided minority, compared to the past. Many do well, but not in line with risks they take. ( See the Earl J Weinreb NewsHole® comments.)

State Governments Budget Deficits

State governments have severe budget problems; unlike the federal government, states cannot print money, so they have to make ends meet in some way.

Yet, their politicians have the same bad habits; continuing to spend too much and not correcting the basic problems.

One major example: Expensive public employee pensions, especially when not properly funded, if funded at all.

States’ tax revenues are lower which make financial burdens even more onerous. Taxes cannot be easily raised. It is becoming more difficult to keep looking for this source of easy revenue.

States will simply have to cut back on much of what they’re now offering, and begin tightening belts. They will simply have to restructure public union salaries, fringe and retirement contracts.

This includes resisting federal mandates that force state spending by edict from Washington. ( See the Earl J Weinreb NewsHole® comments.)

Investment Banker Earnings From Poor Advice

What business pays well for those who give poor initial advice and are asked to tidy up their mess? Investment banking advisory.

Investment bankers can make money either way their advice works out, with acquisitions and divestments. After all, if the advice for the marriage was so good, why the need for the corporate divorce?

And in any economy. Just one example: On the AIG breakup, nearly $1 Billion for IPOs or underwritings, and consulting for breaking up AIG eventually is a lot of money in any economy. Managing so-called toxic assets and handling other financial meltdown arrangements are huge sources of capital under any financial conditions. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank and Super Regulatory Agencies

Strict federal government regulations have never worked as advertised. There are too many agencies working with conflicting objectives.

Under the Dodd-Frank regulatory fiasco, with the Treasury and the Federal Reserve in charge of all the banks and other financial companies and institutions, we have an addition to the meddling fiasco.

SEC duties are also expanding to where their whole administration has to be revamped. They did a poor job well before their duties were broadened.

Transparency with less heavy-handed regulation always works better. However, that is a matter of political talk more than practice. Transparency is what politicians mention only in their promises. ( See the Earl J Weinreb NewsHole® comments.)

Japan’s Enormous Deficit

Japan has been pump-priming its economy for decades. Yet, it’s failing to stimulate its economic stagflation.

They have been 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.

The U. S. dollar has historically been more of a reserve instrument than the Japanese yen. Still, prices in Japan are high, and consumer and business conditions are dismal.

Japan will not be getting away with deficit spending too much longer. Reality will catch up with them as it will with the U.S. in time. ( See the Earl J Weinreb NewsHole® comments.)

The Chinese and U.S. Debt

Do the Chinese believe in capitalism more than does the Obama administration?

The Chinese Communist government must constantly remind the U.S. of its too big budget deficit. The Chinese are troubled because they own well over $800 billion (and growing) in U.S.Treasury debt. They see what’s becoming a poor investment. They realize that this cheapens the value of the bonds they own.

The Chinese manage their budgets along more capitalistic lines. compared to the Obama administration. ( See the Earl J Weinreb NewsHole® comments.)

Corporate Bonds are Better

Media advice are foolish to suggest that ordinary investors buy individual corporate bonds. It makes far more sense to use a low-cost mutual fund or exchange traded fund (ETF) instead.

For a number of reasons:

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

Secondly, you could never buy bonds as cheaply as a fund does. And a low cost fund’s fees would be far cheaper in the long run than your efforts.

Buy your bond funds by their duration. The duration period you choose ought to be about the same or less as your intended holding horizon. (If you are not aware of the term, duration, learn about it before you take any advice on bonds.

The dividends paid by the fund or ETF should be automatically reinvested. Periodic interest reinvestments would be very impractical with direct bond purchases. ( See the Earl J Weinreb NewsHole® comments.)

Federal Deposit Insurance Corporation Takeovers of Banks

The Federal Deposit Insurance Corporation, or FDIC, which insures bank deposits, has the authority to take over failing banks and has done so.

It also makes it possible for private investors to invest in weak banks and thus solve financial problems as they occur at insured institutions.

Why not permit private sources to resolve banking problems instead of relying on the intervention of the government with takeovers. The latter ploy has not worked well, despite the rationale that only such bailouts are the solution to get us out of financial meltdowns.

Government solutions come with a steep price. Permanent government meddling and horrendous debt.

Not relying on the FDIC more than we did was a terrible administrative mistake. ( See the Earl J Weinreb NewsHole® comments.)

Timing Securities Markets

Research consistently shows data that market timing does not work. Timers may make their money because of their inside positions, which entail profit, but these are factors other than market timing.

It has been recently shown how members of Congress have legally been able to do this. But inside trading is illegal for the public.

Poor timing applies to assets other than securities. Just one example of the futility of market timing: Some of the largest investment bankers and commercial banks invested very heavily in commercial real estate at their highs. Property values then fell in value in 2008. The bankers then sold at lows to private equity firms and hedge funds at bargain prices. The latter profited.

The reason? It is not only that the banks need the cash. The smart traders there tend to make money because of their inside positions, not because of their assumed timing instincts. ( See the Earl J Weinreb NewsHole® comments.)

Test Politicians on Economics Part 2

Further to my previous comments on politicians in office.

Politicians on the job often exaggerate as when they campaign for office.

But words can have consequences, particularly because of psychological effects on the public.

Politicians can profess free market economics but they cannot have policies that create socialism. It might appeal to groups that helped get them elected, but it will have created immense damage while in office.

Socialism has never worked where tried. Except in the classrooms of colleges. ( See the Earl J Weinreb NewsHole® comments.)

Test Politicians on Economics

Politicians never have to take a test to see if they understand basic economics.

Many are economic illiterates. They may get words from some staffer who is literate on the subject. But when comments on business are extemporaneous, the gaffs are more evident.

It would help if more politicians came with business and entrepreneurial experience. They would not generally lean leftward. Being lawyers, as many are, is a particular problem, especially if that background involved fighting business and industry. ( See the Earl J Weinreb NewsHole® comments.)

Financial Media Gurus

There are a number of reasons why I don’t place too much trust in opinions of most financial media gurus.

Very often they copy others; their ideas and facts may well be stale and overused. As well as biased, which can be attributed to their slants that may owe to contrived commercial implications of the advice.

Remember, pundits have gone to the same schools and colleges and gotten the same education, including the same business courses, with similar resultant MBAs. It can be an incestuous field.

Moreover, much of their suggestions come from sales efforts to sell particular products or services. This provides an illusion of punditry.

Examples include gold or commodity purchases as cure-alls for future inflation.

One-sided views of any investment strategy takes on an aura of truth if repeated often enough.

Also, media pundits tend to look over each other’s shoulders, so they do not stand out too much if they are wrong, or so they do not offend their editors.

Then there is the use of public relations release placements, because they are easier than original writing. In-depth articles often are practically written for many reporters and analysts. ( See the Earl J Weinreb NewsHole® comments.)

SEC and Dodd-Frank Proxy Provision

Under the Dodd-Frank Financial Regulation Bill, the SEC gave corporate and mutual fund shareholders more to say in boardrooms, more access to proxies for nominations of board members.

Lots of theoretical platitudes, but little that shareholders were really interested in. Nothing bottom-line that shareholders were actually able to learn about or act upon, or even profit from in the real world.

Great for populist politicians who pass laws, and for plaintiff lawyers to wax rich on.

Fortunately, a federal court thought the provision unreasonable and since September the SEC has cancelled its mission. ( See the Earl J Weinreb NewsHole® comments.)

Insurance to Pay Estate Taxes

Federal estate taxes are often paid by life insurance proceeds; folks have always bought life coverage lo pay the tab.

Life insurance companies have been among the proponents of the tax in Washington.

Other than for paying off estate taxes, some life salesmen are pushing big amounts of whole life coverage where the insured borrows against cash value that accrues tax free. Sounds good, provided you can borrow at a rate below what you earn at the insurance company.

Very iffy with regard to observing tax regulations: This is a matter for you and your CPA. ( See the Earl J Weinreb NewsHole® comments.)

Financial Media Creation of ‘Noise’

I have criticized many media pundits who create the gurus who expound much of the doubtful investment strategies the public gets. And how such advice should be avoided.

I have often mentioned the pros and cons of investment strategy and why discipline is important in keeping to that strategy.

To discipline this goal, you have to learn how to eliminate media noise from your life. To do so, minimize the amount of investment comments you read or listen to, and take them all with a grain of salt.

Always keep your basics in mind when you hear guru chatter. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank Regulation of Derivatives

There is a major question whether the Dodd-Frank financial regulation was needed to regulate the use of derivatives by mutual funds, exchange-traded funds and pension plans.

It may cut some risks. But there is no doubt the regulation will definitely add to investor costs and diminish performance.

Of course, this is a solution to something that had never before been a factor that resulted in any previous financial meltdown or problem.

Still, Congress in its wisdom saw fit to fill up 2300 pages of superfluous verbiage.

You can be absolutely certain, all the Dodd-Frank Financial Regulation Bill will ever do is create so much uncertainty, it will detract from American business, investment and consumer interests and jobs, while only benefiting the income of trial lawyers. ( See the Earl J Weinreb NewsHole® comments.)

Alleged Financial Experts

I have a problem with the financial media’s persistence of the use of contests to see who can pick stock winners over relatively short periods of time.

There is no expertise required for this, just luck; for at least two major reasons:

First: Picking securities to measure performance over an arbitrary period, without having to designate how long you would hold your securities, does not indicate predictive power, as the contest is supposed to prove.

Secondly: The contest never gives you true ground rules, one of which is always risk. In a contest the assumption is that you throw caution to the winds and pick the riskiest for the maximum returns. This is not a real investment goal.

I have often mentioned my study of the cons as well as pros of now about 1,600 strategies used by investors. My work is unique because it never recommends any particular strategy, unlike other suggestions you get. The truth is, each has its good and bad points.

Strategies must be tailored to individual preferences and needs. What tips the odds for each investor is the discipline employed in the use of strategy. Every investor has built into the purpose for the purchase of a security, the reason to sell it. Discipline guides that sale.

That is what tips the odds favorably. ( See the Earl J Weinreb NewsHole® comments.)

The Man-Made Recession

America has always had self-corrective economic cycles, but now we have more regulators than ever before, and they are doing their damage, as never before.

We could have avoided the severity of the current deep recession.

1) By avoiding the massive bailout by regulators offering the illusion of doing something. Probably, all that was needed was a federal agency guarantee of all bank assets, in return for a fee charged to the banks.

2) By avoiding “mark-to-market” accounting of mortgage assets, which had no market appraisal, and which wiped out assets of major banks almost overnight, aided by short selling that such “mark-to-market” accounting enticed.

3) By having a government agency buy up, at bankruptcy, empty tract homes, in over-speculative states such as Nevada, Florida and California.

The government has repeated the same errors made by Herbert Hoover and Franklin Roosevelt during the Great Depression. In the process we have accomplished little for the economy but have constructed a form of state capitalism, a nasty type of socialism.

The Dodd-Frank Act, in further attempting to get us out of this mess, is a continuing disaster. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank Regulation Mischief

The Dodd-Frank Financial Regulation Bill has an adverse impact on the economy.

Just one example: The SEC now has authority to impose a “fiduciary duty” standard on brokers, the same it applies to investment advisers. Brokers now will have to give advice in the client’s “best interest.” Whatever that vague phrase means. In the past brokers only had to provide ”suitable” investments.

It remains to be seen how far Dodd-Frank will be enforced by the SEC.

The Dodd-Frank Financial Regulation Bill will create so much uncertainty, it will detract from American business, investment and consumer interests, while only benefiting trial lawyers. ( See the Earl J Weinreb NewsHole® comments.)

Extended Unemployment Benefit Negatives

Effects of extended unemployment benefits have been studied; I have referred to the statistics before.

Left-leaning politicians, seeking votes from the unemployed, use such benefits as a ploy. Those who want jobs are thereby being hoodwinked, and go along with the extended benefit band-aid.

Statistics show the effects of the psychology involved. The program invites incentives not to work, Because extending benefits and re-extending them creates what is called a “reservation” wage. People who ordinarily get relatively lower-scale income tend not to look for work until the unemployment wage runs out.

Moreover, the funds used by government generally come from additional taxes on the employed and industry, or from additional budget deficits.( See the Earl J Weinreb NewsHole® comments.)

Is Deflation a Real Threat?

Great recessions and depressions always bring on the threat of deflation. Once they cause collapse they are hard to revive. Japan of the past two decades is a good example.

However, what is the bigger threat? That of deflation, or constant stimulus injections of failed Keynesian principles, which the Federal Reserve is resorting to now?

That is setting the stage for another future financial bust of epic proportions.

Especially in the light of the ultra-trillion dollar budget deficits brought on by ObamaCare, to go with energy and other environmental planning.

Many economists worry more over the fight about immediate deflation. History tells us that deflation is a shorter-term problem. Only a minority of economists look at the deflationary possibility. ( See the Earl J Weinreb NewsHole® comments.)