Life Insurance and Estate Planning

Be careful abut buying life insurance from estate planners. It is their job to sell life insurance. They sell other financial products as well; various types of annuities and mutual funds. But their options are limited and yours become restricted too.

They know their products, but they have a conflict of interest. If they are tied to one life insurance company, you are not shopping prices and terms.

When they are selling mutual funds, you are probably not getting the lowest cost selections. The latter have to be higher cost to warrant compensation for salesmen. Lower cost mutual funds are essential to your benefit, no matter what the sales pitch may be on past or future “performance.”

If you need substantial estate advice, see a non-salesman accountant or lawyer, specializing in the field. (See past Earl J Weinreb NewsHole® comments.)

Financial Crises in Our States

Most of this country’s states are having financial trouble. Pension and other poorly undertaken contracts are making it impossible for most to balance their budgets. Tax revenues are down from past levels, while spending cuts have not kept up with demand for state services and outlays.

Yet, liberal legislators keep handing out promises and largess as if prosperity still reigned. School costs keep growing. Public service and government=worker union pressures are destructive for officials seeking budget solutions.

Unionized employees often get 70% or more of their income for retirement each year, after only thirty years or so of work.

Chicanery, legal or not, is also at work. Many government pensions are permitted to be ‘spiked’ upward with overtime pay and raises, before retirement.

Fact: It takes $1 million in capital funds at 5% to get one $50,000 annual pension per worker per year. And that 5% is not being achieved these days.

Bankruptcy to break pension contracts is not an option for states, without federal law changes, but maybe for cities and towns.

There will have to be some freeze in obligations or change in contracts for individual solutions.

Gold and the Gold Bugs

The market for gold as coins and bullion has been going berserk, thanks to the weakening dollar. I have frequently commented on this because I feel gold can be speculative for most folks who have no idea about its downside.

It can fall sharply, with any attempts to balance the U. S. budget, which will have to be done if the country is to avoid becoming another Greece or Portugal. And gold does not earn income or revenues upon which to establish intrinsic value.

It’s a psychological defensive weapon in many ways and psychology changes.

Analysts and Your Investments

Securities analysts give you investment advice. They suggest what securities to buy and sell.

Analysts constantly critique management of publicly owned companies. They claim to know what products and services companies ought to produce and what they should charge. Analysts propose when to hire and fire top executives.

Yet very few analysts have hands-on ability to understand how any business operates from the inside. They are not even that proficient concerning Wall Street inner activity.

As I have often said ( see my Earl J Weinreb NewsHole® comments), they haven’t the business experience to successfully run a pushcart.

Added Personal Tax Cost

There is a hidden personal tax cost the government never mentions. The media hardly ever brings it up, even at tax payment time.

We shall leave the question of how much business taxes cost individuals who are not in business, for a later date, but instead look at direct hits to everyone’s pocketbook.

Personal tax has additional cost composed of two parts: One is the effort that goes into the preparation, even when done by an outside preparer.

And the second is the actual cost of preparations. Time is important because it is spent with enormous aggravation. Then, estimates of out of pocket cots are at least 30% that of the actual lax payments made by average individuals.

That approximate 30% tax increase is on everyone, small incomers, middle classes and not just the favorite liberal scapegoat “rich.” And it’s staggering.

The Media Investment Strategies

Whenever the financial media discusses investment strategies, it’s about a favorite of someone being interviewed or reviewed. Perhaps the strategy in the contents of a public relations release, disguised as financial news.

The purpose of investigations I have done of literally thousands of independent strategy studies and investing techniques, have helped me delve into the investment strategy phenomenon. (See my Earl J Weinreb NewsHole® comments.)

My conclusions often differ with that of the media, which tend to overlook investment strategies and techniques.

They are not up to the task, and most reports are not objective. So such strategies get short shrift. Yet, proper strategy use increases the odds of investing success.

Commercial Credit Ratings

The news of a potential change in the AAA rating of U.S. credit should make us consider the question of ratings on non-governments as well.

The bulk of commercial credit ratings are done by Moody’s, McGraw-Hill’s S&P, and Fitch Ratings, the three largest of just a handful of government-approved services.

Critics say they did poor evaluations of credit-default swaps and subprime debt issues. And in this way contributed, to a great extent, to the financial downturn. There were also charges of conflicts of interest.

Payments for ratings are made by firms who sponsor the evaluations.That is, those who issue the debt obligations.

What is needed is more competition. That means more credit evaluation services being recognized by our regulators.

And more diligence by borrowers. That would be the ideal way to prevent serious credit rating problems from developing again.

Derivatives Are Not The Problem

A government can hide its long-term, poor fiscal position with short swap, or credit default derivatives. This paper manipulation made things look what they were not with Greek’s financial deficit spending over recent years.

Using derivatives for deception was wrong.

However, derivatives have a legitimate function in government financing, as they do in normal business and financial transactions.

Eliminating derivatives or making them tougher to write, will dry up the supply of conventional debt financing, That will simply make it tougher for governments such as Greece to get credit. They will then sell their bonds only at much higher interest cost.

Recessions Ought to be Short

Throughout U.S, history we have had economic cycles, booms and busts. To even them out the Federal Reserve System was legislated almost a hundred years ago.

But human-handed regulation has never really succeeded at that function.

Experience has taught us, however, that natural cycles very quickly correct themselves. And that the deeper the downturn, the sharper the economy will bounce back.

Except when government meddled in the 1930’s as it has in recent years. Along with multi-trillion dollar budget deficits that are confusing and scaring large and smaller, job-creating business owners.

By now the economy should be thriving again, and isn’t.

Senseless Corporate Bailouts

Corporations, such as those in the automobile industry and in financial trouble, can always use the bankruptcy courts for an orderly means to reorganize debts.

This has unfortunately been forgotten in the recent past by the Obama administration, at enormous cost to our national budget and constitutional framework.

Bailouts were done, in effect, to salvage outrageous union contracts, which bankruptcy courts would have dissolved.

Agreements which make it impossible for any corporation to compete domestically or internationally without taxpayer assistance.

Media Handling of Repo Financial Problems

I commented yesterday on how the financial media does a poor job of commenting on financial matters, by scapegoating big business and Wall Street, repeating populist political comments.

Another example would be the subject of repos. The elimination of repos sales off the books of Lehman Brothers had relatively little to do with the use of bank guarantees by the government, or eliminating mark-to-market accounting, for all banks. The latter, and not repos, were the villains in the financial meltdown of 2008/2009.

Some in the financial media, as well as the administration have ignorantly treated each financial institution problem as part of a group, to be treated alike, by similar regulatory treatment.

Thus, every entity that has been in trouble in the recent past is tossed in the same basket; AIG, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Bear Stearns, and so on. Each had its own peculiar problems and could have been rescued in its own way, probably without heavy-handed government assistance.

The media has done a poor job of sorting this out for the average citizen to understand.

Media Handling of Financial Problems

The media usually has no idea whom to blame for financial problems. They usually blame big business or Wall Street, as they are the popular scapegoats. (The Earl J Weinreb NewsHole® comments frequently critique the media for this.)

All problems regarding current financial troubles are treated as if they have had a similar cause, though they may have had their own. Prevention techniques would have varied for each, but are treated as a universal panacea by the media.

Whatever leftist, populist politician demagogy will be picked up by the media because it’s handy and it’s what many on the media have learned in school.

Insurance Company Analysts

Beware of Wall Street’s insurance advice. Companies make annual filings with their various home-state insurance departments. Very few, if any, current analysts can understand these intricate documents. Therefore, they are not capable insurance analysts.

I rarely have found anyone on the Street giving advice on insurance company securities who have taken the trouble to truly learn how to understand the policies the companies write, and the reserves behind them. Unfortunately, this lack of Wall Street insurance knowledge persists, based on commentaries I see in the media.

The earnings and book values they spout must, therefore, always be suspect. There are Earl J. Weinreb commentaries on the subject.

Man-Made Financial Meltdowns in Residential Housing

This is a further reprise to my earlier reports, and the Earl J Weinreb NewsHole® comments, on what the government could have done following the first signs of financial distress in the new construction market a couple of years ago.

This is not hindsight. I had a suggestion in my blog at the time.

The way was to have government buy up at bargain prices all the unsold tract homes in bubble-infested areas, such as Arizona, California and Florida. This would not have been a bailout for the builders. They would have suffered losses.

It would have dried up the major excess supply of real estate and stopped the ongoing, adverse psychology that kept reducing values of the rest of the nation’s perfectly good real estate that was not too overvalued. The cost would be relatively very low, compared to the many billions and even trillions we have expended.

The federal government, through one or more of its agencies, could have guaranteed all the loans of its banks, the way the FDIC insures deposits. Fees would be charged the banks for the guaranty.

No bailout funds from taxpayers, no phony stimulus funds which really amount to political slush funds. No poor psychology that makes banks wary of making loans to small business; thus more job creation.

Proprietary Trading and Bank Risk

Paul Volker, a former head of the Federal Reserve Bank and now advisor to president Obama, has wanted to restrict proprietary trading among banks or bank holding companies. But when pressed he has had no handle on what really describes proprietary trading activity.

There have already been regulatory restraint on the activity, much of which have been fobbed off by banks to other entities. However, there is no real lessoning of risk as a result. It is difficult to delineate trading by banks for accounts and for themselves in many instances, as Mr, Volker knows from his experience.

Regulations and Psychology

Debacles happen when you get an over=regulated attempt to spend yourself out of a financial tangle while psychologically pushing citizens and business into an ever-deepening recessionary funk.

I have felt that most regulators and politicians fail to understand psychology that drives the way people affect everyday economics.

I have been asked. What would you do if you could, in practical terms, to get out of a recession?

Simple. Cut taxes permanently and watch how that creates jobs and spending because of the psychological uplift. Clear the doubts for business and the consumer and natural instincts will resolve recessions before they fester into depressions.

Our Man-Made Financial Meltdown: A Recap

I have frequently commented on aspects of the 2008/2009 financial meltdown, and how the severity of our Great Recession could have been prevented, had there been a “hands-off” attitude by government. Instead, we got heavy-handed, ultra-expensive, Obama administration attempts.

Those of you who have seen my Earl J. Weinreb Newshole® info will have insight on much of the situation.

I bring this up once more because of the Federal Reserve's easy money policy, contrary to the tightening of funds around the world because of inflationary pressures.

The Fed has allowed itself to become a tool of administration fiscal policy and shows little independent monetary policy for its intended purpose. It helps guarantee future financial upheaval for this country unless an effort is made politically to change matters.

We cannot depend on the Fed.

Unattainable Financial Reform

The government has given more power to the Federal Reserve but the agency has had perhaps too much power up to now. The big problem is the possibility of any banking institution failing and then dragging down another.

Unfortunately, the regulators have historically never been good at this, and I doubt they ever will. The latest Dodd-Frank legislation has merely made it more impossible for big banks to fail.

That spells out more senseless bailouts.

Want more information? ( See the Earl J. Weinreb NewsHole® comments.)

Regulating Bank Bonus/Pay Programs

You can rely on a dependency that is difficult to get rid of when you accept government aid. The result becomes worse than an addiction. Even when you want to repay the debt, Uncle Sam makes it hard to comply.

For some of the larger banks who accepted funds from the U.S. the result was impractical and actually stupid.

Apart from the fact the bank management is controlled within a government straitjacket (which is a characteristic of a fascistic and not a capitalistic free government) banks who have accepted aid are restricted in how they pay bonuses and compensation to top executives.

Fallibility of Financial Analysts

Be careful when Wall Street analysts tell you how good or bad a bank or insurance company is, or when you ought to buy, or sell any of its securities.

Few Wall Street analysts are experts in the fields. I have recently commented about bank analysts. Today, I would like to point out that it’s impossible for an analyst to know much about an insurance company unless that analyst is conversant with the detailed reports filed by each insurance company with its state insurance regulatory authorities.

These reports go into the individual insurance programs and reserves, details that have no resemblance to the balance sheets and profit and loss statements, but have a direct bearing.

Unfortunately, few if any insurance analysts on Wall Street even know what they are, or what they are called. ( See the Earl J. Weinreb NewsHole® comments.)

An MBA Financial Idea

A suggestion for graduate students seeking an MBA .

You probably have seen Earl J. Weinreb comments on this subject many times in the past. They’re the result of my observing the successes, failures and foibles that I have noted on Wall Street.

One has to do with the study of failures of the many mathematical models that have been devised to reduce risk. The models have not cut investment risk that is their primary objective.

I am not talking about the well-discussed Black Swan concept of risk that happens once every fifty years or more. Concerning events such as the current financial meltdown. But they regard the constant use of financial models which don’t seem to work as they are intended to do.

The truth is, some complex models work but they are destined to eventually fail, no matter the brain-power and effort applied.

Regulators Make Mistakes

The current deep financial doldrum, like all recessions, is started when business people and consumers get pessimistic and stop spending or buying.

The twelve regional Fed banks all have regulatory duties. But within them there are often disputes as to what exactly is to be done.

Many supervisors and regulators within the system have different functions, with varying answers, from their observations. Always, a human element governs what they feel must be accomplished.

Errors inevitably turn up with individual decisions and action that would not happen when free markets determine outcome.. This fact has been established from years of experience.

Remember what I have said in the past about how better predictability futures markets anticipate events, as opposed to that of a small group of experts. ( See the Earl J. Weinreb NewsHole® comments.)

Bank Stock Investing

Bank analysts are never privy to inside banking operations. Example: complicated derivative portfolio information, or “repo” positions. In fact, they know so little of the plain-vanilla type. And if they were, they could not understand the inherent complexities.

Yet every negative word they can utter can doom the soundest financial institution, to the point where that organization sinks towards insolvency.

Rumors are often circulated about banks, fomented by bank analysts who cannot possibly see a bank’s asset portfolio. That makes for self-fulfilling events. Especially when bank holdings must then be marked-to-market.

Fear-frenzy takes hold as analysts persist in this self-fulfilling bearish sentiment.

There was a time when bank stocks were bought on the basis of book value, which can now be suspect. and dividends, which these days have been curtailed by governmental regulation and oversight.

Then the question arises of how secure is each bank’s capital, in our fragile economy?

Another reason why I believe in index funds, even for banking equities.

Smarter financial Services Consumers

You can easily be a smarter financial services consumer without government assistance.

Always look at the fine print. It’s basic and not complicated when you bother to read carefully.

Another tip is remembering that there is no such thing as a free lunch. You pay for what you get in one way or another.

Figure out what you are getting. Consider comparable costs and what you pay for, in return for something you could receive that’s better. Take time and use a calculator when necessary. Most often you don’t have to be a math whiz.

Anything the government gives you is your money, either in the form of direct or hidden taxes, or worthless currency down the road.

Life insurance as an Investment

. This insurance form combines life protection and savings at a fixed return. It’s an expensive form of both. Sales pitches about tax deferred benefits behind whole life insurance can be misleading

Other secure investment options are available. Whole life is not a true investment vehicle, despite any sales pitches. Were you to buy term insurance separately for protection and invest the difference in a secure, low=cost, income=based mutual fund, where dividends are reinvested, you would earn far better returns. ( See the Earl J. Weinreb NewsHole® comments.)

Proposed Consumer Finance

The Obama Administration feels a new behavioral concept can provide the consumer with what is best when shopping for complex financial products.

Especially when looking for mortgages. Or whether to choose a prepayment option despite penalties. Or the question of which down payment to place on mortgages.

So the Administration has been thinking of simplified versions of financial choices for consumers, that takes the burden away. It takes the term plain-vanilla to a new level, by suggesting a preferred option for all.

I can see having all choices spelled out on two sheets of paper, in large print and in plain English. The problem, however, is that such a standard option would soon become the only one available.

You will then get what the government thinks is good for you.

You can be certain that the threat of a lawsuit from an enterprising lawyer would drive away any other product from a financial institution.

Getting Cheaper Life Insurance

I have commented on life insurance in the past; term insurance is the cheapest form of protection per premium dollar, as it contains no savings function.

As for the cheapest protection you can get, policies today can be quickly acquired, over the internet, or by phone. No physicals are often required for plans up to certain dollar limits. How do you get the best protection for your money?

Even though screening is currently computerized, bigger-dollar plans with no mandatory medical screening may be more expensive. If you’re healthy, why not pay less with more scrutiny for your coverage?

Shop around also for pricing on comparable terms; direct-writing companies are generally cheaper. ( See the Earl J. Weinreb NewsHole® comments.)

Bonds With Inflation?

The gurus automatically tell you to avoid bonds when there’s a threat of inflation.

They are wrong because they never get into the whole story, owing to ignorance or indifference.

Paradoxically, inflation could be an opportunity for potential purchases of low-cost bond mutual funds, or ETFs, with low duration, and with dividends that are periodically reinvested.

I have commented a good deal about bonds and inflation in the past and will in the future. ( See the Earl J. Weinreb NewsHole® comments.)

Average Investment Earnings

Investors are lulled into complacency about “average” returns. They hear what securities have earned on average going back years, and they then project earnings figures into the future.

These prospective averages are wrong. Indexes on which they are based are skewed. In years past, companies that failed may not have been included in statistics that are now used; therefore past results are overly positive.

In addition, there are steep investment-experience cycles which affect average results at any time. You may need to cash in funds just when your portfolio is in a down trend, or has recently been in one, and hasn’t had time to recover.

Thus, whenever you hear securities will bring you average returns, think again about what that number really is. ( See the Earl J. Weinreb NewsHole® comments.)

Imaginative Public Pension Plans

The assumed rate of return on pension funds of almost 60% of unionized American public workers is at 8.0%. This is currently almost impossible to get within any investment portfolio. Still the fund managers undertake fiduciary responsibility in the face of budget deficits. Moreover, future economic growth is unlikely, so the assumed return figure is even more unattainable.

Yet, the fantasy and facade continue; the public employee budget fiasco goes on. In fact, almost 20% of such public pensions blindly plan on average annual earnings well over 8% per year.