A Social Security Ponzi Deal?

Everyone by now is familiar with Ponzi schemes. The loose definition describes a scam whereby someone takes funds from an investor and skips. But there are variations and degrees of scam sophistication.

Generally, a so-called money manager takes funds from investors and after a while decides to use at least some of the funds for himself. He pays off original investors with funds received from new investors.When everyone wants their money back at once, and there isn’t any to give them, the frauds are uncovered.

But there are many schemes which, unfortunately, escape notoriety. They are Ponzi schemes, but are never labeled as such. Take Social Security as the perfect example

It started off as a so-called insurance program, but never was comparable to what you get from a private company. There are no locked-up reserves. Active workers were taxed so that they could get future retirement benefits from taxes placed on other, active. workers.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

How SEC Wastes Your Money

The SEC says it’s  around to help you avoid securities fraud. And it does so, but only to an extent. Much of what it does is  theater.

That’s why the SEC has had a poor record in discovering massive fraud and Ponzi schemes, uncovering them usually by chance, and only after they have already been committed and exposed.

But instead of preventing the bulk of transgressions, the SEC does lots of monetary damage. They tend to pick the average, uninformed investor’s pocketbook by causing unnecessary expense of legal fine-tooth-combing, printing and mailing.

And requires such action constantly, perhaps to a far greater extent than is necessary to alert an ordinarily informed investor.

Just one example: I refer to the expense of having banks, mutual funds and corporations send out useless, expensive, legalese financial literature, that the recipients do not read because they cannot understand the terms the SEC has the senders use.

The only ones who can profit are the lawyers. If a dot or letter isn’t properly crossed or is missing, the lawyers will sue the senders of that hard-to- read and comprehend mail. Again, at the expense of the poor mail recipients who never benefit from the impractical information anyway.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Your Asset Allocations

What do you do when attempting to maintain stock/bond asset allocation relationships?

The early 2009 bear-market in stocks had also been accompanied by a massive sell-off in bonds. The domestic market’s experience had been paralleled overseas as well. That was unusual and not supposed to happen. When stocks in the past were weak, bond prices had generally shown strength.

Therefore asset allocation did not help in that bear market. Using different asset classes to get a high return at a lower risk was unattainable.

Alternatives to conventional stock/bond formulas to balance market fluctuations are not sure-fire answers. But advisers love to recommend a variety with the aid of 20/20 hindsight.

Collectibles are not the answer either, in protecting against market downturns. because of a lack of ready marketability and poor resale margins.

Investors have been using combinations of gold, silver and other precious metal holdings. Still others, questionable short-term commodity trading antics. We see how erratic they are.

Over the long run, diversification among different asset classes has produced much higher returns, along with lower risk.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Timing the Stock Market

The financial media has a habit of commenting on timing the securities markets. It cannot stop for a good reason. Securities-timing articles fill space in blogs, books and publications, over the air, and the internet.

Yet, independent research constantly shows that market timing never works consistently. Mutual fund management companies know that in-and-out investors never do as well as their buy-and-hold, long-term statistics show.

Reading a financial article telling how a rally trend in one security class may be finished, and it may be time to get into another type, should be a danger signal, not a buy opportunity. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Preventing Bubbles With Dodd-Frank

The purpose of the  administration’s attempt to regulate the economy amounts to a foolhardy attempt to smooth out the effects of booms and financial jolts and recessions.

The U. S. has repeatedly been through recurring economic cycles over many years. Other economies around the world have experienced the same.

Over-regulation or overly-strict regulation never works. The effort always has a short term goal, but, nevertheless, is used because it’s always a political measure to temper public unrest.

Dodd-Frank is excessive regulation that will not help. There is the usual political factor that overrides all supervision that the regulation affords. Easy money and the subprime crisis were what Congress and the  administration created, not the lack of supervision.

I have commentated on this repeatedly, mentioning how simple bank guarantees and not having “mark-to market” accounting for banks in an emergency, would have been the alternative solution.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Financial Advisers Really Needed?

The financial media covets financial advisers with its imprimatur, as  storehouses of all valuable knowledge. The media invariably deems to put forth commentaries on advisor suggestions as the best advice available.

Somehow, the media manage to find these pundits from over 100,000 who ply the trade in the U.S. alone.(I don’t want to get into the subject of how these advisers manage to get selected for quotes in the media.)

But there isn’t advice from these sources that cannot be often questioned, especially when it comes to bonds, The quoted financial expert invariably never fully discusses the principles of duration when it comes to these investments.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Buying TIPS Can Be Stupid

Lots of publicity are in the financial media about how TIPS funds can legitimately inflate their yields, in accordance with Securities and Exchange Commission rules. It’s easy to be hoodwinked into believing you are getting more than you are, while enjoying benefits of inflation protection.

However, I have never been a fan of TIPS. I have always explained its shortcomings on the return you get and tax detractions. And how you can avoid inflation’s effect on fixed income investments with proper use of duration principles.

The problem is, most investors and those in the financial media are in the dark about the use of duration principles.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Government Pay Restrictions

When you hire and attempt to keep personnel, you pay market labor prices. Or you get inefficiency, and the best employees leave for other opportunities.

Government action curtailed such activity.

Payroll at companies which accepted bailouts reflected this. 

                        

Executive earnings were never a factor in the past financial meltdown. They were insignificant numbers, relative to overall financial problems. Executives now are consistently scapegoats for ignorant and crowd-pleasing politicians.

                           

Only politicians have 20/20 hindsight, to tell executives they are making too much money. How about actors and ball players? And reporters? Are they next?

                           

Many in the media are not conversant with how such controls are an integral part of state capitalism, such as the type fascists operated in Italy, Germany and Spain in the 1930s. They started out meddling with business the same way left-leaning politicos in the U. S. are today. The media is not concerned about the slippery slope.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)   

Estimating Market Direction

I have found many market-direction signals in my investigation of strategies. However, many described in the media from time to time are not as sensitive as others.

The short term treasury bill rate has always been an important one, until the Federal Reserve decided, in recent years, to keep money at basically zero cost. When they do decide to raise the rate, there will be an indication of actionable policy change.

There is always that question of sensitivity. For instance, look at the Misery Index, That is the addition of inflation and unemployment rates. Great for psychology but not overly sensitive for quick market action decisions.

I have seen the “Crack Spread” or refinery profitability range index. But that’s seasonal and hard to gauge for investment strategy.

An even less sensitive investment strategy indicator is the Baltic Dry Index or BDI. This calculates the cost of moving bulk raw materials across oceans and involves mainly those companies involved and ship rentals.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Hedge Funds Regulations

More hedge funds are now subject to SEC regulations. However, regulate them too severely, and they will no longer be considered hedge funds in the true sense. Not by the definition of what an investment hedge fund tries to do for an investor.

Hedge fund managers need secrecy in order to trade. If they divulge their intentions in advance, as stricter regulations promote, their efforts and objectives will be neutralized. Other investors will be able to counter strategy, to make any proposed hedging worthless or even dangerous.

Moreover, hedge fund activity had little to do with the financial downturn of 2008.

Over-regulation is another instance of the administration’s jousting at windmills for no real purpose, other than catering to its anti-business, anti-finance industry constituency.

Moreover, “family” funds have managed to escape government tentacles with their obvious ability.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Derivatives Misunderstood

Politicians love to point fingers at derivatives as bad, and a major cause of our past financial distress. But derivatives perform an important function as a financial instrument.

Timothy Geithner, the administration’s former Secretary of the Treasury, overlooked meetings, monitoring trading of derivatives, when he headed the New York Federal Reserve. So, the mysterious workings of derivatives should not have been so foreboding, dangerous, and deadly, causing the 2008 financial meltdown. And they didn’t warrant them the notoriety they received.

Derivatives trading now have tougher regulations. I can see having more transparency, but derivatives make financing cheaper in the long run.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Be Careful Buying Insurance From Estate Planners

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

They know their products, but they have a conflict of interest, should they be tied to one life insurance company..

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 tax accountant or lawyer, specializing in the field. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Our States Dire Financial Situations

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 for cities and towns.)

There will have to be some freeze in obligations or change contracts for individual solutions.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Market for Gold

The market for gold as coins and bullion has been going well on average, over the years, 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. And gold does not earn income or revenues upon which to establish intrinsic value.

In bad times, it’s a psychological defensive weapon in many ways, but psychology often changes.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Analysts Who Select 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, they haven’t the business experience to successfully run a pushcart.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Investment Strategies by Media

Whenever the financial media discusses investment strategies, it’s about a favorite of someone being interviewed or reviewed. Perhaps the strategy is 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.

My conclusions often differ with that of the media, which tend to overlook strict investment strategies and techniques. So efficient strategies get short shrift. Yet, proper strategy use increases the odds of investing success.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Ratings of Commercial Credit Agencies

The past 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  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 2008 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.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Derivatives Are Not The Villains

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 to get credit. They will then sell their bonds only at much higher interest cost.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Deep Recessions Should Always be Short

Throughout U.S, history we have had economic cycles. To even them out the Federal Reserve System was legislated  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.

The economy should be thriving again, and isn’t.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Why Corporate Bailouts?

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

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

Bailouts were done, in effect, to salvage union contracts, which bankruptcy courts would have dissolved. Agreements which make it impossible for U.S. corporation to compete domestically or internationally without taxpayer assistance.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Media Can’t Sort Out Financial Problems

I commented recently 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 good 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 bank assets. 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 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,  without heavy-handed government assistance.

The media has done a poor job of sorting this out for the average citizen to understand. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Poor Media Treatment 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.

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

Leftist, populist politician demagogy will usually be picked up because it’s handy and it’s what many in the media have learned in school.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Be Wary of Wall Street’s Insurance Company Analysis

Insurance 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 has 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. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Preventing the Residential Housing Meltdown

The government could have done the following at the first signs of financial distress in the real estate market of 2008/2009.

This is not hindsight. I had suggestions 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 on their over-zealous behavior.

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 the U.S. has 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.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Background is Important in Blog Comments

In the event any viewers need an update about the background  that goes into my comments. A blogger about Wall Street ought to intimately know his subject:

                           

I have been a senior Wall Street analyst, a top public company officer and director and independent business operator, as well as a past freelancer for such publications as Barrons®, Trusts & Estates®, the Financial Analyst®, and a number of business and retirement journals.

I am the only researcher to have studied and then further documented and individually investigated over 1,600 strategies used on Wall Street. And I have looked at their pros and cons and other characteristics as they apply to professional and average investor use.

What works best is the disciplined use of strategy with original purchase, not seat-of-the-pants decisions in midstream. In addition, I was a senior investment analyst for a major Wall Street firm. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Risk in Bank Securities Trading

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 firm idea of what really describes proprietary trading activity.

There have already been regulatory restraint on the activity, much of which now have been fobbed off by banks to other entities. However, there is no real lessening of risk as a result.

It is difficult to delineate trading by banks for accounts and for themselves, as Mr, Volker knows from his experience.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Failing to Understand the Psychology of Regulations

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?

Cut taxes permanently and watch how that creates jobs and spending because of the psychological uplift. Clear doubts for business and the consumer and natural instincts will resolve recessions before they fester into depressions.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.

Financial Meltdowns Are Often Man-Made

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

Those of you who have seen my  info will have insight on much of the situation.

I bring this up once more because the Federal Reserve’s easy money policy.

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.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Fed Financial Reform?

The government has given more power to the Federal Reserve but the agency has had excessive power up to now.

The assumed 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 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 and @BusinessNewshole at Twitter.)