The Media Doesn’t Properly Inform its Public

Both the financial and general media are to blame for not often explaining what they report. They talk, for example, about regulation without putting it in laymen’s terms. They also do not properly explain financial risk.

Risk was never overcome by regulation and the media can more fully explain this, if they ever truly tried to find facts out for themselves and report them so the average person could understand.
 
For instance, Fannie Mae and Freddie Mac were risky semi-government agencies who were instrumental in our subprime debacle. There was no lack of regulation. But the financial meltdown resulted in even more useless and restrictive regulation.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Man-Made Financial Meltdowns of Home Prices

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 few years ago.

This is not hindsight as I I had made such 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.

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 also 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 tweets.)

The Media's Financial Opinions

Financial experts abound in the media, yet no one is vetting them for expertise. So be careful. That can be dangerous for longer-term investors who permit themselves to be impressed by the advice the media offers.

No Wall Street or financial community commentator or analyst has had to pass a genuine business-achievement test to determine expertise.

Forget those fancy letters that many have attached after their names. They’re supposed to signify the experts had passed some test, or belong to a group who have. 

The public assumes this testing and association bestows a knowledge; that members know what they are talking about when it comes to financial business operations. Passing a test of by-rote, conventional thinking doesn’t necessarily confirm expertise.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

The Real Federal Debt Burden

We have realized for some time; the U.S. is spending itself into its own version of a bankrupt Greece. The problem is, unlike Greece, the whole free world depends on us and the sanctity of our dollar and its convertibility.

The USA Today had a report saying, in part: "The (federal) debt only tells us what the government owes to the public. It doesn't take into account what's owed to seniors, veterans and retired employees," according to accountant Sheila Weinberg, founder of the Institute for Truth in Accounting, a group that advocates better financial reporting. "Without accurate accounting, we

can't make good decisions."

The federal government financial condition has worsened drastically, beyond the well over $1.5 trillion in new debt taken on to meet the budget deficit of recent years.

The deficit between spending commitments and revenues now equals more than one-third of the America’s gross domestic product.

Corporations would be required to count these new liabilities, real or implied, when they are taken on.

Liberals and members of the administrations still insist that future growth will cover this gap. But we are talking about years and years of at least 5% annual GDP growth. This is unlikely when there is nothing in the future to entice a vibrant economy but job-defeating inflation, higher interest rates that accompany inflation and higher taxes and regulations.  (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Avoid Media-Preferred Securities

Media-preferred securities lists are good for filling space in newspapers, magazines and blogs. They make good reading for investors thinking of ideas.

Those lists do little for investors because those who devise lists are usually off the mark.

It’s very difficult to pick securities that are going to go up in a short time. Top executives in the companies themselves know little about how well their corporate securities will do in the marketplace, where conditions other than their company’s fortunes affect market value. How can you depend upon an analyst working from a perspective outside the company?

That is why index funds so often outperform managed security portfolios. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Timing Your Securities Transactions Anyway?

Securities evaluations are not simple. And the media usually get explanations wrong.

I repeat: The strategy an investor should use will depend on the original investment intent when the securities are purchased. What is the purpose of the purchase? What is the reasoning in terms of investor age, goals, risk accommodation, and psychology?

And, importantly, the extent of discipline the investor has decided to employ to keep to that strategy until it's time to sell.

Provided, the investor is really disciplined. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Timing Securities Buys and Sales

 

Buying, selling or holding securities evaluations are not simple to make. They’re often the basis of media articles because they fill space. And the media invariably get explanations wrong.

The strategy an investor should use will depend on the original investment intent when the securities are purchased. What is the purpose of the purchase? What is the reasoning in terms of investor age, goals, risk accommodation, and psychology?

And, most importantly, the extent of discipline the investor has
decided  for that strategy.

Provided, the investor is one of the few who can be really disciplined. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Plentiful Investment Advisers

Despite getting burned in 2008, investors keep coming back to advisers who cost them as much as 25% or more of their investment income. (Calculate the average fee of 1½% of investment assets against average investment income and you get an idea of what money advisers get from clients each year.)

The trend for using investment advisers appears to be growing; the fact these same folks were generally unable to help prevent the damage from past market debacles has not hurt adviser reputations.

You can easily invest in low-cost index mutual funds and ETFs, using common sense as I always recommend. Avoid advisers, except for necessary lawyers, accountants and tax experts you may need. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Fannie Mae and Freddie Mac as Villains

Repetition of facts is always essential if proper perspective is to be retained despite faulty media memory.

 Fannie Mae and its related Freddie Mac are private companies which had been blessed with special government backing. The Democrat party in power took them under its wings as a special means of helping the “poor” and minorities. It also became a device to “overcome” so-called red-lining, where minorities allegedly could not get loans because banks "unfairly" turned them down for credit. Fannie Mae and Freddie Mac helped out.

 

Hundreds of billions of dollars were soon involved. Influential politicians had friendly execs employed, with incentives to augment the gigantic volume of systemic mortgage growth and guarantees.

Over the years many observers noted the accumulated danger but the ensconced  Congressional influence, exemplified by then representative Barney Frank, pooh-poohed any attempt at reducing the growing risks to the entire mortgage system.

We know now about the subprime debacle as the banks attempted to cope with the toxic assets that has resulted from being fed Fannie Mae and Freddie Mac fare. Blame has been placed on the shoulders of the bankers by the politicians who were actually responsible.

We get more of the same, regulation with ex-representative’s Frank’s name attached to it: Dodd-Frank legislation. You can expect more of the same fiasco resulting unless cooler heads prevail in correcting the Dodd-Frank Act that does not prevent credit bubbles but helps enhance them.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Whole Life Insurance Purchases

Comparisons between whole life insurance and term insurance are usually simplified by the issue of price. Whole life is more expensive when you shop for protection.

On the other hand, for those who need forced savings and who would not put what they would save from lower term life premiums periodically into proper, low cost mutual funds, whole life is still a choice. And whole life policy earnings, while lower, are tax exempted.

Another comparison often overlooked: There is always an extended term option in a whole life policy; the policyholder can convert the contract into term insurance at a later date, and without the need of a physical exam, even if otherwise uninsurable. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Stock Broker Advice

SEC regulations want to see that stock brokers have to treat their clients differently than in the past, if they already do not.

Of course it won’t do much for most investment portfolios, but it will make bureaucrats feel better.

In the old days a broker had to be sure that an investment was ”suitable” for a client. What was suitable was often debatable, but that is what makes securities markets as they are.

Now the broker is supposed to have a “fiduciary duty” toward the client. according to SEC intentions. That should open a hornet’s nest of endless legal problems

The main result of this is to give investors more ammunition to sue brokers for real or imagined damages. That offers more power to the lawyers. And to give brokers the excuse to become more profitable “advisers.”(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Investment Analyst Shortcomings

The majority of securities analysts could not operate a pushcart. Yet, they constantly critique top business executives about the way they run multi-billion dollar companies.

In addition to this, financial community analysts have an extremely limited time frame. While a business must look years ahead, those involved with Wall Street securities usually operate with much shorter time-goals. Follow them too closely and you court trouble.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Markets' Volatility

Securities markets are generally erratic.  However, when you think about it, they really ought to be calmer than they are.

Institutional investors and advisers are considered professionals. They’re the experts who account for at least 80% and, some days  more, of all trades and activity. Why then should the markets behave so erratically?

These pros ought to know what they are doing, unlike the others of the public, amateur investors who blindly follow the pros. However, Wall Street "wizards" invariably act in a mob-like manner.

They may still make their millions, simply because they are ensconced as Wall Street inside players. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Securities Experts Can be Suspect

 Little deep investment research and thought comes from the analytical securities segment of Wall Street.

What goes for research there is primarily in the form of public company reports. These have to do with reported earnings, without any true understanding of the nature of those earnings. Furthermore, much of what earnings are announced could be the result of fanciful accounting. So all that analytical reportage may be meaningless, if not misleading.

Little is done on what is most important to the investor; the use of disciplined strategy.

Most analysts and money managers have no time for careful, insightful thought of the many, many hundreds of strategies, which, along with disciplined use, are essential.

Moreover, the investment community is incestuous, in a way which creates herd-like, impulsive instincts. This results in the inanities that has become repetitive gospel. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Ponzi-Like Medicare and Social Security

The biggest Ponzi schemes of all are being sponsored by the U.S. Government

Prime examples: Medicare and Social Security are estimated to be short by over 110 trillion dollars. That makes them completely bankrupt, were they genuine, private insurance enterprises.

The average American has no idea how Social Security works. He or she will tell you it’s as advertised. It’s not, because there is no trust and reserve fund, though you often hear politicians mention “lock box.”.

Benefits are paid today from earnings of those still working, So, what makes this different from any other Ponzi scheme? Paying off some today with money taken from others, to whom benefits are promised tomorrow. Social Security tax funds taken in, are never really invested. They are used to pay off Social Security obligations of today.

Government has already exhausted what is supposed to be the Medicare Trust Fund. Social Security will run out of money in a couple of decades, or much sooner, when there are probably not enough workers to pay off retirees.

So what makes these programs different from other Ponzi schemes?(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Expanding, Unaffordable Entitlements

 By 2050, Social Security, Medicare and Medicaid, will take up the entire federal budget, if spending remains on its present course. By 2080, Medicare alone will comprise the entire federal budget.

This projection is unsustainable. There will have to be some changes done by politicians in office as problems ensue.

The impending debacle does point up the stupidity of those in office today, who have set forth a path to disaster, for us, our children and grandchildren.

Congress and the administration are creating a bankrupt system for us and our descendants. Solutions will only involve far less services and benefits, with rationing and much higher taxes, as well as huge inflation.

We have never encountered such financial problems before. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

The Stimulus Bait and Switch

The government “stimulus,” evolved in its usage. The old meaning had been perfectly useful in Keynesian economic parlance. But it has now became a cover for politicians who conveniently use the term to hide other motives.

What the bulk of the population in the U. S.thinks of when Washington attempts to stimulate the economy is how spending will get business moving, employers hiring and consumers buying as quickly as possible. Now , and not years in the future.

Poor psychology is what makes deep economic recessions linger on. A true stimulus must promptly change that poor psychology.

But when only a small amount of stimulus money is actually designed to be spent quickly, another motive is apparent. When the vast bulk of stimulus money is designed to be a slush fund to expand federal and state government jobs, the goal is primarily different. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Poor Media Investing Suggestions

Financial portfolios you get in the media are amusing in a sense, but, they are not a laughing matter. Because you can get burned if you follow such advice.

The media suggestions come with some advisor mentioned; the one making the recommendations. That advisor has been singled out from among tens of thousands in the business.

Advisers are always seeking publicity; they strive to have pet portfolio ideas published in public view. So why this mention in the media? Is it a friend or relative of the columnist, reporter or interviewer?

Furthermore, the portfolios are usually an attempt to time the market. Also, they never identify objectives by investor age or risk capacity or psychological sensitivity. It makes the reportage useless. And dangerous.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Terminating Your Annuity

Annuity sales pitches may overlook start-up costs of annuity contracts that can be in effect for up to seven years.

Salesmen commissions and administrative expenses must be met. Early termination requires faster amortization. These are in addition to management fees that are imposed each year on annuities that involve variable investment.

Furthermore, the annuity may have life insurance provisions that you may not need. You will still be paying for that feature.

So annuities involve costs you may not be aware of, And you simply cannot drop contracts easily. There will be penalties for making corrections or changing your mind. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

The Media's Public Financial Education

Investors get most of their financial and business education from the media, especially brief bytes and headlines.

Schools don’t provide an adequate underpinning of information for students to be able to comprehend economics and finance. As a result, the public cannot evaluate the bombardment of ads, nor headlines that apply to finance and business topics, or meaningful explanations from inept media sources.

They therefore get biased, one-sided opinions without any contrasting arguments or alternatives from headlines or inadequate financial and business articles.

Brokers and advisers cited in the media frequently promote a particular point of view. The media often poorly screens content.

Remember also, the importance of investor age, family status, personal psychology, finances and risk status. These have lots to do with investment choice, Media slants often neglect them.

So stay alert to basics and avoid tips from questionable media sources. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Taking Investment Advice From Ads

Ads advise only advantages, and not the downsides of investments being suggested. Why take such advice? Yet, so many investors learn about what they buy solely from ads and salesmen.

I have now researched over 1,600 investment strategies that are occasionally or frequently used. I have also looked into the pros and cons of each. And I have not found one that has an exclusive advantage, without at least one disadvantage.

An example: Sellers of gold investments may be selling one type without discussing various other forms, or whether everyone ought to be buying gold, despite looming inflation. The public never gets full information.

Furthermore, investor age, family status, personal psychology, finances and risk, have lots to do with investment choice. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Ongoing Government Deficits Are Worse Than You May Think

Most American voters appear to think differently but you can be certain that government deficits will spell disaster. For taxpayers and even for those who don’t pay taxes. In fact, for anyone who worries about the cost of living.

Government spending debts can be borrowed. That debt of today, however, is being financed at very low interest cost. Those costs will easily double and triple. Long term rates can conceivably reach 18% or so from under 3% right now,

So we are looking at astronomical debt, with poor prospects of an economy expanding where it can accommodate that debt.

The public will eventually see that today’s spending is only a down payment on future costs, to be paid by heavy taxes and a more worthless dollar. For if taxes don’t foot the bill, a worthless, inflated dollar will.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Investors and Huge Adviser Fees

Even pros are feeling those adviser fees. Huge institutional investors should be able to get better terms as investors than do smaller investors. Mutual funds do reduce expenses to clients who keep larger fund balances. This is perfectly logical and it’s legal.

But the U.S. has not been happy about fee discounts if done in unison by organized major investors. They include; endowments, foundations and pension funds, as part of groups, such as Institutional Limited Partners Association (ILPA),  The group’s 215 members have more than one trillion dollars at work.

They would all like to negotiate lower terms than they have been getting. But it would be against the “anti-trust” law. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Backing The Dollar With Gold

The Treasury Department has reported it has about 261,5 million ounces of gold. There’s been lots of talk about how it can be used, or whether it ought to be kept as it is.

At its present price, the gold’s value totals about $400 billion. One suggestion has been to use it to reduce U.S. debt. I would rather not sell gold for this purpose, I feel it will not reduce or affect government spending habits, which keep increasing.

I believe the gold holding ought to instead be used to back the U.S. dollar. The stability would be an economic boon. That would also have  to accompany  reduction of government spending and debt.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Financial Advisers Who Are Over-Active

  As you know from my reports, I find professional advisers extraordinarily expensive for most ordinary investors. They take as much as 20% and more of earnings when their cut is 1½% or more of assets managed. Only investors who require estate and tax advice need additional expert consultation.

To make themselves appear necessary, advisers will make up portfolios with as much as ten and more individual funds when just a few, low cost funds will do.  The assortment is supposed to be the result of more selective investment thought. But the end result is meaningless, apart from marketing the adviser’s service.

I have written volumes about the subject, but to sum up, let me repeat a simple lesson: Once you learn investment basics, you can manage your own investments with low-cost index mutual funds, (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Government Debt is Worse Than You May Think

Most Americans may not be too concerned about heavy government financing by enormous borrowing, the equivalent of printing money, plus enormous outstanding debt that has to be constantly financed.

An economics basic: Funds for financing business and government are in a Zero Sum game. Funds needed by government to finance huge debt have to displace funds needed by industry. Economists of every stripe concede that. This problem will get worse when government has to raise its cost of borrowing from currently very low to more realistic, higher levels.

Governments can only overcome the accommodation for extraordinary spending and the potential problems they entail, by expanding the economy.

But if the government is heavily taxing while borrowing and literally printing money, it will be curtailing that necessary economic expansion.

To sum up: You cannot borrow forever without hurting expansion because you crowd out funds required for private business to operate normally. There will be business stagnation and inflation. Proof has been shown over and over for centuries. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

“Inside” Investors Who Get Inside Information

No matter how many investors see government attempts to even the playing field by convicting those who attempt to use inside securities information, too many investors are missing the facts.

What is illegal is the sale or divulging of information you are contractually not permitted to divulge, as part of your employment.

What you can divulge about your special securities knowledge is vague. Many individuals are convicted of merely lying to government, as in the Martha Stewart case.

Yes, there is an advantage of being an ‘inside player” in the securities field; that has to do with the job or work you may have in the securities industry. But this is not illegal. It does cause a disadvantage to investors who choose to engage  inside players when it’s often unnecessary.

I always suggest investors avoid dealing with inside players. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Political Translation of “Government Default”

 Politicians in Washington have a totally different interpretation of government default than what it is in the real financial field.

To politicians, true danger is any event that doesn’t help get them elected or keep them in office.

So why not make the debt ceiling higher? It allows them to spend more despite higher budget outflows

In the real world, bondholders would prefer to have their interest and principal payments held up temporarily, for assurances, the U.S. were trimming its budget to make all its payments in the future.

Not the other way around, with government kicking the proverbial problem down the road every few months until the U.S. becomes another bankrupt Greece or Portugal. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Taxes Defeat Compound-Interest Investment Benefits

Politicians love to tax “the rich” but they’re really taxing savers who believe in the compound interest table and know how it works over a number of years.

Save $1,000 of earnings each year for only 25 years, at 6%, and you have amassed $58,100. Put away $10,000 annually and you have over $581,000, in just 25 years, If you stopped adding to the money because some is taxed away, you would have far less capital.

You probably still consider yourself middle class; your net earnings have been modest. But you’re labeled “rich” by politicians who want to tax you all along, to support their “poor” voting bloc.

Ironically, most of the finger-pointing politicians have far more wealth than you, whether actually earned, or inherited.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

Futures Markets as a Chrystal Ball?

A few businesses have had employees create a futures market on a subject of importance to their company. They feel that certain points of view, though a gamble, can be prescient, if the gamblers or speculators have no inherent bias in their choices.

Future projections on business concerns always are difficult to estimate. If any can be predicted with more independent accuracy, they would be immensely practical.

But caution is needed. For such markets to have value, they must have lots of independent input. Sampling should be efficient and unbiased.

I find that is almost impractical in most business projections. However, futures markets may have their place in foretelling political outcomes and general marketing concepts.(See the Earl J Weinreb NewsHole® comments and @BusinessNewshole tweets.)

The Economist Joseph Schumpeter

Those who know the least about capitalism rail the most about its negatives and never appreciate its overwhelming positives. I suggest to them a review of the life and work of Joseph Schumpeter, the Austrian-German-American economist. He died in 1950 and has been since mostly overlooked in academic circles and the media.

His view of “creative destruction,” how the demise of established companies led to a growing economy has been the foundation of the American dream for so many of its citizens.

Personal incomes have doubled every fifty or sixty years in America, when entrepreneurial zeal is permitted to operate.

Yet, left-leaning politicians will never guess there is any economic opportunity without government being the instrument of largess.(See the Earl J Weinreb NewsHole® comments and @BusinessNewshole tweets.)