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.)