Political Influence With Hedge Funds

It’s always nice to have friends in the right places in government.

One example: Hedge funds of any consequence, under the Dodd-Frank Act, had to register with the Securities and Exchange Commission. Unless considered “family office.” That is, they have no outside investors. No matter their size in multi-billions of investments at play.

The whole idea of registration with the SEC was that the size and presence of such market players, with their lack of market transparency, could make the markets risky with their actions.

Hedge funds had little to do with the 2008/2009 financial meltdown but Washington liberals still castigated them. Until now.

Political influence helps; regs were tailor-made to aid family-owned funds. And huge hedge funds made sure their families took control where they hadn't before. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Budget Cuts Really Produce Jobs

  

Liberal politicians insist that they cannot cut spending in order to create jobs during a recession or depression. They cite Keynesian economics for their reasoning; the theory of the early 20th century English economist John Maynard Keynes is their logic.

However, they have been –over simplifying Keynes’ short term ideas with a religious-like permanent philosophy and are overlooking some pertinent comments and critiques that Keynes had made.

Need real-life proof? President Reagan’s years are just one example that spending cuts do work. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Company Sales-to-Price Investing Strategy

One of the strategies I have investigated, at times recommended by financial observers, has to do with sales/price ratios, rather than usual earnings/price ratios.

You can find many instances where companies which excel in sales category do better than most. But when you look at the pros and cons, in too many instances, the inability to convert sales into earnings is an overwhelming problem, not an asset to be sought.

Of all the strategies I have studied. price/earnings are the least favorable despite their wide use; they cannot be disciplined, as I have often explained in detail. ( (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Big Bank Bailouts

The  administration says it wants to help business. One way is to loosen credit, especially at big banks.  At the same time, however, the  administration is creating regulations which will diminish bank credit volume.

This means many bigger banks will receive lower credit ratings. Should they do, they will have to borrow at higher cost in the bond markets. Moreover, the regulations will not have any practical effect in making banks more secure.

The administration cannot have it both ways. The media go along with the charade.

So far, surprisingly, the markets allow big banks to borrow more cheaply than smaller banks. This means that the market feels that big banks will be bailed out once again by Uncle Sam, no matter what the administration has been saying. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Useful Credit Default Swaps

Credit Default Swaps are insurance on U.S. Treasury bonds and notes and on other global government bonds.

The insurance is in the form of additional cost over the market level. Example: In shaky 2009, the CDS were about 1% over prevailing rates for the five-year Treasury bond.

In practical ways, Credit Default Swaps are actually credit ratings and are useful in any debt emergency.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

The Starting-to-Invest Wisely Recap:

This is a most-essential recap. A lesson to be always remembered.

If you are just starting to invest you may want to use a minimum amount with which to invest in a corporate bond index fund or ETF and also a minimum amount in a total market securities fund or ETF. If you have sufficient funds do the same in an REIT fund or ETF. In all cases, reinvest your dividends.

In dealing with bonds, keep your duration factor below the term of your holdings. If you will be holding the securities for more than 7 years, for example, the duration can be 7 years or less. If you will be holding the securities for more than 10 years, the duration can be 10 years, etc.

Avoid media noise at all times. Once you have an investment strategy in place, and you are set in your strategy, why let incessant, daily media chatter and sheer nonsense dissuade you from your original goals?

The only adviser you need is an accountant for taxes or a lawyer for your estate? (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

One-Sided Securities Sales Advisers

Further to all my previous comments on conventional advisers and hedge funds, and their steep costs that make it tough for investors to succeed.

I advise against taking investment advice from salesmen and sales ads. You get only one story they want you to hear. It’s the other side or comment that could be the correct one for you.

And be wary of stock brokers who have to sell you to make a living or who simply do not have the time or expertise to be of real help. Their training is mostly brokerage back-office, and to conform to extremely broad “suitability” standards. (See the Earl J Weinreb NewsHole® comments and @BusinessNewshole tweets.)

A Gold-Backed Dollar?

   

We made a major mistake when we allowed Ivy League professors advise President Nixon into going off all vestiges of a gold standard in 1973, when the dollar became the world’s reserve currency.

Paper with no intrinsic value has since been accepted as having value but has been constantly devalued by American politicians with spend-and-spend and tax-and-tax philosophy.

Unfortunately, the limit of the world’s patience about our budget discipline has been reached.

Individual holding of gold is no solution for ensuing inflation. Gold provides no income. There are better ways to overcome inflation. But the cheapening dollar is a major domestic and global problem. Particularly, if it no longer should serve as the world’s reserve currency, and no one accepts it as having global value.

In fact, many countries already have made alternative dollar conversions.

We need gold as the standard of dollar value. Liberals won’t like such backing because they will not be able to play games in order to entice ignorant voters. Wall Street insiders may not like gold backing because of the absence of easy money. But it will save the economy.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Investing Rules for Starters

If you are starting to invest you may want to use a minimum amount to start in a corporate bond index fund or ETF and also a minimum amount in a total market securities ETF. If you have sufficient funds do the same in an REIT ETF. In all cases, reinvest your dividends.

In dealing with bonds, keep your duration factor below the term of your holdings. If you will be holding the securities for more than 7 years, for example, the duration can be 7 years or less. If you will be holding the securities for more than 10 years, the duration rule can be 10 years, etc.

Avoid media noise at all times. Once you have an investment strategy in place, and you are set in your strategy, why let incessant, daily media chatter and sheer nonsense dissuade you from your original goals?

The only adviser you need is an accountant for taxes or a lawyer for your estate. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Stocks Investing With Duration Principles

The rules behind bond duration principles include the need to reinvest the periodic dividends of funds in which the bonds are held.

There is a somewhat similar principle with stocks that have an assured high income. REITs are one example.

If high periodic returns are reinvested in the same entity, you get a similar durations effect. Such purchases help mitigate risk and reduce average costs of long-term holdings; hit-and-miss market-timing is avoided.

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

Smarter Investing

How do you start investing if you are just beginning or are not a professional investor?

You can start doing what the most experienced never do, and avoid many of the pitfalls they may stumble into. Do not trade securities for this basic reason: Research invariably shows that you cannot time the market. So avoid any web sites that entice you with stock trading tips.

Open an account with a very low cost mutual fund family of funds.    

Do not make a habit of buying individual securities. The analysts who claim they know all about markets know  very little for two reasons. First: they’re not really versed in business. Secondly: They  cannot get close enough to understand a business that even CEOs often find difficult to comprehend. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

The Lesson Worth Repeating About Expensive Advisers

Why use expensive advisers who take, on average, 1 1/2% or more of your assets each year. That can represent as much as 20% and up of your annual investment earnings.

For those who invest in hedge funds, be prepared to part with about another 20% of any investment earnings on top of that management fee. You have lots of catching up to do just for all that advice that is often wrong or merely not worth it.

Look at any compound interest table and see what that chunk of your wealth this will add up to, in just short years. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Using Credit Default Statistics When Buying Bond Funds

Experts love to bring up the question of credit defaults when evaluating bonds. But here again, pundits generally generate  more bluster than thought; the defaults rate is always built into the market price of a well-diversified fund. 

Higher defaults are offset by commensurate higher rates.

These facts ruin arguments pundits have, when merely concerning values of individually-bought, non-in-kind, non-reinvested earnings, that apply to rates or interest-effected changes and looming inflation. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Rethink Bond Investment Strategy

Far too many financial “experts” flunk bond market basics. They constantly have an unwarranted fear of the adverse effects of higher interest rates on individual bond prices and values.

Fact: Very few investors buy outright,  individual bonds of any maturity. They invest, instead, in convenient, low-cost, fully diversified, mutual funds or ETFs.Therefore, the bulk of  so-called expert comments on individual bond purchases and holdings don’t often apply.

Fact: For the most part, bond fund owners reinvest their periodic  dividends.This is impractical and usually impossible for individual bond buyers to accomplish.

Fact: While it’s true that bond prices fall when interest rates rise, and bond prices rise as interest rates fall, these effects can be modified by duration and reinvestment principles.

Duration explains why shorter-term bonds are not affected as much by interest rate movements as are longer-term bonds.

Fact: Bond mutual fund investors who are aware of duration principles need not be hurt over the long term by interest rate moves; they can actually prosper when interest rates go up, with duration rule usage. .

Fact:  A bond holder is a lender. The higher interest rates go, the better off that lender is, provided he or she uses duration and reinvestment principles. And sticks to a plan of how long the bond fund is to be kept.

Note: Bond funds usually list their duration numbers. Look for, or ask  if they’re available for funds you seek. If not, approximate the figure to an extent by assuming that the shorter-term the bond portfolio maturity, the smaller the fund’s average duration.

The reinvestment solution:  The bond investor who reinvests dividends  holds the key to better performance. He should hold the fund longer than the stated duration period of that fund. If his intended investment period is more than 4 years, for example, it will be profitable to hold a bond fund with duration of at least 4 years. Long-term bond fund investors are always ahead in this game.

Fact: Experts love to bring up the question of credit defaults when evaluating bonds. But here again, pundits generally generate  more bluster than thought; the defaults rate is always built into the market price of a well-diversified fund. So higher defaults are offset by commensurate higher rates.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

               

       

How Long Should Recessions Last?

   

Politicians describe past recessions to suit their views. It comes in handy when they are running for office, when they need to paint a suitable economic picture.

In 2000, with actual unemployment about 4.0%, we were told by Democrats out of office, that we had the worst depression since the 1930s. We were in the midst of a booming economy.

In the mid 1970s, when President Reagan took office, we were experiencing a severe downturn. The fall in GDP was 4.9%. Compared to a drop of 18.2% in 1937-38. That truly was the worst economic cycle since the 1930s.

Incidentally, President Reagan never blamed the previous president, Jimmie Carter, for the job Reagan had, in making the prodigious economic recovery.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Avoiding Financial Bubbles

Past experiences from financial bubbles are always overlooked. In my studies as a market analyst and businessman, I have seen how bubbles originate, and then cause damage.

Bubbles are not stopped by Federal Reserve action on interest rates, as is usually suggested by pundits. That is because politicians always take over, and often influence any dampening efforts by the Fed. All with an adverse effect.

It would, for example, have had done absolutely nothing with the internet bubble. Or even the mortgage bubble because interest rate adjustments then would have been applied too late.  Interest rates today are too low to start with, and the Fed inflates when it makes bond purchases.

Action or inaction by the Securities and Exchange Commission would have helped provide correctives. Just sitting on obviously useless and dangerous financings, instead of open-handed approvals of questionable underwritings created the internet bubble. By merely slowing down the underwriting of deals, and the SEC would have dampened many past debacles.

So the Fed has had little to do with the bubble solution all the time. In fact, it has aided and abetted the problem. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Overcome Inflation by Investing in Commodities?

Is investing in oil, gas, mining shares, gold, silver and other precious metals, the means to overcome inflation?

It is not simple as often presented by the media and promoters.

Many commodities can only be held in the form of futures contracts of less than a year. They are speculative and have to be continually renewed for the long term. It takes trading experience, with no assurances of lasting success.

Mining corporation investments have all the complications of securities investing and involve conventional strategy. The ability to master discipline is essential. Few investors, professionals or amateur, are adept at this aspect of successful investing.

Buying gold or silver coins or bullion presents other problems including that of storage and insurance..(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Tempted by Currency Trading?

Currency trading, a giant financial market, is dominated by banks, funds, investment companies and commercial corporations. Over $4 trillion are traded every day. Trading involves buying one currency while selling another at the same time. Such as the Dollar/Euro relationship.

However, trading is not truly suitable for small investors, for whom it’s more like gambling. The lure is the small entry amounts and considerable leverage, as much as 50 to 1, much more than is possible with securities and other commodity trading.

The basic downside is risk: Only about 30% of currency accounts are profitable

If you insist on trading, you must have a set strategy. Automated programs help but are no guarantees for success. No matter how much research you do, so many constant influences beyond a trader’s control, domestically and globally, affect currency prices (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Importance of the U. S. Credit Rating

Credit rating agency importance cannot be overlooked in the discussion whether the U.S. keeps spending beyond its means today, or  into the distant future when today’s politicians are dead or retired.

Politicians cavalierly seem to think it’s o.k to have budget deficits as long as government keep raising the debt ceiling. The reality: No one in the rest of the world will consider the dollar convertible, thus an investment. The cost of U.S. borrowing will go sky-high. Thus, credit agency downgrading is the timely warning.

The debt ceiling is the key that permits heavy spending; yet taxation always restricts business expansion and total government revenue.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Too-Big-to-Fail Bank Efforts

The one member of the administration involved with financial regulation in the 2008/2009 era, who better handled financial institution problems, was  the Federal Deposit Insurance Corporation.

The FDIC, which insures bank member deposits, takes over institutions when in trouble. This often involves takeovers by other, sounder institutions.

The principle can be applied to the problems that perplex so many in Washington. Too many feel the Dodd-Frank regulation must entail new government  meddling with unexplored ideas and ventures. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

ETFs Are Effective Investments

   

ETFs, or exchange traded funds, are interesting. They may track an index set by securities earnings rather than by securities market weightings. That will make a difference. Index make-ups may also vary within group types. The number of shares in an index is also important, as the size and trading value of those shares will then vary.

Trading volume is important as liquidity helps traders using ETFs. And for many who periodically want their dividends reinvested. It’s important they get better pricing on small purchases. Even if the ETFs use the same stock indexes, underlying costs of operation may differ. Lower-cost is a better choice. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Reductions in Home Prices

                       

What the government could have done following the first signs of financial distress in the new construction market a few years ago. I I had made such suggestions in my blog in 2008-2009.

                       

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 had expended.

                       

The federal government, through one or more of its agencies, could have guaranteed all the loans of  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 amounted to political slush funds. No poor psychology that could make banks wary of loans to small business; thus more job creation. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)

               

Securities Buying and Sales Timing

                       

Buying, selling or holding securities evaluations are not simple to make. They’re often the basis of media 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 to employ to keep to 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.)

Plenty of 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 

1 1⁄2% 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.)

       

The Fannie Mae and Freddie Mac Lesson

                       

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

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

                       

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  Congressional influence 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 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 Dodd-Frank legislation. You can expect more of the same fiasco resulting unless cooler heads prevail in correcting that bit of legislation. The Dodd-Frank Act does not prevent credit bubbles but enhances them.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewHole tweets.)

Why Buy Whole Life Insurance?

                   

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. Particularly because 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.)