Financial Short-Term Recovery Efforts

                       

I have often commented that much of the lack of success in financial bailouts can probably be attributed to the fact our experts come from a community attuned to short-term. On Wall Street, the long-term is a few weeks, despite the grandiose talk of planning used in marketing literature.

This short-term psychology is evident in the manner by which bailout efforts are undertaken during financial emergencies.

                       

Often that error is enforced by government in the form of strict regulation, in itself a reaction to the very short-term panic that such regulation has been developed to suppress.

                       

Potential solutions in the 2008-2009 financial meltdown probably would have worked over the longer term, had panic not arisen. These are never successful for short-term markets that regulation overlooks.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Poor Hasty Action and Securities Math Models

                       

I have often mentioned, referring to booms and busts and the role of quants in attempting to prevent them, there’s a weakness in the form of hasty use of math models. It happened with the LTCM breakdown and was a factor in the sub-prime crisis.

                       

There is a common thread among financial breakdowns. They have to do with how the financial community reacts to problems. They panic. Our “experts” who come to the rescue are from the financial community, attuned only to the short term and cannot see how caution, and avoiding impulsive action can overcome the danger of acting in haste,

                       

There was a human error in these past “rescue” instances, other than in mathematical calculations. It had to do with the need for bailout haste.

                       

Has anyone ever questioned the fact that experts we have relied on are all attuned to the short term in their professional areas of expertise?(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Wall Street's Noise

                       

Wall Street noise is composed of a constant banter of news and chatter, dispensed by the media in all its forms. It is essentially short term.

                       

Moreover, much of that tremendous clutter is disseminated by Wall Street habitués pushing their wares at the public. That’s understandable.

                       

But all such commentaries and recommendations tend to rail against long-term strategy because turnover is the wherewithal the financial community makes its money on.

                           

Remember that when you invest. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Future Financial Meltdowns

Vaunted mathematical models have done poorly in preventing financial meltdowns.

                       

Example: The LTCM debacle of 1998 and the sub-prime mortgage disaster of 2008. Could they have been prevented or even mitigated?

                       

Math models were made up by top researchers, mathematicians, and “quants,” who figured they had anticipated all cyclic contingencies.

                       

Yet, bond markets fell apart despite the calculations. Afterward, the quants found they should have looked at contingencies even further back than they had.

                       

But I see a weakness in math models, no matter how much research is done. It happened with the LTCM breakdown and was a factor in the sub-prime crisis.

                       

There is a common thread between the two breakdowns which has to do with how we react to problems in a panic. Our “experts” who come to the rescue are from the financial community, attuned only to the short term and cannot see how caution, and avoiding panic can overcome the danger of acting in haste.

Note: For the past few years, our government has been again permitting the sale of risky loans, so that homeowners can get “cheap” mortgages.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Bank Regulation Can’t Stop Bubbles

Regulators cannot avoid bubbles. No matter how many layers of supervision  politicians impose. Particularly because of the cozy relationships within the financial community. Plus,you have continual, irrational optimism and the other extreme, pessimism, which occur in chronic cycles.

                       

Furthermore, the volatility of ensuing psychology affects earnings estimates and market moods and sentiments. It can’t be stopped by fiat. And it is responsible for booms and busts. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Are Hedge Funds a Wise Choice?

                       

Hedge funds try to make up for their enormous fees by using either esoteric investments or excessive leverage. They use huge amounts of investor capital to achieve an advantage that average investors believe they cannot muster.

                       

Hedge funds get into situations such as short selling and derivatives and unusual techniques. They get involved with leveraged buyouts and exotic ventures.

Uncertainties are much higher. Too high, in relation to the potential gains. The hedge funds really do not compensate their investors for exorbitant risk.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Future Securities Gains?

                       

                       

The average analyst will correctly tell you that stocks have risen, on average, about 10% over the long-term. But that has been in the past. Unless interest rates in the future remain extremely low, chances are that the future stock market will not earn this past figure. Some researchers have projected an average return of only 6%, and much less for the future.

                       

True, some financial academics claim that price earnings ratios for stocks are relatively low and this bodes well for the future of the stock market. My investigations over the years have told me that price/earnings are a terrible measuring tool. What is a high or low P/E is simply too relative and too dependent on other important factors, including interest rates.

                       

Let’s not forget the specter of future inflation because of our extraordinary budget deficits.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Employees Private Retirement Plans

                       

Employers under 401(k) programs just contribute retirement funds each year, and the employee takes responsibility for his or her investing.

                       

Employer contributions are usually in the form of such 401 (k) s. (In the past, the employer would be responsible for the management of the funds.) The employee can add personal investments to what the employer contributes.The bottom line: The employee has investment risks..

                       

So, it’s important that you pay attention to a viable mix of possible low-cost, diversified investment tools. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Importance of Disciplined Strategy

 

                       

I have fully investigated the discipline of strategy use. Discipline is much more essential than strategy usage; it helps performs far better than the foolish market timing plans of the overwhelming majority of investors, professionals as well as just amateurs.

                       

Iron-clad discipline must be part of each strategy. Important: The reason to buy a security has to be an integral part of the eventual reason to sell. That’s discipline. But it isn’t easy to maintain when you’re an investor having to contend with media noise. That consists of the usual panoply of opinions, most of which are broker, “adviser,” or salesmen-oriented.  (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Gold in Many Forms of Investment

                       

I’m not a big gold enthusiast but this is for those who insist on its purchase at all times:

                       

Purveyors of gold investments often sell one type without discussing various other forms that you can buy. Or whether everyone ought to be buying, even with inflation looming. The public never gets full information, nor the pros and cons of gold ownership.

                       

Gold can come in bullion or bars, or coins. And if the latter, they can be rare, or bought just for content. In either instance, they must be stored for safety, and preferably insured. Furthermore, gold values can be had in mining shares or in the form of mutual funds or ETFs.

                       

There’s lots of confusion, and the fear of not getting it exactly right. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Picking Stock Winners

 

                       

It is harder to pick stock winners than you may think from reading some of the financial media. Yes, everyone believes they can, when you read what the advisers, analysts and other stock and bond touts have to say.

                       

But after all their effort, how many real winners do the media really find? You hear about big stock winning predictors. But with every investigative effort, we discover there are far, far more losers. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

A Tip About TIPS

                       

TIPS are bonds issued by the federal government through a bank, broker, or the Treasury, for five, ten and twenty year maturities. Their value grows to the extent of inflation. TIPS also are bought in mutual funds and ETFs.

Investors seek inflation protection more than interest, which is relatively low right now. With little current, reported inflation, returns are insignificant.

                                           

Potential inflation makes for their investor attraction.

State and local taxes do not apply on U.S. Treasury obligations. However, additional interest paid because of inflation will be subject to federal taxes.

But why buy them? I have never considered TIPS a valid bond inflation advantage, despite the mass of what I feel is publish-by-rote-publicity that TIPS receive in the financial media.

                       

Moreover, you can get inflation protection elsewhere. Even with other bond funds, yielding much higher returns. The public has to learn how to use principles of “duration” which the media is remiss in ever fully explaining, (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Who are Truly Independent Financial Writers?

                       

Many authors of how-to financial books are tied into Wall Street in some way. If they are not procuring their own advisory accounts, they are selling contacts for others. From only one point of view when there are pros and cons to every investment strategy I’ve ever investigated.

                       

They could be offering investment suggestion or brokerage services, whatever sells, once they get known through the book they have authored. They rarely cite their actual independent research or the reputable work of those without an axe to grind.

                       

It’s fine to be an author with financial theories. Where’s the real research? (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Problems Attending Market Timing

                       

I often discuss the foolishness of attempting to time buying and selling securities. Occasionally, investors can luck out in such efforts. But this success can only be accidental; most timers overwhelmingly fail to get out at the highs they claim, nor back into the market in time.

                       

They get media play, but check independent research and you find the market timers are generally not the success they purport to be. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Securities Trading Strategies

                       

The purpose of my investigations of thousands of independent studies of strategies and investing techniques has helped me delve into ways to simplify investment techniques and permit a more successful approach to trading and investing.

                       

Not all the panaceas that you  read and hear about are as they are reported.

                       

I have found from experience that the average investor, as opposed to pros, does well by avoiding trading extremes. That’s possible by sticking to a disciplined, favorite strategy and then forgetting daily market prices. You don’t need constant financial news, unless your investment strategy calls for it. Relatively few strategies do. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)