Derivatives Investments

                

Politicians love to point to 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 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, supposedly causing the 2008 financial meltdown. And they didn’t warrant 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.)

Insurance-Selling Estate Planners

                   

Be careful about buying life insurance from estate planners. It is the job of most of them 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, particularly 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 accountant or lawyer, specializing in the

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

States’ Finances

               

Most of this country’s states have financial trouble. Pension and other poorly undertaken contracts are making it impossible for most to balance their budgets. Any spending cuts have not kept up with demand for state services and outlays.

                       

Yet, legislators keep handing out promises and largess. 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 less of work.

                       

Chicanery, legal or not, is also rampant. 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 retiree $50,000 annual pension each year. And that 5% is not being easily achieved these days.

                       

Bankruptcy to break pension contracts is not an option for states, without federal law changes, but maybe for cities and towns. There will have to be some change in contracts for individual solutions.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Investing in Gold

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

                       

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

   

Poor Business Experience of Securities Analysts

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

Media Investing Ideas

                     

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.

                       

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 techniques. So efficient strategies get short shrift. Yet, proper strategy use increases odds of investing success.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

More Credit Agencies?

                                        

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 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.)

Government Derivatives

                

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 financial deficit spending over recent years.

                       

Using derivatives for deception is 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.)

Correcting Business Cycles

                                        

Experience has shown that natural business 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 (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Why Not Bankruptcy Instead of 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 Obama administration, at enormous cost to our national budget and our constitutional framework.

                       

Bailouts were done 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 Meddling in Financial Matters

               

I commented recently how the financial media does a poor job of commenting on financial matters, scapegoating big business and Wall Street, repeating populist political comments.

                   

One 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. Imposed bank accounting, 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.

                       

Every entity that has been in trouble in the past was  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.)

                       

Media Finance Ideas

              

The media usually has no idea whom to blame for financial problems. They usually blame big business or Wall Street, as 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 panaceas by the media.

                                           

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

Poor Insurance Company Research

                   

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.The earnings and book values they spout must, therefore, always be suspect. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)