Growing Too-Big-to-Fail Banking

                 

The Glass-Steagall Act, created under the Banking Act of 1934, was terminated during the Clinton administration. It had separated regular banking from investment banking activity.

                       

However, it’s easier to talk about the separation of investment banking and ordinary banking, than accomplishing its implementation.

                       

The question of proprietary trading arises. Both regular and investment banks had executed such trades, ordinary banks to a lesser extent. Moreover, such trading generally represented a very small, insignificant amount of activity and income. Furthermore, the definition of what is a proprietary or “prop” trade is hard to delineate.

                       

The result, with all our populist politicians, we have bombast, finger-pointing, and economic panic and damage.

                       

We wound up with Dodd-Frank, a complex maze of regulations that has, as one of its missions, an attempt to separate commercial and investment banking. And preventing banks from getting too big to unwind as failures.

                       

The result so far: Banks are getting bigger and the risk of failing is ever-larger. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

CEO Earnings

                

Chief executives may earn commissions and options of hundreds of millions a year. But who is to say what is too much? Some politician or bureaucrat?

                       

Do baseball players also earn too much money? They certainly do, if they get up to $30 million a year for playing a kid’s game. And which many amateurs do for nothing, but just a little less efficiently. The real difference in their ball-hitting capability is not learned the hard way but in their luck in having eyes to see the ball. And ballplayers are indirectly being financed by  their bosses’ subsidized ballparks.

                       

Do gymnasts deserve more than they earn? They get practically no income despite all the incurred pain, and years of training and practice, and the need to overcome initial physical fear. Unless there's media hype in an Olympics.

                       

From my personal experience with all three practices, it is difficult to see how bureaucrats and politicians are so ready to damn CEOs for making “too much” money while other genuinely overpaid groups are left to make their fortunes politically undisturbed. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Teaching Slants and Prejudices

In graduate school. I followed what my instructors or

professors said were financially or politically correct, while knowing the correct version I had wanted to express.

                       

Unfortunately this is the case too frequently in all our schools and universities, When instructors are found, by survey, to overwhelming follow only one political slant, it affects all ideas they convey to students.

                       

Not only effects on political slants but also interpretations of financial problems and their remedies. This is very evident today with the economy and the huge ongoing budget deficits.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Are Bonds a Solution to a So-S0 Common Stock Future?

                    

There is a possible solution to the quandary of a possibly poor future, long-term common stock market. It concerns the use of the corporate bond market and proper implementation of duration principles, to suit the investor’s personal investing and retirement horizon.

                       

But be sure you invest in a low-cost bond mutual fund where dividends earned are automatically reinvested in shares of the same fund each month.

                       

Corporate bonds can actually help overcome inflation and the dearth of income and potentially limited growth from stocks. (I have repeatedly explained this in detail.)

Estimated earnings can well be at least 6% on a net, net, net basis, if strategy is wisely used. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Future Common Stock Performance?

                    

I find a major disconnect among investors about what they expect to earn from their securities portfolio over the next ten, twenty and more years, after tax and inflation.

                       

Admittedly, that is a tough prediction because investors must take income taxes and inflation into account, along with projected securities’ yields and market returns. That isn’t simple.

                       

In one survey, the net/net/net predicted return by a number of experts, over the next fifty years, estimated returns ranged only between 2% and 3% annually. That is unusual and shocking. Investors’ experience from the past would have had expectations to be close to about 6%.

                                          

In fact, many securities markets observers believe that market results and potential, along with taxation and inflation bites, will impair future market returns. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Long-Term Stock-Picking Strategy

                  

I have found and investigated over 1,600 investment strategies. There are many an investor can use, in which he can imagine they would be his own business.

                       

The investor can take the same attitude as any owner would. The strategy can revolve around what he wants the company to accomplish. Everyday stock prices and values never enter business consideration while the business is on a growth path.

                       

Short-term, quick-buyers and sellers often are trading company names. They really have no clue about what the business is. Most of the financial reports they see are little more than hearsay and gossip from Wall Street pundits looking over each others’ shoulders.

                       

The clunker stock the short-termer is selling is probably considered a diamond- in-the-rough by the buyer. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Psychology of Stock Investing

                       

Market psychology is always a serious factor that dictates the lack of discipline in investors. Most take what profits they see on the way up, and run; no matter what their original strategy or purpose was for buying that security. So the odds of achieving huge winnings are always poor.

                       

Besides, it is almost impossible for an outside observer to properly evaluate management. Analysts who make it their profession cannot evaluate managers wisely or adeptly from the outside. Why believe the public can?

                       

Therefore I have found the odds of this sweepstakes are too steep in the long run. I suggest investing in low-cost index funds as your best bet. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Free Convertibility into Gold

                   

Even free market monetarists believe some version of a gold standard is necessary to keep politicians honest.

                       

The Federal Reserve System has become a shambles, beholden to free- spending tendencies and more in line with the executive branch of government’s Treasury Dept and its fiscal policies.

                       

The Fed’s role is primarily monetary and the stability of the dollar. It also has been given the job of creating jobs, which ruins its basic function.

                       

There has been some talk of a Gold Commission. Perhaps a form of gold convertibility will come some day. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Federal Reserve Meddling

I should point out that I had spent over 3 years studying the Federal Reserve systems as an M.B.A. candidate, part-time. I have been a life-long observer of this institution which has been known to be quite fallible.

                       

Despite all the loose money policy of the Fed, I find the Fed efforts have failed to stimulate, with all its vaunted expertise. In fact, their money policy today has become less and less effective.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Picking Real Stock Winners

                  

It's tougher to pick stock winners than you may think from reading or listening to the financial media. Everyone believes they can, but after all the effort, how many do they really find?

                       

You hear about big winners but how many of those are available? How many are recognizable early on? It’s always easy to find those who did, after the fact.

                       

Moreover, when you look at these relatively small numbers, you find that they had their periods of ups and downs. The profit numbers look excellent only after years of market wear and tear. How many investors had the stomach and discipline to buy those stocks at their lows and hold on to them to their highs?

                       

None of the successful securities had gone up in a straight line. They hit bad cycles when most of the original holders lost faith, deserted ship and sold. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Necessary Investment Discipline

                

I have found from experience that the average investor 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 @BusinessNewshole at Twitter.)

                   

               

Understanding Wall Street

                              

There generally has been much Wall Street bashing from politicians. I have myself directed some criticism at Wall Street who may have contributed to actions that helped foment financial panic.

                       

But I always have made this distinction: It’s both an investment and also a constant-trading medium. Both are essential. But trading aspects can go to extremes. When extreme actions occur, there can be potential danger. It is thus essential that the public understand how Wall Street operates.

                       

In that regard, you must always remain disciplined in use of investment strategy. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Moods and Sentiments Among Investors

                  

Moods are relatively long-lasting emotions. Sentiments are shorter-term. They both can affect  stock market cycles and can precipitate booms and busts.

                       

That’s because cycles can easily grow into the fully grown varieties. It’s the way minor bear markets start and deeper recessions fester. Given enough impetus and human error, financial meltdowns will eventually occur, as I have outlined in my previous reports.

                       

It’s the reason why astute, wise politicians seeking to prevent a deep recession, never make it a practice to single out industry as scapegoats when they want the economy to recover and produce jobs. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Your Bank’s Safety Rules

Can it happen again?

                       

I mentioned in an earlier blog how bank and investment company net worth figures had been daily devalued to so- called “toxic” levels. Those levels were actually a fiction, brought on by an illiquid market, where true fair value was impossible to determine.

                       

There were defenders on Wall Street for this sham. Some insisted that rules were rules to be defended in emergencies as if they were cast in stone. The rules then became a boon for Wall Street short sellers and the avalanche of constant traders that make up the financial community, The folks to which the media give far too much attention.

                       

Ever-lower values were thereby being created for securities with little or no true market with which to establish real market values. And it produced volatility that made for tremendous trading profits among short-term traders who predominate the financial community.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)