Bonds and Inflation

            

The “experts”  tell you to avoid bonds when there’s a threat of inflation.

                     

They never get into the whole story, owing to ignorance or indifference to research.

                                        

Paradoxically, inflation could be an opportunity for potential purchases of low-cost bond mutual funds, or ETFs, with low duration, and with dividends that are periodically reinvested.

                     

I have commented a good deal about bonds and inflation in the past and will in the future. I emphasize the use of duration principles. The message is an eye- opener.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

True Investment Earnings

                                    

Investors are lulled into complacency about “average” returns. They hear what securities have earned on average, going back years, and they then project earnings figures into the future.

                     

These prospective averages are often wrong. Indexes on which they are based are skewed. In years past, companies that failed may not have been included in statistics that are now used; therefore past results are overly positive.

                     

In addition, there are steep investment-experience cycles which affect average results at any time. You may need to cash in funds just when your portfolio is in a down trend, or has recently been in one, and hasn’t had time to recover. Thus, measuring points of cycles should be taken into account.

                     

Whenever you hear securities will bring you average returns, think again about what that number really is. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Public Pension Problems

            

The assumed rate of return on pension funds of almost 60% of unionized American public workers is at 8.0%. This is currently almost impossible to get within any investment portfolio. Still the fund managers undertake such fiduciary responsibility, especially in the face of budget deficits. Moreover, future economic growth is questionable, so the assumed return figure is even more unattainable.

                     

Yet, the fantasy and façade continue; the public employee pension planning fiasco goes on. In fact, almost 20% of such public pensions blindly plan on average annual earnings well over what’s attainable.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Planning Securities Investments

Investing in the securities market is never simple. But you can simplify the process somewhat by specifying your aims. Financial media reports and suggestions often fail to make this point.

One: Are your goals short term or not?

Two   Are you taking proper consideration of age?

Three: What are your feelings about risks?

Four: Consider the economy. We have been in more than o®dinary doldrums.It may not bounce back for several years.

Five: Inflation will eventually come bouncing back because of budgetary and Federal Reserve excesses.

Six: Economic stagnation could stifle corporate profits. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Using a Stock Broker or Stock Dealer?

                     

Some of the brokerage transactions you make are just simple broker transactions. In many instances, the broker may be acting as a principal, selling you a security from his inventory, or perhaps buying the security into his inventory.

                 

That could actually represent a very short period, an in-and-out transaction with another party. Nevertheless, the broker is technically not a broker but a dealer.

                 

That is legal provided his markup is reasonable. In many instances a 5% markup is not acceptable when the security is traded in a liquid market.

                 

The Financial Industry Regulatory Authority or FINRA has been attempting to fine tune the activity. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

No-Earnings Investments

As a rule, avoid securities with no earnings.  I include ownership of gold or silver metals.

Should the principal value of your holdings fail, you have no benefit of reinvestment from periodic returns. Those may return future profits overall.

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

Public Employee Retirement Problems

     

State and local public employee retirement programs now have unfunded liabilities of about one Trillion dollars. according to Pew Center on the States. Despite  publicity the subject is getting, most folks have no concept of the real problem, nor the solution.

          

Unlike the federal government, states and local entities cannot print money. They therefore cannot continue to keep borrowing to meet obligations.

          

Talk of fed-enabling legislation for states to go bankrupt is not a practical solution. The public employees’ unions will not like the haircuts and shaving bond prices will starve the source of future financing, as well as decimate smaller savers of those bonds.

          

But there is no reason to panic if public employee pensions are negotiated to realistic levels along with state and local budgets.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Investing Odds

              

Most folks are not familiar with the odds for successful finance and it affects their outlook on financial matters.

                     

An example: Flip 100 coins, heads or tails; there is a 75% chance of a streak of 6 or more right calls. And a 10% chance of a streak of 10 or more

          

Look what this does when we observe analysts and securities’ markets. You hear comments after market closings about events which really reflect randomness. But the comments attribute specific causes that occur only in the minds of the commentators. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Government Expertise?

               

One idea of how inexpert government “experts” can be: The Federal Reserve Bank kept on its past path of buying multi-billions of government bonds. This inflates the economy by, in effect, printing fresh currency. The Fed intention: To rouse the economy

                     

But at the same time, the Fed allowed some big banks to raise their dividends, which soaks up capital and their lendable funds.

                     

While some banks, instead, use their Fed induced, newly-excess cash to buy up shares. All this added to a mix which makes the Fed’s actions very imprecise, to go along with the rest of their their seat-of-the-pants decisions.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Uncertain Retirement Planning

              

Retirement planners use dubious assumed models. They take into account investments, forms of diversification, along with outlay plans, and a number of probabilities. One may be Monte Carlo simulation, a well-known model used by investment advisers for this purpose.

                     

But such investment planning fails to work for many reasons.

                     

A major financial market meltdown is one. And other unforeseen events happen; illness, a job loss, business failure, unexpected educational expenses. The result of a lifetime of retirement planning is often failure.

                     

The solution? Be realistic. Be prepared to work at least part-time past what you had originally thought would have been retirement age. (See the Earl J Weinreb NewsHole® comments and @BusinessNewshole at twitter.)  

Credit Rating Agency Risks

                     

Lawsuits can sometimes arise when credit rating agencies, who judge the quality of bond or derivative issues, are considered the cause of investors’ loss of money. Making it easier to sue can present problems.

                     

The First Amendment is supposed to guard free speech. That usually protects financial analytical reports. Including opinions on Structured Investment Vehicles or SIVs, or derivatives, or any form of corporate and municipal bond.

                                        

Can analysts and their employers be sued for malpractice if their opinions have been wrong? Or are they covered by the First Amendment? What does any court decision do to those who evaluate due diligence in the future?

                     

Every so often a move is made to sue credit agencies for alleged malpractice.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Currency Trading Risks

                                   

When trading the dollar overseas, a variety of international problems can make that currency weaker or stronger, situations that also affect the value of the Euro and foreign currencies in different ways.

                     

And then other factors come into play. Such as rising or falling oil and energy prices, with their effect on the American economy. The impact on the dollar can be opposite what it would ordinarily have been with respect to the other currencies.

                     

Were we producing all our own energy, our dollar would be much stronger than it is, internationally. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Economists do Agree About Certain Principles

                  

Economists generally agree on basic tenets of economics. These have to do with the long-term effect of deficits, and the Inevitability of inflation as a result. They usually also agree on incentives for business and, to some extent, on tax cuts for small business, in efforts to increase jobs. Other than for such basics, their opinions differ.

                                        

I’m not impressed by their awards, especially Nobels.

                     

Economics involve many complex variables and facts, unknown and the unknowable, and can be difficult to understand. The subject definitely is not a science.

                     

Economists can see what has worked well in the past and what has not, but there is no predictability. Modeling and planning has not worked properly in the past, and will not in the future. As one observer has said, “economics is history trying to be physics.”

                     

Politics plays a big role in the thinking of many. It produces the variations we are accustomed to, as an accommodation by economists tuned to the political interests they may favor.

                     

There are a handful in which I have more confidence. Examples: Milton Friedman, Friedrich von Hayek, among others, whose work I follow.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)