FinanceNewshole

What makes a good securities trader?

2012-02-13T01:38:00.000-08:00

Opinions vary from one and all, ivory-tower academe to the everyday market dabblers. Some even mention DNA and genetics as reasons why some appear to do better than others.

Still other observers attribute actual professional skills to seeming proficiency.

My opinion from being on the inside of Wall Street and having studied practically all the investment strategies and their discipline, or mostly lack of that necessity: The big payoff is really from being on the inside of Wall Street.

Yes, you must the job position and social contacts, which are part of the former advantage. And substantial funds for trading leverage. (See the Earl J Weinreb NewsHole® comments.)

Why Not Mutual Fund Indexes?

2012-02-12T02:57:00.000-08:00

You are wasting your time looking for the best mutual fund managers.

Experience and research show that the best in any year are achieved mostly by chance.

In any category of mutual funds, only a small percentage of active managers beat the performance of indexes or unmanaged funds. Furthermore, those who distinguish themselves in any one year, generally cannot repeat their performance the next, or on any consistent basis.

A very isolated few managers can outperform indexes over the years, and if they do, it’s pure luck. ( See the Earl J Weinreb NewsHole® comments.)

Stimuli Against Recessions

2012-02-11T07:39:00.000-08:00

The government’s stimulus programs have not worked. We know they have not produced needed jobs.

They’ve also done havoc to interest rates because of meddling. When left alone, interest rates usually adjust to supply and demand forces and adjust economic events. However, when government imposes stimulus proposals to raise credit and lift the economy, the system is disturbed and distorted.

This unbalances the economy and does the exact opposite of what has been intended.

Ludwig von Mises wrote fully about the phenomenon in the 1920s. However, the fashionable economist during the 1930s recession was John Maynard Keynes. He became the poster child of that recovery movement.

The Keynes pump-priming thesis that employed prolonged stimuli actually deepened, and helped induce the Great Depression. Nevertheless, it is the premise of the failed current policy. (See the Earl J Weinreb NewsHole® comments.)

Politics Affecting Bank Lending

2012-02-10T02:11:00.000-08:00

There is political meddling and too strict bank supervision adding to the bank- lending confused picture.

Banks are not making sufficient loans to small business, even when they have the ability to do so. They make more money by borrowing cheaply from the Federal Reserve and investing in government bonds.

Commerce is in a slump. But many viable, thriving businesses, especially commercial real estate operations, are genuinely seeking loans from banks who have funds.

Yet, too many lenders are hesitant about extending loans they once more readily made. Regulations and looming taxes are the culprits. (See the Earl J Weinreb NewsHole® comments.)

Federal Reserve Wrong Actions

2012-02-09T08:13:00.000-08:00

We make a habit of considering Federal Reserve actions responsible; they are often wrong. This has been proven by the decisions we have gotten in the past few years

We have to remember that economists are fallible, even when they direct the Federal Reserve.

In the more distant past as well, those in the Fed worried we may have deflation and therefore inflated the economy, and added too much currency. In fact the Fed, almost automatically, has been on the side of abetting inflation, in an attempt to prevent deflation.

Thus, the Fed has been the chief culprit causing the bubbles which invariably lead to busts and eventual recessions. (See the Earl J Weinreb NewsHole® comments.)

Small Bank Credit Shortages

2012-02-08T02:15:00.000-08:00

Many smaller banks don’t have the sound loans on their books as bank examiners would like to see. They are under pressure to clean up their financials and/or add to basic capital.

But politicians in their area are putting pressure on bank examiners to allow these banks with questionable standing to make loans which ordinarily should not be made.

Still, banks are not making sufficient loans to small business even if they have the ability to do so, The truth is, they make more money these days by borrowing cheaply from the Federal Reserve and investing in government bonds.

So, there is a constant small business credit shortage.

One solution: Supervise banks independently of politics. Secondly, permit banks to make riskier small business loans and restrict their tendency to borrow cheaply and invest in government bonds.

It is also time to raise the cost of Fed money to banks, so the latter do what they are in business to do. (See the Earl J Weinreb NewsHole® comments.)

Stock Trading Advantages May Exist?

2012-02-07T02:42:00.000-08:00

In rare instances, day trading advantages may actually exist.

As in positioning trades to time of day in Singapore, according to one study, All because of global time differences.

How long this will continue is problematic; it defies supply/demand balance logic. (See the Earl J Weinreb NewsHole® comments.)

Financial Community’s Herd Instincts

2012-02-06T01:41:00.000-08:00

The financial community has herd instincts that override common sense.

Be aware of what is referred to as the Bandwagon Effect, the propensity of professionals following average investors to pursue the same line of thinking.

Follow also the work done by the 19th century French economist Frederic Bastiat, who said people see benefits but never the hidden costs. It is one of his lessons that goes beyond politics into the realm of investing. (See the Earl J Weinreb NewsHole® comments.)

Private Pensions Are At Risk

2012-02-05T03:47:00.000-08:00

The S&P 500 Index stocks are currently returning about 2.2% but pensions assume earnings of around 8%. This is true of public pensions as well.

Bond returns are higher but the better-rated issues don’t offer much more returns than stock. And they may make up about half the pension investment portfolios. There are thus obvious, enormous shortfalls in pension obligations.

Corporations face deficits; many anticipate bankruptcy as a solution. (See the Earl J Weinreb NewsHole® comments.)

401(k) Costs Are Important

2012-02-04T10:13:00.000-08:00

Finally, emphasis is being made by the Department of Labor on what ought to have been obvious in the past to the Securities and Exchange Commission as well.

401(k) costs are important. They will now be scrutinized and divulged more openly to employee-investors. (See the Earl J Weinreb NewsHole® comments.)

Really Too Big To Fail?

2012-02-03T01:59:00.000-08:00

The big banks are bigger than ever because of new regulations.

The Dodd-Frank legislation has added influences that actually work to the to the detriment of small banks.

Dodd-Frank enhances the competitive positions of the truly big banks and enables them to expand faster. Where today, they are simply too big to fail. They would drag down the economy if they did. (See the Earl J Weinreb NewsHole® comments.)

Annuities Can Be Tricky

2012-02-02T02:33:00.000-08:00

Annuity salesmen often compare the benefits of their product with risks of stocks and bonds. They mention the hazards of securities markets and possibilities of market loss. But they often overlook the downside of what they offer.

Annuities have negatives and are not for everyone. They have an insurance factor which may not be required. And if not, why pay for it?

Then there are annuity management fees, contrary to sales pitches and early termination charges. Moreover, the strength of the company is always important to consider.

The choice of fixed or variable annuities further complicates the picture. Fixed annuities have set returns which means the buyer has no protection from any future inflation. Variable annuities tie into securities markets but not as directly as you may want. (See the Earl J Weinreb NewsHole® comments.)

The Fed’s Causing a Continued Investor Disaster

2012-02-01T11:29:00.001-08:00

The Federal Reserve is well on its way, continuing its

ongoing investor disaster.

They’re doing this by keeping official U.S. funds at zero cost, not even at the nominal 2% inflation rate. This makes it impossible for the public to get a decent return on FDIC insured funds in a bank. Most folks are lucky to earn 1%, well below inflation. (See the Earl J Weinreb NewsHole® comments.)

ETFs Have Capital Gains?

2012-01-31T01:51:00.001-08:00

ETFs are generally tax efficient; most often they have indexed securities with little transactions among their investments. Therefore, at year end they have little taxable charges due to Uncle Sam.

On some occasions they may have to sell assets to adjust their indexes, and taxes result. Mutual funds that are managed, however, buy and sell shares constantly, and are prone to capital gains, especially in rising markets. (See the Earl J Weinreb NewsHole® comments.)

The Dangerous Options Market

2012-01-30T01:56:00.000-08:00

Options offer an investor the right but not the obligation to buy or sell a security at a set price.

Options are used for investments becoming more impervious to swings in the markets, Also, to protect shares from under-performing. And to make money when market conditions are extreme.

To invest in options, you must take time to learn fully about them. Know the difference between a call and a put, strike price and all applicable terms.

There is no real quick options course, Take your time learning because of the complex nature of the arcane aspect of this classification of the securities business.

Do not get involved unless you learn about options both academically and in practice. Therefore, run through some fantasy dry-runs with no real funds, just to see how you would have done with real money. Then use your own real capital. (See the Earl J Weinreb NewsHole® comments.)

Dismal Hedge Fund Activity

2012-01-29T01:51:00.000-08:00

Recent years have not been as good for hedge funds as they have been in the past.

This past year has certainly not been as successful as the early 2000s. Some funds did well though not as they did several years ago, during their Golden Age. That’s when they were getting 20% and more return a year.

Many have been lucky to do as well as the S&P 500 Index, and without all the risk that hedge fund investors undertake.

But hope and professional ignorance can be eternal. (See the Earl J Weinreb NewsHole® comments.)

2012-01-28T02:07:00.000-08:00

The Short-Market Investment Strategy?

One market strategy is watching the size of the number of short positions on the NYSE and Nasdaq exchanges.

“Short” shares are borrowed and then sold, hoping the price will fall before the borrowed shares have to be replaced. A larger than normal position can be bullish because it means more buying than the previous selling positions.

Yet, there can be other reasons why traders take such trading stances to reduce risk. At any rate, the strategy doesn’t always work for whatever the underlying facts.(See the Earl J Weinreb NewsHole® comments.)

The Fed’s Flub of the Sub-Prime Meltdown

2012-01-27T02:20:00.000-08:00

Federal Reserve minutes disclosed early in 2012 indicate how off the mark the Fed was in gauging the instability of the residential market in 2006 and 2007, even after residential real estate prices began falling.

Outside a few voices, the consensus was that no serious dangers were ahead. A light cyclical downturn at most was the worst they saw.

This proves again there are no regulatory experts in government, just those given the job of being the master of a financial behemoth beyond their ability to comprehend. (See the Earl J Weinreb NewsHole® comments.)

Adviser Market-Timing Near-Impossibility

2012-01-26T01:41:00.000-08:00

To add to the injury done by financial advisers because of their high usage cost in form of fees: they tend to time the market with too much portfolio change.

This is done to show clients they’re actively engaged in servicing the account. The result of repeated research: The chances of "experts" getting out at a high is 10%. The chances of getting back in at a low is 10%. Thus roundtrip success rate is 1%.

The attempt at expert timing is futile and ridiculous. ( See the Earl J Weinreb NewsHole® comments.)

How Much Can You Eat Up Annually From Your Retirement Funds?

2012-01-25T02:28:00.000-08:00

How much can you take from your nest-egg after retirement and have enough for the rest of your life?

The idea so many advisers suggest is that you can eat into a retirement fund to the extent of 4% a year, once you retire. But that is very arbitrary, meaningless and pointless.

The cost of living never remains constant while huge inflationary pressures are on the horizon. Health and other issues are never predictable.

Living conditions and personal needs vary with time and cannot be structured by a set formula. Unforeseen emergencies are bound to affect such percentage estimates and make them impractical. ( See the Earl J Weinreb NewsHole® comments.)

Why Buy Corporate Bonds Directly as Most Media Reports Advise?

2012-01-24T02:41:00.000-08:00

Some folks try to outsmart inflation and get income at the same time by buying corporate bonds outright. The idea is fine if you need monthly income but wrong in all other respects.

Even if you “ladder” maturities, buy increasing maturities in a pattern of increasing years-to-maturity, you will need quite a number of bonds to get needed diversification.

All this is impractical. Instead, buy a low-cost bond fund with the duration number you need. You’ll get lowest cost of bonds due to low management cost and inflation protection. ( See the Earl J Weinreb NewsHole® comments.)

Banker and Athlete Income Compared

2012-01-23T02:30:00.000-08:00

Do bankers really make too much money? They may if they earn commissions and options of hundreds of millions a year. But they do work at responsible jobs that take years to perfect.

Do athletes earn too much money? They certainly do, if they earn up to $20 million a year for playing a kid’s game. For which many amateurs do for nothing, but just a little less efficiently. The real difference in their capability is not learned but in their eyes or muscles, for the most part.

Do gymnasts deserve more than they earn? They get practically no income despite all the pain, and years of training and practice, and the need to overcome physical fear.

It’s difficult to see how politicos in Washington are so ready to damn bankers as a group for making “too much” money while other genuinely overpaid groups are left to make their fortunes politically undisturbed.

And high-priced athletes are indirectly being financed by bailout funds of their bosses’ subsidized ballparks. (See the Earl J Weinreb NewsHole® comments.)

Private Equity Investing Cuts Jobs?

2012-01-22T02:35:00.000-08:00

Politicians who never understand the tenets of the economist Joseph Schumpeter, will not accept the fact that private equity funds do a needed job. Schumpeter appreciated the role of capitalism’s “creative destruction.”

Private equity groups may clean up deadwood companies and use venture funds for startups, and thereby create far more jobs than they destroy. And even better, they initiate a more modernized and stable job picture than before.

Many companies they take over would have failed if left alone. (See the Earl J Weinreb NewsHole® comments.)

Mid-Stream Fund Investing Strategy Changes?

2012-01-21T02:58:00.000-08:00

My experience has shown that undisciplined investments with no set strategy will not do as well as it should. It’s a case of market timing with adverse odds.

You know an adviser has no clue about strategy when he tells a mutual fund investor not to buy a fund that clings to a particular “style” of investment, such as small cap or large cap. But to instead choose what is right for the times.

That advice will let you know the adviser has no specific strategy. The adviser is willing to change strategy to suit whatever style may be popular at the time. (See the Earl J Weinreb NewsHole® comments.)

Collections True Values

2012-01-20T01:55:00.000-08:00

No matter how you appraise value, only the public will tell you what your asset is really worth.

This is especially true with collectibles and art. There is no way of knowing an item’s worth in advance. No matter it’s appraisal or what you paid.

That is why collectibles and art are a field for Ponzi schemes that are impossible to uncover, Value is in the eyes of the would-be buyer and the Bigger-Fool Theory is always in action. ( See the Earl J Weinreb NewsHole® comments.)

Analyst Predictions Are Media Distractions

2012-01-19T02:03:00.000-08:00

Don’t believe everything you get from the media. They are often distractions from reality.

Research shows that analyst predictions can mean little, unless they’re used for quick trading. And that can be very tricky if legal and if you’re not a Wall Street professional insider.

Sell predictions tend to be more accurate than buy recommendations. But there are fewer of those; under 10% of total predictions, and about 5% of the total of buy or hold suggestions. ( See the Earl J Weinreb NewsHole® comments.)

More Federal Mortgage Regulation Really Needed?

2012-01-18T01:54:00.000-08:00

XBRL or Extensible Business Reporting Language can permit data to be collected and analyzed. It can be used to assess risk on about 600 mortgage points. And the data may be readily tracked.

We know from experience that layers of added regulation does not work.

There is a far better case for using such data resources for collection and review and more transparency on mortgages, than the need for extensive federal regulation, including the Dodd-Frank Act.

XBRL or Extensible Business Reporting Language can permit data to be collected and analyzed. It can be used to assess risk on about 600 mortgage points. And the data may be readily tracked. ( See the Earl J Weinreb NewsHole® comments.)

Private Equity Company Advantages?

2012-01-17T02:04:00.000-08:00

Private equity companies are not doing as well as they did a few years ago, despite the publicity they have gotten from political debates.

Less funds are available to them as before, simply because they have not made as much profit as in the past, You could do as well with the S&P 500 Index ETFs.

Moreover, the diminished profit comes with even more risk of loss as ever before.

Furthermore, there is less leverage for future profits because of less availability of funds to borrow. ( See the Earl J Weinreb NewsHole® comments.)

Family Income Misconception

2012-01-16T02:12:00.000-08:00

When some politicians speak about the top 1% of wage earners in this country and their domestic income, they are wrong in making comparisons and interpretations of official family income statistics of the past.

Their argument overlooks that families have changed. Twenty, thirty years ago, there may have been just one worker in a family, where today, husbands and wives more likely work. Perhaps kids are also part-timers.

Families may have two and perhaps more small income providers. They could add a sum of income that may classify them as so-called “rich,” ready to be heavily taxed. ( See the Earl J Weinreb NewsHole® comments.)

The Recession Affects Small Business

2012-01-15T02:12:00.000-08:00

Small business cannot get sufficient credit from banks who are worried about strict regulators who look over their shoulders to see that the books show little risk.

Yet, small business employs 50% of the U. S. work force. It makes up almost 40% of the GDP. The easy money policy of the Federal Reserve makes it far easier for banks to borrow at little cost from the Fed and invest in government bonds. So why bother to make risky small business loans?

Worse, small business cannot get meaningful relief from Washington in the form of lower taxes and less restrictive wage regulation. (See the Earl J Weinreb NewsHole® comments.)

Investment Risks

2012-01-14T02:10:00.000-08:00

You can take more risks when you are younger because there’s more time to recoup your errors. But If you lose a big chunk of capital, it still sets you back.

Sure, it is better to lose chunks of capital at age 30 than when you’re 60, or older. Nevertheless, look at a compound interest table, and see what happens to any amount of principal, when you lose a large sum early on.

Therefore, it’s essential that investment risks always be a concern in your planning. (See the Earl J Weinreb NewsHole® comments.)

Funding Small Business

2012-01-13T02:08:00.000-08:00

Small business has relatively little access to public borrowing. They are usually in no position to sell stock to investors. So where will they get funds?

Credit cards are one solution. About 80% of small businesses pursue this arrangement, though rates are high. But this source is getting tougher, because of increased government meddling.

Left-leaning politicians believe that anyone who charges more than what a bank does is a usurer, even when there is no money available at bank rates. That’s because such politicians never understand supply/demand economics. ( See the Earl J Weinreb NewsHole® comments.)

Gold Investments

2012-01-12T02:15:00.000-08:00

Gold prices these days relate primarily to the rise and fall of the dollar, rather than inflation itself.

There are many other ways to protect yourself against inflation. A weaker dollar waxes and wanes cyclically. Other investments are more directly attuned to inflationary factors.

For those who have decided to buy gold, however, an option that often is not fully understood is whether to buy gold mining shares, instead of gold coins or bullion.

There is dividend income in holding shares and potential capital growth. Gold coins and bullion offer no income. And you have to store and safeguard the physical assets.

However, mining company shares run into occasional production problems and potentially negative management issues.

Gold can be bought without physical possession, in the form of mutual funds or exchange traded funds (ETF)s. . ( See the Earl J Weinreb NewsHole® comments.)

The Government Is At It Again

2012-01-11T02:09:00.000-08:00

Once again the government is seeing to it that folks who cannot afford to own a house are able to buy one. Getting to buy homes with practically nothing down. In no time, they will join the rest of the rising numbers of homeowners in default.

The media will repeat that the villains once more will be the “greedy” banks and mortgage brokers whose jobs depend on carrying out government edicts. ( See the Earl J Weinreb NewsHole® comments

Hedge Fund Activity

2012-01-10T02:23:00.000-08:00

Recent years have not been as good for hedge funds as in the past. This past year has not been as successful as the early 2000s. Some did well though not as they did several years ago.

Many hedge funds went out of business due to a loss of investor interest. Or so-so performance that failed to attract followers of the past.

The main peeve against them are their charges. In addition to their standard management fee which is usually set at 2% of assets managed, they still get about 20% of earnings they produce. That is far too much for funds doing conventional, non-rocket-science investing. (See the Earl J Weinreb NewsHole® comments

What Is Legal Insider Trading?

2012-01-09T01:11:00.000-08:00

Many insider trading rules are vague. It’s easy to get caught for what was done in good faith. Often, those who are arrested and go to jail, are guilty merely of lying in one way or another in their testimony, but not for insider dealings.

The rules are not as simple as headlines would make them appear. What has been firmly established about insider trading is this:

An employee has an obligation to an employer not to divulge information received while on the job. You cannot trade on company secrets.

You can act on gossip and what you overhear from general discussions of others, who are not restricted in the dissemination of such information.

There is nothing illegal about trying to get information about a company in which you wish to invest, provided you don’t have someone break a law or a duty to get at that information. (See the Earl J Weinreb NewsHole® comments.)

A Home Investment?

2012-01-08T01:58:00.000-08:00

I got lots of flak in the late 1990s and early in the 21st century because, from 1996 to 2008, residential real estate values rose sharply, about 72% on average.

Research shows that from 1890 to 1996, residential real estate values increased about 27%. I had always advised folks to treat a home as just that, not a means of growing rich. The small increase in home values would attest to that reasoning over the years.

That up-cycle has obviously come to a sudden end and is in a down-spin. And I repeat: Buy a home to suit your budget and your family requirements.

If you want to invest in real estate there are other options. For example, commercial REIT index mutual funds or ETFs. ( See the Earl J Weinreb NewsHole® comments

Buying ADRs

2012-01-07T02:16:00.000-08:00

Investors who buy foreign securities as a means of diversification may do so in several ways.

One is to buy ADRs or American Depositary Receipts. These are dollar, Euro or other currency denominated participation in global issues.

They’re more expensive for those who want basic, non-technical investing. Why not use foreign mutual funds or exchange traded funds (ETFs)? The latter can be traded and are cheaper to transact. (See the Earl J Weinreb NewsHole® comments.)

High Frequency Trading

2012-01-06T02:29:00.000-08:00

High frequency trading improves market liquidity, It assures a buyer or seller availability whenever one wants to trade

High frequency trading benefits mutual fund investors and traders by reducing costs. It lets investors with fast computers take advantage of small price discrepancies and brings market liquidity.

In the past, the stock market was efficiently operated by middle men or “market-makers.” They normally completed sales by buying and selling in their own accounts, if they could not immediately match buyers and sellers. Market makers profited on the difference between the bid prices buyers were willing to pay and the ask prices sellers accepted.

The SEC is tightening its controls of high frequency trading which it’s currently suspicious of. ( See the Earl J Weinreb NewsHole® comments.)

High Frequency Trading Aids Mutual Funds

2012-01-05T02:23:00.000-08:00

While high-frequency trading benefits most traders, there are some hazards involved. The presumption is that high-frequency traders are more efficient, at the expense of the less adept. Individuals who feel they cannot compete with mutual funds or other large investors, view the subject negatively.

If profits are made on tiny price variations, unscrupulous players can profit in some manipulation, like that caused by rumors. However, the SEC has the ability to supervise this possibility.

The SEC should protect small investors from active traders who could conceivably be hurt by high-frequency trading with their faster computers. At the same time, high-frequency trading benefits small investors who use mutual funds. (See the Earl J Weinreb NewsHole® comments.)

Big Bank Security

2012-01-04T02:47:00.000-08:00

Dodd-Frank is attempting to make sure that too-big-to-fail banks will not bring on another economic disaster. In doing so, they are strangling the economy with regulations while big banks are more insecure.

Dodd-Frank also overlooked a major fact. Monetary policy has been set up merely to accommodate this too-big-to-fail doctrine at the expense of businesses who cannot or will not access loans.

Banks who have received government treatment get low interest rates and safe government bond investments to bolster earnings. Why would banks not play this spread rather than make risky loans to business? Especially with government agencies looking over their shoulders, suggesting that risky business loans are taboo?

Only government bureaucrats can think up such absurdities when rescuing banks. (See the Earl J Weinreb NewsHole® comments.)

Public and Family Debt

2012-01-03T00:09:00.000-08:00

We will soon have over $58 trillion in unfunded public debt obligations. That is close to $500,000 for the average family household. The figure mounts every day our legislators are in Washington.

That sounds worse when you figure that it is about ten times the average income of each American household. What is more, the amount grows because it is a debt that accrues interest.

And interest rates will eventually grow enormously. Plus, the value of the dollar to pay debt back will be worth less as our obligations mount. As inflation grows, interest levels may well triple or quadruple or go even higher. They can’t remain at today’s artificial fed levels forever.( See the Earl J Weinreb NewsHole® comments.)

Too-Big-to-Fail Banks

2012-01-02T03:00:00.000-08:00

The Dodd-Frank legislation was to remedy, in part, financial institutional failing. Past bailouts that produced extraordinary budget deficits. Which, in turn, is dooming our economic prospects for decades to come.

And still Dodd-Frank is ready to impose layers upon additional layers of stifling regulation. Unfortunately, with no possibility Big Banks will have eliminated systemic risk.

There is a simple, free market solution that has worked in the past, but left-leaning politicians have no clues nor inclinations about its implementation.

They did separate commercial banking operations from proprietary trading. Banks, though, will not be smaller, less risky and less apt to fail than the risk-taking and more leveraged investment entities of the past. (See the Earl J Weinreb NewsHole® comments.)

Government Job Programs

2012-01-01T03:25:00.000-08:00

Jobs do not come from government hires in questionable projects. The worthwhile, stable variety generate within industry, not in a make-work program with no true productivity aim.

Always keep in mind what has made the U.S. different from socialist governments with all their perfect job-planning schemes. Fancy words and plans never succeed. They may fool and appease the public, at least for awhile. But never for long.

For proof look at the ongoing unemployment records of European welfare economies. (See the Earl J Weinreb NewsHole® comments.)

Wall Street and High Taxes

2011-12-31T02:22:00.000-08:00

The media gets it wrong as usual.

Those on Wall Street who make $10 million a year are jealous of those who make $20 million; those who make $50 million a year a jealous of those who make $80 million. It’s a matter of psychology.

Taxes mean less to them. In fact, a majority are registered Democrats who could care less for high taxes; they profit from big government. Its largess and their ability to influence such big government attracts the Wall Street insiders.

True business people, especially those on Main Street, fear taxes for what they do to smaller and medium size business they are in.

Never confuse true business people from stock pickers. ( See the Earl J Weinreb NewsHole® comments.)

Supply/Demand of Securities

2011-12-30T02:56:00.000-08:00

Never buy securities on the basis of public recommendations. Thousands, maybe hundreds of thousands, are receiving the message at the same time or may have gotten it earlier than you. That same advice.

Remember the effect of everyone acting at once. And the law of supply and demand. That law will be working against you when everyone acts on the same news at the same time. (See the Earl J Weinreb NewsHole® comments.)

Financial Advertising

2011-12-29T03:30:00.000-08:00

There always is a conflict of interest when an ad or public relations announcement gives financial advice. Especially with the repetition of ads and announcements.

All you get is one side of the story, one financial idea or strategy’s slant. But there is always a negative factor in every financial idea or strategy, Maybe more than one. Obviously, they’re never mentioned.

And media financial advertising provides so much “education’ for the average investor. (See the Earl J Weinreb NewsHole® comments.)

Mutual Fund Expense Totals

2011-12-28T02:21:00.000-08:00

The fundamental differences among mutual funds, aside from investment class and specialty, is cost. The lower the cost of operation, the better the fundamental choice. Relative cost makes a lot of difference in accumulated investment value over the years.

The average expense ratio for all mutual funds is about 1.3% per year. Many charge more than 2% This covers only fixed costs, such as salaries, marketing and overhead.

There are variable costs such as brokerage commissions and trading spreads. While funds pay lower commission rates than you, the more the fund trades, the more it spends on brokerage. And the less you earn.

Those expenses are not included in the Expense Ratio or are they mentioned in the prospectus, They are in the fund’s Statement of Additional Information,

In 2007, an analysis by researchers at Virginia Tech, the University of Virginia, and Boston College, in a sample of 1,706 U.S. equity funds from 1995 to 2005, found the average fund had annual trading expenses of 1.44% per year Added to the 1.32% average expense ratio for funds, the average mutual fund expense ratio becomes a total cost of 2.76% per year. (See the Earl J Weinreb NewsHole® comments.)

Misleading Financial Headlines

2011-12-27T02:27:00.000-08:00

Financial headlines can mislead. Reasons they give why markets go up or down are often pure fiction. There may be many causes of stock market moves but the financial headline writers manage to have set answers.

It is almost impossible to know after a trading day’s closing, the moods and sentiments that drove that day’s market, nor the supply and demand of securities over the global markets that would have had an impact.

Short of a major calamity or importantly market-impacting event, the media does not know. But is ready with answers, as if a market crystal ball has somehow telegraphed some secrets to them. (See the Earl J Weinreb NewsHole® comments.)

Hedge Funds and Dodd-Frank

2011-12-26T02:43:00.000-08:00

Larger hedge funds must now register with the Securities and Exchange Commission.

Despite popular impressions, hedge funds are a stabilizing factor in market trading, but a mostly inept media never gets this point across. Thus, politicians are able to pin blame for market problems on the wrong parties. Besides, the SEC has had a rather poor record in checking out fraud in the past.

Hedge funds tend to work off the extremes of the market. This keeps prices in line. Dodd-Frank however, did nothing but exaggerate the too-big-to-fail problem. (See the Earl J Weinreb NewsHole® comments.)

Financial Adviser Cost

2011-12-25T02:52:00.000-08:00

Here is Christmas gift information the media overlooks all the time.

It has to do with how your financial advisers are being compensated. There may be a big difference between what they earn and what you pay them.

I am not only referring to the fact that they may be getting referral fees for recommending you as a client. That would be a conflict of interest harmful to your interests.

No, I am calculating actual cost to you.

You will pay the advisor’s fee, on the management of your assets, It can be1% to 3%, but generally 1½%. That’s $1,500 for every $100,000 they manage.

(Note the asset-management fee may not be the only cost. You pay other charges, which include mutual fund and exchange-traded fund fees for management. And if you use a hedge fund, you may also pay about 20% or so of fund earnings.)

The problem is that 1 ½% management costs add up to a considerable chunk of your annual returns. After all, you’re lucky if you earn $5,000, or 5% for each $100,000. The advisory fee, in other words, is 30%.( See the Earl J Weinreb NewsHole® comments.)

Broker and Adviser Supervision

2011-12-24T02:55:00.000-08:00

So much information is available online about securities. There had been a fine line distinction in the way brokers and advisers dealt with clients. Years ago, brokers were more likely to give advice than they do today. Commissions are much lower.

Investment advisers are regulated by the Investment Advisers Act of 1940. Brokers are regulated by the Securities Act of 1934. In theoretical terms, investment advisers are expected to have a broader view of the investment picture. After all, much of broker training has to do with securities law basics, rather than investment research. I find that in practical terms, investors ought to treat the differences academically, but also cynically.

However, under Dodd-Frank, the Securities and Exchange Commission wants to make brokers more responsible for information they give, treating them as fiduciaries. That may dry up that source of information. ( See the Earl J Weinreb NewsHole® comments.)

Market Analyst Gibberish

2011-12-23T02:02:00.000-08:00

As I have often mentioned before, I have made a unique mini-career of looking at almost 1,600 investment strategies used by investors over the years. I have investigated the advantages and disadvantages of each.

And I can tell you there are some worthwhile concepts as well as gibberish in all. But no panacea exists among them.

I always recommend the use of index mutual funds and established ETFs (Exchange Traded Funds).

Analysts are constantly looking for stock market winners. My comments hold for efforts of the so-called fundamentalist analysts who evaluate individual companies, seeking investment opportunities.

This certainly applies to market technicians as well. They have a whole panoply of theories about market direction that have little to do with corporate earnings and mostly to do with market swings, ( See the Earl J Weinreb NewsHole® comments.)

Timing Securities Transactions

2011-12-22T02:24:00.000-08:00

It’s an investor’s dream and the financial media’s constant theme: Selling securities at their high and buying at their lows.

Of the over 1,600 strategies I evaluated along with their pros and cons, this could be basic.

The problem: The idea does not work in practice. Blame it on human psychology. Or the blur of constant financial news with new buying and selling suggestions. Or your need for occasional cash for urgent needs.

Research shows that very few professionals can time the market, except by accident.

Be especially careful with bonds because you are bound to get wrong information from “experts” about the risk of holding them during inflationary times. Investors generally get poor advice about the practical usage of duration principles, as a tool for bond profits during inflationary periods. (See the Earl J Weinreb NewsHole® comments.)

Gold Has Not Been Behaving as Advertised

2011-12-21T02:08:00.000-08:00

Gold hasn’t been behaving as gold –selling ads have been promising. Gold value generally goes up when the dollar goes down, when compared to other currencies. It goes down when the dollar rises. The same with the Euro. But lately, it’s been down while the Euro is down.

When the economy becomes sounder, gold also will not fare as well; Its attraction is primarily related to a weaker economy where the dollar is being further hurt by government action.

At times gold moves in unison with stocks. following the rise and fall of common shares.

Gold produces no earnings in the form of interest or dividends. It also costs you money for insurance or storage if you buy bullion or coins, and you want it stored or insured as a safeguard. ( See the Earl J Weinreb NewsHole® comments.)

Government Venture Capital Regulation

2011-12-20T02:56:00.000-08:00

The present U.S. administration would like to regulate more entities than it does; venture capital funds are not exempt from that view.

VCs advise startup companies they finance; The Securities and Exchange Commission would supervise and regulate the VCs as advisers.

Naturally, bureaucrats feel venture capitalists “advise” their clients when they lend funds or invest in them. But that makes for a slippery slope. That would also make every member of a company’s board of directors an “adviser.” Or place every major bank lender in this category.

There could be no end to such regulation. It would open up to meddling the job market for civil servants who never operated a pushcart, but think they know how to run any business assigned to them. Every bureaucrat would be able to evaluate and parse the meaning of financial and managerial advice that lenders and investors suggest. ( See the Earl J Weinreb NewsHole® comments.)

“Dark Investor Pools” and the S.E.C.

2011-12-19T01:20:00.000-08:00

Populist politics for the masses, without truly benefiting the masses.

Multi-millions of shares are traded daily in “Dark Pools.” Quotes are listed after the trades are done. The pools are automated and enable institutional investors such as pension and mutual funds to quietly buy and sell holdings. This helps them transact very large contracts without divulging intentions. Pension and mutual funds and their small investor clients, benefit from lower cost transactions and lower prices.

The Securities and Exchange Commission has come down on the side of more disclosure, for disclosure’s sake. However, the commission has notoriously failed to discover serious Ponzi schemes before its eyes.( See the Earl J Weinreb NewsHole® comments.)

How to Buy Gold if You Must

2011-12-18T02:08:00.000-08:00

Gold has not acted well over the past few weeks despite the fact the Euro currency has been in dire straits.

As your know from reading my financial blogs, I am not an outright gold enthusiast. I have given my reasons in the past.

But if I opted for gold investments, I would choose an ETF (exchange traded fund) and not gold coins or bullion form, The latter have to be stored and insured against theft, and undue expense for an investment which earns no income. Gold investment market prices can easily be gauged in ETFs. ( See the Earl J Weinreb NewsHole® comments.)

Leveraged Secured Debt Despite Dodd-Frank

2011-12-17T02:06:00.000-08:00

Today we still employ leveraged secured, collateralized debt in heavy volume. It’s an integral part of our commercial system despite the notoriety it received during the 2008/2009 financial meltdown.

What can make us now believe that more regulation under the Dodd-Frank Act will help prevent any future financial mess from miscalculation? While we are still unsure of the type of loans we are currently permitting?

Besides, we still permit homeowners to have special low down payment deals in our weak economy. All we are building is yet another bubble. (See the Earl J Weinreb NewsHole® comments.)

Equal Corporate Voting Rights

2011-12-16T00:28:00.000-08:00

Some corporations have two types of common shares, voting and non voting. The New York Times family, for instance, has special voting stock that controls ownership. Other non-voting New York Times company shareholders cannot vote that class of stock.

There has been a constant clamor for change, that shareholders who hold their common stock for a longer period should have more voting power than those who buy shares for shorter, trading periods, Or restrictions on those who buy them to exercise control for company takeovers.

Conventional understanding in the past was, that if you did not like management you sold your stock, instead of trying to take the company over. (See the Earl J Weinreb NewsHole® comments.)

The U.S. on a Slippery Financial Slope

2011-12-15T02:12:00.000-08:00

We take it for granted that America will always be the world’s financial standard and leader. With our Constitution and Bill of Rights and our expansive economy, we have been truly Number One world-wide. At the same time, the U.S. has helped others around the world when asked.

We forget that the British once held this vaunted position. They relinquished it when they became a debtor nation. We also are observing the plunge of Europe into a financial abyss caused by debt. The U.S. today is well on its way to become such a monetary-debased country.

And we know at least one creditor nation in the Far East, ready to take over our past role if we don’t mend our ways. ( See the Earl J Weinreb NewsHole® comment.)

Banks Fear Government Meddling

2011-12-14T03:04:00.000-08:00

Banks continue to hold back making loans to avoid risks in an uncertain economy. The government has made bank executives gun shy, particularly with the 2010 Dodd-Frank Act. A hesitant bank executive does not tend to make risky loans.

The Fed helps this timidity along by making the spread of government investments (cost of borrowing from the government and return from investing in government bonds) a sure thing. So why should bankers make risky loans?

Yet loans to consumers and business are the recipe, the stimulus, the means of getting us out of the deep recession.

Consumers have to want to spend and borrow, and business should want to expand and thus borrow. They have not been doing this as much as they would in a flourishing economy. Fear of government-imposed uncertainties and taxation are the problems. ( See the Earl J Weinreb NewsHole® comment

An Insider Trading Definition

2011-12-13T01:40:00.000-08:00

It’s difficult to accuse individuals of being guilty of insider trading violations unless you make some basic distinctions.

First distinguish what is abuse of proprietary information, and what information is being ferreted out by legal securities analysis.

If you get the information from someone who is under a contract from his or her employer not to divulge information received while on the job, it is stolen insider information. If you do your own analysis to get the information, your information is legal.

It is important to clarify what insider trading actually is. Much comment we get from the media is actually misinformation that feeds on the anti-Wall Street sentiment the media purveys. ( See the Earl J Weinreb NewsHole® comments.

Federal Reserve Questionable Decisions

2011-12-12T01:55:00.000-08:00

If the Federal Reserve were held to the same standards as were doctors, malpractice claims would have made headlines.

Much of the responsibility of our financial problem, in addition to that of the Congressional handouts of Fannie Mae and Freddie Mac largess, rests with the easy-money policy of the Fed. Congress wanted everyone in America to have a home, whether they could afford one or not. The Federal Reserve made money available.

The Fed thus created the world-wide bubble by continuing its easy money dogma.

Easy money policy today is certainly not helping a recovery of this country’s Industry, particularly small business. But it’s developing the next bubble and collapse. And assuring future super-inflation. ( See the Earl J Weinreb NewsHole® comments.

The Use of Indexed CDs

2011-12-11T04:09:00.000-08:00

Certificates of Deposits or CDs, with returns tied to the stock market, can be offered by banks. Or in forms tied to variable life insurance annuities.

Investment instruments of this kind are complicated for the average investor to understand.

If you want simplicity without headaches, you are always better off with plain-vanilla investments. Forget about the sharp-pencil boys who come up with the complicated varieties. If you want stocks or bonds buy them. If you prefer CDs, choose them. Avoid indexed CDs and other convoluted financial instruments even in annuities, unless you really understand them. ( See the Earl J Weinreb NewsHole® comments.)

The Media and Recession Scapegoating

2011-12-10T02:38:00.000-08:00

Many members of the vast media are stupid or often lean too leftward to report basic economic historical facts.

Good media reportage would refute the Obama administration’s ongoing claim about it inherited a “Bush recession.”

Bush never mentioned the downturn he “inherited” from Clinton, nor did Reagan harp on the mess he got from Carter.

Historical economic fact without political impact: The deeper the recession, the faster and sharper the bounce back into a boom. ( See the Earl J Weinreb NewsHole® comments.)

Blame For Our Current Recession

2011-12-09T02:22:00.000-08:00

All economists agree: A sharp economic downturn usually produces a very brisk economic upturn. It’s only a demagogic ploy for an American president to blame his predecessor for any economic recession he may have “inherited”, yet cannot handle.

The worse an inherited downturn may have been, the better it makes a new president look, as the inevitable, impressive rebound occurs. All without government change and budget-busting stimuli.

However, bumbling, fumbling and meddling administrations can create a deeper recession out of what should have been a normal, quick recovery.

They instead can seek a convenient, political scapegoat. Certainly it’s not a classy effort, and it’s plain dumb.

The financial and general media who should know better and who has economic facts on hand permits this to happen. ( See the Earl J Weinreb NewsHole® comments.)

Corporate Regulations are a Failure

2011-12-08T01:33:00.000-08:00

Washington exerts constant pressure to regulate business. The only result dampens economic activity in dire need of more productive jobs that only these targeted businesses can produce.

More legislation such as Sarbanes-Oxley and Dodd-Frank are not the answer. The latter legislation has been an expensive failure because it has not done what the politicians wanted.

There is a better way for achieving corporate transparency without oppressive regulation. Example: A better independent look by financial analysts of the balance sheets of public companies. ( See the Earl J Weinreb NewsHole® comments.)

The Derivatives Scapegoat

2011-12-07T02:42:00.000-08:00

Regulation of derivatives is covered by the Dodd-Frank Act where trades have special collateral and margin.

Past regulation did not work satisfactorily for Washington; then there was little regulation, nor collateral required. However, independent studies have shown that they had little to do with the 2008/2009 financial meltdown.

Derivatives are essential to trading of securities for any orderly financial securities market. Derivatives are financial instruments derived from other assets. instead of trading that asset itself. One basic example is a futures contract, an agreement to exchange an underlying asset at a future date.

Derivatives are leveraged, so that a small movement in the underlying value can cause a large difference in the value of the derivative.

They can be used to speculate for profit or to hedge in order to reduce risk in that underlying asset.

These bureaucratic regulatory efforts are actually too binding to be effective. (See the Earl J Weinreb NewsHole® comments.)

Trading in Currency

2011-12-06T02:15:00.000-08:00

Currency trading is not for the faint-hearted; it can be especially dangerous to your pocket book unless you have the capital and know-how.

Currency trading success depends on trends that can be suddenly reversed by events beyond your control. Quick changes can blip out your equity, when down payment margins are so small in commodity contracts.

Moreover, the value in a currency is not easily discerned, even by experts. A currency is valued in relation to another. Examples: The dollar, in relation to the British pound, the Euro, the Chinese yuan and the Japanese yen. Each can be temporarily overvalued or undervalued by volatile markets.

Any investor who would like to trade currency, should first become an expert in the intrigues of this highly complicated game. That means that one must first read all that he can about the subject’s mechanics.

That also requires knowledge of the futures markets and its intricacies. And once you feel you know the technicalities, do sessions of what I refer to as “dry-runs.” Make fantasy trades without real money just to see approximately how well or poorly you would have fared with actual investments. ( See the Earl J Weinreb NewsHole® comments.)

Deflation Fear When Inflation Lurks?

2011-12-05T02:26:00.000-08:00

The Federal Reserve is on a mission to counter deflation and recession more than rising prices which are more apparent to most Americans.

In the media facts are often rewarded with obscurity or superseded by public relations article placements that need not have too much factual content.

Therefore, some of the deflation and pump-priming information has to do with economist comment, or technical aspects of Treasury bond price history, or the Japanese bond markets of the past two decades, none of which are fundamental analysis of current U.S. inflationary/deflationary factors.

They fill up media space and content. But they confuse and never enlighten the public. Deep recessions don’t necessarily produce deflation. Most often, it can be stagflation or runaway inflation.(See the Earl J Weinreb NewsHole® comments.)

Options For Life Insurance Proceeds

2011-12-04T03:02:00.000-08:00

For years life insurance companies have placed life insurance proceeds into a money market type account at interest if the beneficiary did not ask for a lump sum right away. It was a viable and correct option.

Many do not want large sums right away. They haven’t fully decided their investment options.

What is more, these days of “easy money” the insurance companies pay a little more interest on such accounts, even more than do banks.

But politicians on the Left always need to demagogue and a financial institution always suits the purpose. Why should giant life insurance companies profit, they say, by holding insurance proceeds of the little guys? ( See the Earl J Weinreb NewsHole® comments.)

Back-Testing Financial Strategies

2011-12-03T02:36:00.000-08:00

Financial back-testing is when the strategies of the past are used to see what would happen, hypothetically, when projected into the future.

Wall Street financial models often use such data mining; Information for investing strategies of the past. They’re collected and tested on a “what if’ basis.

All this is based on many assumptions that the mathematical models are supposed to predict.

As I’ve noted before, I have made a unique mini-career of looking at well over 1,600 investment strategies used by investors over the years. I have investigated advantages and disadvantages of each.

And I can tell you there are some worthwhile concepts as well as gibberish in all. But no panacea. Most of the data mining is therefore useless, except for their marketing of investment management services. (See the Earl J Weinreb NewsHole® comments.)

Regulators Stop Financial Bubbles?

2011-12-02T02:14:00.000-08:00

Regulators talking about financial bubbles get it all wrong, usually scapegoating Wall Street.

Then you get political solutions. More regulation, to see to it that the regulators catch the next bubble before it starts.

It cannot be done, except in political circle imagination. Bubbles are hard to recognize in advance. That’s only easy in retrospect.

Example: The residential housing bubble. Then, Congress went out of its way to actually exacerbate a future problem.

There was legislation introduced years ago to minimize Fannie Mae and Freddie Mac leverage. That would have reduced the fuel that fed the fire under the housing financial bubble. And it was turned down by politicians who did not want to squelch the boom that gave lower classes an opportunity to own homes they could not afford. ( See the Earl J Weinreb NewsHole® comments.)

Hedge Fund Fancy Fees

2011-12-01T02:46:00.000-08:00

Conventional hedge fund fees still average 2% of assets under management and 20% to 25% of profits generated.

True, it’s getting tougher for hedge funds to find as many clients as before the recession but demand is still good.

Considering the 2008/2009 financial meltdown, hedge fund fees have been more stable than expected. Some hedge funds continue to make big money. But they are a decided minority, compared to the past. Many do well, but not in line with risks they take. ( See the Earl J Weinreb NewsHole® comments.)

State Governments Budget Deficits

2011-11-30T02:27:00.000-08:00

State governments have severe budget problems; unlike the federal government, states cannot print money, so they have to make ends meet in some way.

Yet, their politicians have the same bad habits; continuing to spend too much and not correcting the basic problems.

One major example: Expensive public employee pensions, especially when not properly funded, if funded at all.

States’ tax revenues are lower which make financial burdens even more onerous. Taxes cannot be easily raised. It is becoming more difficult to keep looking for this source of easy revenue.

States will simply have to cut back on much of what they’re now offering, and begin tightening belts. They will simply have to restructure public union salaries, fringe and retirement contracts.

This includes resisting federal mandates that force state spending by edict from Washington. ( See the Earl J Weinreb NewsHole® comments.)

Investment Banker Earnings From Poor Advice

2011-11-29T02:39:00.000-08:00

What business pays well for those who give poor initial advice and are asked to tidy up their mess? Investment banking advisory.

Investment bankers can make money either way their advice works out, with acquisitions and divestments. After all, if the advice for the marriage was so good, why the need for the corporate divorce?

And in any economy. Just one example: On the AIG breakup, nearly $1 Billion for IPOs or underwritings, and consulting for breaking up AIG eventually is a lot of money in any economy. Managing so-called toxic assets and handling other financial meltdown arrangements are huge sources of capital under any financial conditions. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank and Super Regulatory Agencies

2011-11-28T02:23:00.000-08:00

Strict federal government regulations have never worked as advertised. There are too many agencies working with conflicting objectives.

Under the Dodd-Frank regulatory fiasco, with the Treasury and the Federal Reserve in charge of all the banks and other financial companies and institutions, we have an addition to the meddling fiasco.

SEC duties are also expanding to where their whole administration has to be revamped. They did a poor job well before their duties were broadened.

Transparency with less heavy-handed regulation always works better. However, that is a matter of political talk more than practice. Transparency is what politicians mention only in their promises. ( See the Earl J Weinreb NewsHole® comments.)

Japan’s Enormous Deficit

2011-11-27T02:18:00.000-08:00

Japan has been pump-priming its economy for decades. Yet, it’s failing to stimulate its economic stagflation.

They have been able to do this because they are not as dependent as the U.S. on foreign countries to buy and keep owning their debt. The U.S. bond market depends to a much greater extent on other countries holding U.S. Treasury bonds.

The U. S. dollar has historically been more of a reserve instrument than the Japanese yen. Still, prices in Japan are high, and consumer and business conditions are dismal.

Japan will not be getting away with deficit spending too much longer. Reality will catch up with them as it will with the U.S. in time. ( See the Earl J Weinreb NewsHole® comments.)

The Chinese and U.S. Debt

2011-11-26T02:27:00.000-08:00

Do the Chinese believe in capitalism more than does the Obama administration?

The Chinese Communist government must constantly remind the U.S. of its too big budget deficit. The Chinese are troubled because they own well over $800 billion (and growing) in U.S.Treasury debt. They see what’s becoming a poor investment. They realize that this cheapens the value of the bonds they own.

The Chinese manage their budgets along more capitalistic lines. compared to the Obama administration. ( See the Earl J Weinreb NewsHole® comments.)

Corporate Bonds are Better

2011-11-25T02:07:00.000-08:00

Media advice are foolish to suggest that ordinary investors buy individual corporate bonds. It makes far more sense to use a low-cost mutual fund or exchange traded fund (ETF) instead.

For a number of reasons:

You would have to purchase at least thirty to fifty different bonds to get diversification in the event of possible future defaults.

Secondly, you could never buy bonds as cheaply as a fund does. And a low cost fund’s fees would be far cheaper in the long run than your efforts.

Buy your bond funds by their duration. The duration period you choose ought to be about the same or less as your intended holding horizon. (If you are not aware of the term, duration, learn about it before you take any advice on bonds.

The dividends paid by the fund or ETF should be automatically reinvested. Periodic interest reinvestments would be very impractical with direct bond purchases. ( See the Earl J Weinreb NewsHole® comments.)

Federal Deposit Insurance Corporation Takeovers of Banks

2011-11-24T01:34:00.000-08:00

The Federal Deposit Insurance Corporation, or FDIC, which insures bank deposits, has the authority to take over failing banks and has done so.

It also makes it possible for private investors to invest in weak banks and thus solve financial problems as they occur at insured institutions.

Why not permit private sources to resolve banking problems instead of relying on the intervention of the government with takeovers. The latter ploy has not worked well, despite the rationale that only such bailouts are the solution to get us out of financial meltdowns.

Government solutions come with a steep price. Permanent government meddling and horrendous debt.

Not relying on the FDIC more than we did was a terrible administrative mistake. ( See the Earl J Weinreb NewsHole® comments.)

Timing Securities Markets

2011-11-23T02:13:00.000-08:00

Research consistently shows data that market timing does not work. Timers may make their money because of their inside positions, which entail profit, but these are factors other than market timing.

It has been recently shown how members of Congress have legally been able to do this. But inside trading is illegal for the public.

Poor timing applies to assets other than securities. Just one example of the futility of market timing: Some of the largest investment bankers and commercial banks invested very heavily in commercial real estate at their highs. Property values then fell in value in 2008. The bankers then sold at lows to private equity firms and hedge funds at bargain prices. The latter profited.

The reason? It is not only that the banks need the cash. The smart traders there tend to make money because of their inside positions, not because of their assumed timing instincts. ( See the Earl J Weinreb NewsHole® comments.)

Test Politicians on Economics Part 2

2011-11-22T01:49:00.000-08:00

Further to my previous comments on politicians in office.

Politicians on the job often exaggerate as when they campaign for office.

But words can have consequences, particularly because of psychological effects on the public.

Politicians can profess free market economics but they cannot have policies that create socialism. It might appeal to groups that helped get them elected, but it will have created immense damage while in office.

Socialism has never worked where tried. Except in the classrooms of colleges. ( See the Earl J Weinreb NewsHole® comments.)

Test Politicians on Economics

2011-11-21T02:10:00.000-08:00

Politicians never have to take a test to see if they understand basic economics.

Many are economic illiterates. They may get words from some staffer who is literate on the subject. But when comments on business are extemporaneous, the gaffs are more evident.

It would help if more politicians came with business and entrepreneurial experience. They would not generally lean leftward. Being lawyers, as many are, is a particular problem, especially if that background involved fighting business and industry. ( See the Earl J Weinreb NewsHole® comments.)

Financial Media Gurus

2011-11-20T02:23:00.000-08:00

There are a number of reasons why I don’t place too much trust in opinions of most financial media gurus.

Very often they copy others; their ideas and facts may well be stale and overused. As well as biased, which can be attributed to their slants that may owe to contrived commercial implications of the advice.

Remember, pundits have gone to the same schools and colleges and gotten the same education, including the same business courses, with similar resultant MBAs. It can be an incestuous field.

Moreover, much of their suggestions come from sales efforts to sell particular products or services. This provides an illusion of punditry.

Examples include gold or commodity purchases as cure-alls for future inflation.

One-sided views of any investment strategy takes on an aura of truth if repeated often enough.

Also, media pundits tend to look over each other’s shoulders, so they do not stand out too much if they are wrong, or so they do not offend their editors.

Then there is the use of public relations release placements, because they are easier than original writing. In-depth articles often are practically written for many reporters and analysts. ( See the Earl J Weinreb NewsHole® comments.)

SEC and Dodd-Frank Proxy Provision

2011-11-19T02:46:00.000-08:00

Under the Dodd-Frank Financial Regulation Bill, the SEC gave corporate and mutual fund shareholders more to say in boardrooms, more access to proxies for nominations of board members.

Lots of theoretical platitudes, but little that shareholders were really interested in. Nothing bottom-line that shareholders were actually able to learn about or act upon, or even profit from in the real world.

Great for populist politicians who pass laws, and for plaintiff lawyers to wax rich on.

Fortunately, a federal court thought the provision unreasonable and since September the SEC has cancelled its mission. ( See the Earl J Weinreb NewsHole® comments.)

Insurance to Pay Estate Taxes

2011-11-18T01:54:00.000-08:00

Federal estate taxes are often paid by life insurance proceeds; folks have always bought life coverage lo pay the tab.

Life insurance companies have been among the proponents of the tax in Washington.

Other than for paying off estate taxes, some life salesmen are pushing big amounts of whole life coverage where the insured borrows against cash value that accrues tax free. Sounds good, provided you can borrow at a rate below what you earn at the insurance company.

Very iffy with regard to observing tax regulations: This is a matter for you and your CPA. ( See the Earl J Weinreb NewsHole® comments.)

Financial Media Creation of ‘Noise’

2011-11-17T01:53:00.000-08:00

I have criticized many media pundits who create the gurus who expound much of the doubtful investment strategies the public gets. And how such advice should be avoided.

I have often mentioned the pros and cons of investment strategy and why discipline is important in keeping to that strategy.

To discipline this goal, you have to learn how to eliminate media noise from your life. To do so, minimize the amount of investment comments you read or listen to, and take them all with a grain of salt.

Always keep your basics in mind when you hear guru chatter. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank Regulation of Derivatives

2011-11-16T02:53:00.000-08:00

There is a major question whether the Dodd-Frank financial regulation was needed to regulate the use of derivatives by mutual funds, exchange-traded funds and pension plans.

It may cut some risks. But there is no doubt the regulation will definitely add to investor costs and diminish performance.

Of course, this is a solution to something that had never before been a factor that resulted in any previous financial meltdown or problem.

Still, Congress in its wisdom saw fit to fill up 2300 pages of superfluous verbiage.

You can be absolutely certain, all the Dodd-Frank Financial Regulation Bill will ever do is create so much uncertainty, it will detract from American business, investment and consumer interests and jobs, while only benefiting the income of trial lawyers. ( See the Earl J Weinreb NewsHole® comments.)

Alleged Financial Experts

2011-11-15T02:32:00.000-08:00

I have a problem with the financial media’s persistence of the use of contests to see who can pick stock winners over relatively short periods of time.

There is no expertise required for this, just luck; for at least two major reasons:

First: Picking securities to measure performance over an arbitrary period, without having to designate how long you would hold your securities, does not indicate predictive power, as the contest is supposed to prove.

Secondly: The contest never gives you true ground rules, one of which is always risk. In a contest the assumption is that you throw caution to the winds and pick the riskiest for the maximum returns. This is not a real investment goal.

I have often mentioned my study of the cons as well as pros of now about 1,600 strategies used by investors. My work is unique because it never recommends any particular strategy, unlike other suggestions you get. The truth is, each has its good and bad points.

Strategies must be tailored to individual preferences and needs. What tips the odds for each investor is the discipline employed in the use of strategy. Every investor has built into the purpose for the purchase of a security, the reason to sell it. Discipline guides that sale.

That is what tips the odds favorably. ( See the Earl J Weinreb NewsHole® comments.)

The Man-Made Recession

2011-11-14T02:13:00.000-08:00

America has always had self-corrective economic cycles, but now we have more regulators than ever before, and they are doing their damage, as never before.

We could have avoided the severity of the current deep recession.

1) By avoiding the massive bailout by regulators offering the illusion of doing something. Probably, all that was needed was a federal agency guarantee of all bank assets, in return for a fee charged to the banks.

2) By avoiding “mark-to-market” accounting of mortgage assets, which had no market appraisal, and which wiped out assets of major banks almost overnight, aided by short selling that such “mark-to-market” accounting enticed.

3) By having a government agency buy up, at bankruptcy, empty tract homes, in over-speculative states such as Nevada, Florida and California.

The government has repeated the same errors made by Herbert Hoover and Franklin Roosevelt during the Great Depression. In the process we have accomplished little for the economy but have constructed a form of state capitalism, a nasty type of socialism.

The Dodd-Frank Act, in further attempting to get us out of this mess, is a continuing disaster. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank Regulation Mischief

2011-11-13T01:51:00.000-08:00

The Dodd-Frank Financial Regulation Bill has an adverse impact on the economy.

Just one example: The SEC now has authority to impose a “fiduciary duty” standard on brokers, the same it applies to investment advisers. Brokers now will have to give advice in the client’s “best interest.” Whatever that vague phrase means. In the past brokers only had to provide ”suitable” investments.

It remains to be seen how far Dodd-Frank will be enforced by the SEC.

The Dodd-Frank Financial Regulation Bill will create so much uncertainty, it will detract from American business, investment and consumer interests, while only benefiting trial lawyers. ( See the Earl J Weinreb NewsHole® comments.)

Extended Unemployment Benefit Negatives

2011-11-12T02:15:00.000-08:00

Effects of extended unemployment benefits have been studied; I have referred to the statistics before.

Left-leaning politicians, seeking votes from the unemployed, use such benefits as a ploy. Those who want jobs are thereby being hoodwinked, and go along with the extended benefit band-aid.

Statistics show the effects of the psychology involved. The program invites incentives not to work, Because extending benefits and re-extending them creates what is called a “reservation” wage. People who ordinarily get relatively lower-scale income tend not to look for work until the unemployment wage runs out.

Moreover, the funds used by government generally come from additional taxes on the employed and industry, or from additional budget deficits.( See the Earl J Weinreb NewsHole® comments.)

Is Deflation a Real Threat?

2011-11-11T01:41:00.000-08:00

Great recessions and depressions always bring on the threat of deflation. Once they cause collapse they are hard to revive. Japan of the past two decades is a good example.

However, what is the bigger threat? That of deflation, or constant stimulus injections of failed Keynesian principles, which the Federal Reserve is resorting to now?

That is setting the stage for another future financial bust of epic proportions.

Especially in the light of the ultra-trillion dollar budget deficits brought on by ObamaCare, to go with energy and other environmental planning.

Many economists worry more over the fight about immediate deflation. History tells us that deflation is a shorter-term problem. Only a minority of economists look at the deflationary possibility. ( See the Earl J Weinreb NewsHole® comments.)

Dubious Financial Gurus

2011-11-10T01:55:00.000-08:00

The media have no problem in finding and profiling financial gurus. They never have to work hard at it because their reports are often public relations placements.

As for gurus, there are so many would-be experts, you are bound to find “experts.” You merely dispense with the many more losers.

One classic example: There are at least 100,000 individuals in the U.S. giving financial advice. If you had any 100,000 folks flipping coins by groups of two, heads or tails, someone in each group would win the toss, going on to the next round. With only a 50/50 chance of winning each round, each winner would go onto the next contest.

After 18 or 19 head or tail flips you will find a genius who had won the toss every time. He or she will then probably write a book about the expertise. With a 50/50 chance to fail to guess the toss the next flip.

The same with the genius 100,000 or so giving securities advice. ( See the Earl J Weinreb NewsHole® comments.)

Financial Media Opinions

2011-11-09T02:03:00.000-08:00

The financial media always offers its opinions on securities. How do you know they are probably wrong?

Whenever you are told to buy a specific investment without you having to consider your personal risk conditions, your age, family situation, and finances, as they relate to that advice.

I don’t care how smart or how much of a guru he or she purports, or is considered by the masses to be. That advice is tainted. ( See the Earl J Weinreb NewsHole® comments.)

Repos and Bank Securities Analysts

2011-11-08T02:07:00.000-08:00

Repos are supposed to be very short term loans, even over-night. To get troublesome assets off the books they were treated as sales, and then taken right back, as loans, after the accounts were noted as sales.

We hear, for example, how they may have contributed to the financial problems at Lehman Brothers and Citi Bank. We find out everything from media reportage after the problem occurred.

Much of the bookkeeping details that would have tipped off repo use would have been helpful if picked up in time by bank securities analysts.

Why didn’t bank analysts at least have asked banks how repos were being reported?

Federal regulators certainly failed to do so. ( See the Earl J Weinreb NewsHole® comments.)

Trading in Currency

2011-11-07T01:46:00.000-08:00

Currency trading is speculative and requires special information and attention. It’s not for the average investor. Yet many non-pro, small investors are fascinated and getting involved because of the profit potential. A potential because of the highly leveraged aspect of forms of commodity-type and option trading.

However, you often get similar benefits of currency trading and currency diversification by types of overseas equity investment, but without the extreme risks. ( See the Earl J Weinreb NewsHole® comments.)

CBOE Market Volatility Index or VIX

2011-11-06T01:05:00.000-07:00

The CBOE Market Volatility Index or VIX represents a strategy indicator for some traders.

When it shows a high, it means volatility that permits heavy trading. Lower VIX can also mean activity doldrums with ensuing lesser trading.

Lower VIX readings provide further possibilities to some observers in the financial community of a recession. This happened in 2008. This observation brings up the question of poor market psychology again. ( See the Earl J Weinreb NewsHole® comments.)