The Misery Index

The Misery Index used in the 1970s combined the unemployment and inflation rates, reaching a high of 22 in 1980.

It confronted Ronald Reagan when he got into office, replacing Jimmie Carter, during what was the worst recession since the Great Depression of the 1930s.

The media does a poor job of relating this bit of news. A few years from now when inflation takes hold because of our huge budget deficits, the Misery Index will no doubt be back in vogue.

The media then will probably fail to provide the basic reasons for its conception and rebirth. But perhaps use the real unemployment rate, not the understated one of about 9% used today. ( See the Earl J Weinreb NewsHole® comments.)

Insider Securities Purchasers

Insider securities purchasers have been one of the close to 1,600 investment strategies, along with their advantages and disadvantages, that I have studied over the past several decades.

This is where top executives or the companies buy their own securities in the open market. It’s supposed to be a bullish sign for outsiders to do the same. After all, the insiders must know what they’re doing.

In real life, corporate execs buying more stock may mean little, if they’re exercising stock options or getting too close to the forest to see the trees.

As for corporate buy-backs of company stock, this is often done to boost stock values and the cost per share has often proved relatively high. ( See the Earl J Weinreb NewsHole® comments.)

Investing For Income

Money market funds and bank deposits yield so little when Federal Reserve policy sees that funds in the banking system are kept artificially low.

What does it do for those who need investment income today and are trying to invest for tomorrow in an economy where corporate earnings are being stifled by high corporate taxes and federal regulations?

The financial media does a poor job answering this because they fail to educate the public on the proper use of corporate bonds.

And in doing so, they never fully discuss the use of duration, which helps overcome the risks of upcoming inflation and future higher interest rates. ( See the Earl J Weinreb NewsHole® comments.)

House Buying Ratios

Buy a house when your family needs tell you one is required and the economics of owning are better than those of renting.

Those economics are sometimes expressed as a house’s price, times its annual rent.

House times rent ratios right now are 5.6 in Detroit, to 10.4 in Chicago, to 15.1 in Los Angeles and 17.6 in New York

The figures come from statistics by Zillow,com of family homes, co-ops, condos and single family homes. ( See the Earl J Weinreb NewsHole® comments.)

Are Stocks Better Than Bonds?

The constant dilemma among average investors: Are common stocks a better investment than the ownership of bonds?

There’s no definitive answer and anyone who gives you one without further detailed explanations is inexperienced and wrong.

Just generally speaking, there are less erratic, less sharper downturns with bonds, so you have smoother returns. And bonds do produce more income than do common stocks.

Moreover, the use of duration principles and reinvested dividends in a low-cost bond mutual fund or ETF will help take care of erratic interest rate effects on bond holdings.

While stocks produce potential growth of principal over the years, this is not a simple goal for older investors, or any investors who are faced with a hyper-inflated economy. ( See the Earl J Weinreb NewsHole® comments.)

Hedge Funds in the Recession

Apart from the fact that many funds have folded because of disastrous financial returns, the glamour of the industry has only somewhat faded. Hedge funds are still attracting big investors.

Invested funds are now easier to remove. Investors have more leeway with management and can be more particular with regard to investment withdrawal terms.

However, hedge fund charges are not much lower. Management fees generally are still set at 1½% of managed assets and 20% of the profits generated. Sought-after funds charge even more, as before.

Hedge funds operate in different ways with varying objectives. They have a tougher row to hoe in this economy and principals may face higher taxes.

But they remain a factor because only they in the investment industry, have the speculative funds and freedom to operate these days, when political eyes are more focused on commercial and investment banks. ( See the Earl J Weinreb NewsHole® comments.)

Wall Street’s Relations With It’s Regulatory Agencies

Wall Street has been often called too close to its regulatory agencies. The question comes up when financial calamities occur.

That’s because officials of major brokers and investment bankers are often recruited to become regulators.

But who has the needed experience?

Unfortunately, we often have bureaucrats and politicians in Washington who enact or supervise what affects business operations. Yet, they have never successfully operated a business or financial entity on their own.

You have an example the way banks were pushed to accept subprime loans in order to have folks get homes they never could afford. ( See the Earl J Weinreb NewsHole® comments.)

Retirement Caution

Here are some retirement ideas that need repetition because of the constant poor advice investors get from the financial media.

Much of that advice comes through public relations placements in the form of articles and information by financial advisers in the media. Or by advertisements.

Example: Articles you see or hear on retirement planning are primarily marketing tools, placed to influence would-be investors.

They attempt to satisfy normal fears investors may have of having insufficient funds for the education of children, of not having a comfortable retirement, or an attempt to overcome fear of outliving savings and investments.

But such fears are actually leading investors into a trap.

They are getting expensive advice for the most part. Most investors may never need extensive estate and tax planning, but only if the enormous size of their assets warrants it.

Otherwise, why pay 1½% or more for a financial adviser who will cost them as much as 20% or more of their annual investment income? That adds up to a huge chunk of total assets over the years.

Furthermore, investors need only the lowest cost indexed mutual funds or exchange traded funds (ETFs) in which to invest.

Retirement basics can be quite simple for the average investor who can avoid the adviser hoopla. ( See the Earl J Weinreb NewsHole® comments.)

Venture Capital a Booming Business?

It was reported recently that about one third of angel-backed companies do well. That means they’re on the road to achieving their business plans.

And, I assume highly-leveraged, profitable IPOs, needed to bail out the investment.

If the success-rate figure were true, that would mean venture capital is an extraordinary booming business. But I have my doubts

If a third of any venture capital throw-of-the-dice worked, there would be billionaires in almost every once middle-class home. ( See the Earl J Weinreb NewsHole® comments.)

Security Adviser Questions

Readers of my commentaries know that I always suggest most investors avoid adviser fees because they take away up to 20% or more of securities earnings when they charge an annual fee equal to 1 1/2% of your total assets.

The media bothers to get into the question you may ask your adviser whether he or she is compensated from the sale of any securities on which they advise. You should never get to that stage.

Of course there is a conflict of interest if the adviser’s compensation comes from the sale of any securities on which he or she makes a judgment. Avoid that entirely. But why require an adviser in the first place?

The only adviser you need is a lawyer when necessary or tax account or estate expert when needed.

It is simple enough to learn the rudiments of basic investment. You can learn simple investing A B Cs, if you try. It’s your money and future. ( See the Earl J Weinreb NewsHole® comments.)

Chasing Millionaires and Billionaires

Who will politicians tax if millionaires and billionaires disappear? Or are taxed out of existence?

New York State and California, which have always had the largest number of millionaires and billionaires, report that their number have been falling. That’s bad for politicians who love to tax them to solve state fiscal and budget problems.

Unfortunately for these high-tax states, millionaires, billionaires, and those not as wealthy, are taking precautions. When taxes get onerous, they leave for other states.

Even 100% taxation on the wealthy will not solve annual deficits.

Liberal politicians who hear the lesson about the goose who laid the golden egg, think the goose is always in open season just for them. (See the Earl J Weinreb NewsHole® comments.)

Investing in China

Investing in China has its problems, There’s no rule of law or SEC. No believable statistics from their government, only private sources which can’t be too accurate.

Then you have the U. S. Congressional meddling with tariff threats that will do no good. Political currency manipulation does little when Chinese labor costs are so much less than ours. What we should look at is our weak currency.

The dollar is used as a currency convertible reserve as the Chinese buy our Treasury bonds. So the U.S. can get away with its big budget deficits.

But investing in China has its dangers. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Franks' Hit on Small Banks

The ironically named Dodd-Frank Act helps see to it that small banks in the U. S. will eventually wither and disappear as a financial factor. They will no longer be able to compete with the big banks. to the detriment of the banking consumer.

Leave it to left-leaning politicians to issue a bill that purportedly is designed to resolve the ills of a banking system, by naming it for the two in Congress who helped foment those fundamental ills in the first place. ( See the Earl J Weinreb NewsHole® comments.)

Effects of Government Debt

About 40% of the Federal income tax now goes to pay just the interest on government debt. And that is dirt cheap at the moment.

During the Jimmie Carter administration, interest rates were about five times greater than now. With the outstanding debt expected to grow by at least $9 trillion, probably much more, in ten years, future total interest costs can grow to unknown extremes.

It will be impossible to easily pay the interest, least of all the principal, without dire consequences.

This will be absolutely impossible without tremendously inflating the currency. That is, adding paper to the money supply to cheapen it.

That will make the real debt less, and what the citizens own worthless. ( See the Earl J Weinreb NewsHole® comments.)

Selling Securities In a Bear Market

Securities holdings can grow a substantial amount over the long term.. Market downturns will be corrected given sufficient time.

There is a problem should a sale be necessary during a downturn. Unfortunately, there is little an investor can do about it, except keep one’s fingers’ crossed about forced selling in a down-cycle.

Should the market drop just when an investor needs securities’ proceeds and has to sell, no planning in the world will help.

If you need funds, the long term advantage of holding stocks will not help in a down market. In an emergency, selling into a bad market will create losses, despite long-term growth potential.

Anticipate emergencies with some liquidity, such as short-term bond holdings. ( See the Earl J Weinreb NewsHole® comments.)

Timing the Securities Markets

When do you know when to sell and then get back into the markets? I had thought you could set a percentage fall in a stock or index, for example, and then sell when that is reached. You get in when another increase of percentage takes place. But small percentages never work. The trend lines in either direction can continue.

Of course, timing the market by instinct on both sell/buy complete transactions have been shown to work about 1% of the time. That is 10% in each type of transaction.

The solution is to be disciplined. Bonds use duration principles. ( See the Earl J Weinreb NewsHole® comments.)

Buying on Market Dips

One of the tough decisions in formulating a strategy for buying common stocks, or indexes is to arrange transactions when they fall, or dip by a predetermined percentage.

The question is how much that percentage ought to be. What amount makes sense? Will it be 2% or 3% or 5%, or higher? Figuring the ideal amount isn’t easy according to past data of market trends.

But percentage is not the problem. Most price trends will show lots of small dips, so you really cannot tell if the market for the security or index has truly fallen, to warrant a strategic buy.

Studies of such activity over recent years using the S&P 500 index, and using 2% dips for adding purchases, find this isn’t a decisively winning strategy.

Rebalancing of stock/bond allocation, done by some investors on dips in stocks and bonds, require another commentary in the future. ( See the Earl J Weinreb NewsHole® comments.)

Poor Odds in Lotteries

You may wonder why lotteries flourish when odds are generally terrible against the player. Lotteries often pay off as little as 60 cents on the dollar. Whether legal or not. So why bother playing?

A little more than $90 Billion is spent each year on legalized gambling in the U.S. The illegal amount probably surpasses this enormous figure.

Where bookies pay off in tax-free cash and the better is illegally laundering money, poor odds are reduced in favor of the bettor. Then the gambler’s net is actually much higher.

But then such a gambler is also betting on a possible stiff fine or jail sentence if caught by tax authorities. ( See the Earl J Weinreb NewsHole® comments.)

Keeping Up Your Credit Score

How do you keep up your credit score?

About one third of a personal credit score is composed of each of the following:

1) The amounts you owe to other loan companies.

2) Your past payment history.

3) Various miscellaneous but important credit related items.

This third part is composed of about equal portions each of the type of debt you may have, along with your credit history and the new accounts or queries about debt you now have.

Check your credit account often. Check the accuracy of the information. If there are errors, get them corrected, fast. ( See the Earl J Weinreb NewsHole® comments.)

Less Public Companies

About 9,100 public companies filed proxy statements with the Securities and Exchange Commission ten years ago. However, in 2009, only 6,450 did. The number grows smaller.

As someone who has been a principal in several public companies, and an observer of the corporate scene for many years, I feel there is a major reason. Foreign companies may be fleeing as regulations are getting more onerous. And smaller companies choose to remain private.

Sarbanes-Oxley compliance is a major culprit. The federal requirements are too expensive and place restrictions on management which only plaintive lawyers find just. Being publicly owned is simply too restrictive; operating a business in a governmental tax and spend environment is tough enough. ( See the Earl J Weinreb NewsHole® comments.)

Learn Compound Interest Principles

One of the most important investment tools are compound interest principles. Therefore, keep a simple interest and compound interest table handy. You will be surprised how many practical math solutions you will get when you figure which investments are best for you.

Remember also the Rule of 72. It’s a handy, quick, approximate tool that requires no tables. For example; For 6% interest, 6 multiplied by 12 ( to get 72) means it takes twelve years to double your money. Or, for 3% interest, 3 multiplied by 24 means it takes twenty four years ( to get 72) to double your money. At only 1% interest it would take about 72 years to double your money. (See the Earl J Weinreb NewsHole® comments for more about your money.)

Indexes or Managed Funds?

Managed mutual funds are usually outperformed by index funds, year after year. And in instances where a fund manager may do better than an unmanaged indexed fund or exchange traded fund (ETF), he or she often will not repeat that success in following years.

Furthermore, managed funds have higher expense costs. Indexed, unmanaged mutual funds therefore have a decided advantage.

A research study done by Morningstar, Inc. pointed up another positive factor. When risk taken by an average fund manager to attempt to outperform an index is considered, that manager’s efforts were found to have accomplished even less for the investor.

So paying for mutual fund management does not pay off. ( See the Earl J Weinreb NewsHole® comments.)

Currency Trading Risk

Currency trading risks can be extraordinarily high. For several reasons.

One, is the fact that the conditions that affect the market are hard to anticipate on a short-term, day-to-day basis. Look at financial news daily reports to see how sentiments can be erratic.

Then you have the danger of extreme leverage. Fine for making lots of quick profit. But situation that’s capable of severe losses.

Take trading on the dollar; for every small $10,000 account you may keep, which you can leverage 50 to one, a move in the wrong direction can wipe out your entire investment. ( See the Earl J Weinreb NewsHole® comments.)

Charting the Securities Market

The two broad classifications of analysts on Wall Street, are called fundamentalists and chartists.

Fundamentalists investigate the operations of companies; sales, earnings and future potential.

Chartists look at the technical market; pricing highs, lows, trading patterns and the volume that accompanies patterns. There are many types and interpretations of chartists.

When you hear someone saying a market for a stock is oversold or undersold or is ready to “break out,” chances are they are charting the market.

Fundamentalists are more long term in their outlook. And to complicate matters, some analysts use a combination of both approaches.

Also, there are quants who look to the math of securities more than they do management evaluation.

I have spent decades studying well over 1,500 individual investment strategies. I find it important that you overlook individual analyst recommendations if you have little understanding of what they are about.

Always remember: The analyst advice you get may vary greatly, depending on their type of analysis. ( See the Earl J Weinreb NewsHole® comments.)

Financial Reform Under Dodd-Frank

Under the Obama administration’s financial reform Act, Dodd Frank, the government can have what amounts to permanent bailout authority.

This, among a slew of other arbitrary powers. Bureaucrats still haven’t finished the final forms of regulation.

The government’s Treasury Dept. and the Federal Reserve, no longer as independent as it once was, can take over any financial institution that it deems at risk. This will be a political judgment call that reflects the classic state capitalistic, crony form of government, alien to what we have always referred to as the capitalism that made the U. S. different from Europe and similar societies.

With such politically-sensitive seizures, the government could actually affect existing contracts any financial company has, including those with employees; and certainly its shareholders who would have nothing to say about any takeovers.

Yes, much is probably unconstitutional taking of property, without due process or fair compensation. But then again, the administration hasn’t been overly stymied by such hindrances before. ( See the Earl J Weinreb NewsHole® comments.)

Art Collecting and the Bigger Fool Theory

Many art collectors must eventually resort to what I refer to as the Bigger Fool Theory.

That is, the sobering prospect of some bigger fool coming along to bail you out of a purchase you may have made about which you really know little.

Most collectors buy by name and price tag; with their fingers crossed because they’re in a minefield they truly cannot comprehend.

A point: The silk screen process, that’s become so popular thanks to Andy Warhol popularity. had never been considered an original artistic process in the past. An artist has no strict control over such finished products, yet the collecting public no longer seems to care.

Today, collectors buy this type of work because of the name associated with it and forget about the true meaning of the originality process. ( See the Earl J Weinreb NewsHole® comments.)

Securities and Exchange Commission Zeal

Investors do expect federal and state regulatory agencies will help thwart any Ponzi-like chicanery. Unfortunately, many of these deceptions are never caught in time by the authorities.

What the Securities and Exchange Commission, for example, seems to be excellent at, is the ability to impose nit-picking regulations that require the costly issuance of theatrical data which most investors cannot possibly comprehend or use in a practical sense. That fuzzy data generally comes in the mail and winds up, unread, in the garbage.

Let’s now turn our attention to what investors really want, apart from justice when any criminality exists; they want a level playing field when they put their funds at risk.

There is a practical way for all investors to get that sought-for level playing field. And without the worry that someone has vital securities information they are unable to get.

It’s simple enough, without the impossible attempt to determine who is whispering to whom at whose cocktail parties.

All investors can get a practical form of level playing field when they avoid the adverse impact of those I often refer to as the financial industry’s “inside players.”

These players usually operate legally and include stock brokers who push over-zealous traders trying to outfox each other; advisers with “tiny” management fees that translate into as much as 20% or more of their earnings each year; hedge funds that think nothing of taking an additional 20% of any annual earnings profits on top of fees; and analysts who suggest securities of corporations they diligently evaluate, though they could not run their own profitable pushcart.

All these costs that uneven the playing field are charged without any commensurate service.

When research shows that low-cost index mutual funds and ETFs are invariably the alternative bargains to the wares of the inside-players. ( See the Earl J Weinreb NewsHole® comments.)

Insider Trading on Wall Street?

Insider-trading prosecution trials have been confusing the investing public more than they should. Convictions have unfortunately clouded rather than clarified the picture. The media have been of relatively little help in remedying this public confusion.

The problem is actually twofold: One has to do with legality. The other has to do with what investors seek as a “level playing field.” They have nothing to do with each other. The former is about a forbidden activity. The other may be about a perfectly legal pursuit, but the public opposes it for a good pocketbook reason.

In the first instance, what is illegal is the sale or divulging of information that an employee or principal is contractually not permitted to divulge. It may be part of their employment contract or obligation to their company.

As an investor, you may not be hurt by such illegality, despite what the government prosecutors are able to get judges and juries to believe. However, judges and juries, unfortunately, are not always conversant with the way the investment industry truly works. Innocents as well as the guilty may therefore get caught up in such prosecurial zeal in the future.( See the Earl J Weinreb NewsHole® comments.)

Importance of Credit Default Swaps

Credit default swaps, or CDS. have taken on far more importance as they ought to. First, as a villain in the 2008 financial debacle. To this very day, protesters think they were the primary causes of the financial industry’s problem. Subsequent inquiries showed this not to be true.

And today, credit default swaps are not what they are professed to be, as a market indicator. It’s used as such by many professionals on Wall Street.

Studies show that relatively small volume make CDS quotes erratic. And too misleading when measuring risk, particularly when looking at financial institution risk. ( See the Earl J Weinreb NewsHole® comments.)

Beware of Too Small ETFs

I usually recommend the use of indexed mutual funds and exchange traded funds or ETFs because they’re unmanaged, and generally more efficient. Moreover, they are usually lower cost.

Having said that, I refer to the use of some funds which may not be practical for most investors and, in some cases, ought to be avoided. Take, for instance, the too-small ETFs which are impractical and unwieldy and risky because of their size.

I would suggest, instead, the larger, plain-vanilla types that have been around for awhile. ( See the Earl J Weinreb NewsHole® comments.)

The Coming Stock Market

It’s often repeated by the gurus, stocks outperform other investments over the years. Come hell or high water.

These days, there is a widening belief that the current financial crisis will be with us for years ahead. A number of financial experts see equity securities returns in the future well below the long-term average of the 9% to 10% of the past.

This is understandable. Bull market psychology has lead to bearish sentiment that now prevails.

Using standards of price/earnings, you can say securities markets are undervalued. Yes, opportunities are always available in bear markets because of that. The public is generally wrong, pulling out of the markets at their lows and entering at relative highs.

The question is, the U.S., and probably the rest of the developed world, is in a period of low growth. Ordinarily it could last for a couple of years. This time, the U.S. budget deficit, particularly, can have a devastating effect on stock performance.

Sharp inflation in coming years, brought on by terrible fiscal and monetary policy, is not a harbinger of a booming stock market. ( See the Earl J Weinreb NewsHole® comments.)