Financial Trading Taxes as a Budgetary Solution?

Periodically, liberal politicians and powerful unions try to tax financial transactions whenever they can, and discourage what they call “excess speculation.” The estimated tax revenue could conceivably bring the government about $200 billion or more, over five years.

                       

Similar moves are often dreamed up in the U.K. and Europe from time to time, by their left-thinking politicians.

                       

The consequences of such taxes on economies are the problem. Securities trading is integral to economics. Such taxes would therefore be indirectly felt by everyone.

                       

All this hides the fact that speculation in a capitalistic society does not

cause problems. Market action merely reflects pricing, something politicians of never comprehend. Capitalism’s presence may appear to help boost rising prices, but works the other way just as easily, when prices fall. Taxes simply help diminish proper market facility. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Timing The Buy Low/ Sell High Strategy

The automatic buy low/sell high strategy is just one of the multitude I have studied, and is especially popular among financial reporters and columnists. Like other strategies, it has pros and cons.

           

Moreover, the procedure is not as simple to use as it first appears, particularly when applied by average investors, who usually have difficulty in its implementation.

           

Studies do show that buy low/sell high strategy may return more than haphazard, in-and-out market trading, but only if it can be disciplined. That effort can be a questionable undertaking.

The natural tendency for anyone with a trading account is to stay attuned to the market and constantly, actively, overreact to its influences. Few investors, including professionals, can master that discipline, in an attempt to determine highs and lows, amidst constant chatter.

           

The main disadvantage: Many of this strategy’s adherents are not disciplined. They wind up attempting to time what they feel are appropriate buying and selling points. They thereby become common victims.

           

The strategy can work to an extent, if used as part of a strict asset allocation program. If, for example, under a 60/40 equity/bond program you periodically adjusted by selling the portion that rose and then buying what fell, you would have strategic implementation. Doing so by precise formula would be your discipline.

           

However, this strategy makes it difficult to observe duration principles on bond holdings. There are times when the proportion of long-term, intermediate and short-term bonds have to be arranged to meet investor cash needs, and duration becomes a factor.

           

This rearrangement of assets can also cause a good deal of taxable trades in accounts that are not tax-deferred, such as retirement. Selling for asset adjustment can make taxable events, and have to be kept to a minimum.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Harmful Financial Media Chatter

One of the problems with constant radio and TV chatter are stock market reports, including salesmen with financial ads that make matters worse.

                       

One of my investment rules is to avoid what I call media noise. Once

you have an investment strategy in place, and you are set in that

strategy, why let incessant media chatter and nonsense dissuade you from your original goals?

                       

It becomes almost impossible to be disciplined when you have both

ad salesmen and an avalanche of media “experts” of all stripes and objectives throwing investing ideas at you all the time. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

History Shows Libreral-Oriented Finances are Generally Wrong

                    

Experience and common sense has always proven that liberal or left- oriented financial thinkers have almost always been wrong. Their actions usually have unintended consequences that are damaging in the long term, even to their own interests, and their political constituents.

                       

Their ideas are ingrained and no further education will dissuade that thinking. Sometimes they may be merely a political device for getting votes when running for office, or organizing workers on behalf of unions.

                       

For many it has become a secular religion. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Difference Between Brokers, Market-Makers and Advisers

There’s general ignorance among many members of Congress and most of the media on this subject.

                       

When a financial company creates a form of security and places it up for sale, it is technically a market-maker, not an adviser and, therefore, has no fiduciary responsibility. Neither is it a broker, unless it sells the security.

                       

Up to recent SEC admonitions, brokers have had no fiduciary responsibility. They do have to sell what is deemed ”suitable” for the customer. Therefore, a broker cannot sell risky securities, for example, to widows and orphans without the latter's express knowledge. They can sell suitable risks to highly sophisticated investors.

                       

Goldman Sachs, under the Congressional spotlight, were market- makers. They were also dealing with seasoned institutions who knew risks and frequently sold short, in the hope markets would fall; often with both positions at the same time, as a hedge.

                       

Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.

                       

Something for politicians to learn. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Genuine Investment Banker Interests

Why do many investment bankers who have been in the financial community for years, have entered ranks of chefs, gardeners, nutritionists, and other endeavors other than financial, in later years?

                       

They often show their true interests when terminated or when they have accumulated sufficient funds. Perhaps they were not interested in finance after all. They wound up doing work outside finance.

                       

You would think they knew enough about finance to have it in their bones to write, talk or teach about investments. To remain with finance in some way.

 But seemingly not. Finance to many is a job that pays more than it ought to, to many who are ill-prepared for the job, other than the right school and connections.

                       

And it shows frequently in Wall Street’s efforts. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

The SEC’s Real Public Function

The SEC’s regulatory function is protecting those who are not fully aware of conventional investment information or knowledge.

                       

Investors in hedge funds ordinarily are not the usual mutual fund investors. It’s strange, therefore, why SEC watchdogs have taken time to look into such questions as “side-pocket” arrangements” that hedge funds made with their more sophisticated investors. Using them, funds may, for instance, limit the ability for hedge investors to prematurely cash in their stakes. Or for that matter, regulate them as tightly as they are under the Dodd-Frank Act.

                       

Hedge funds are not mutual funds. That is why some investors choose to use them. Hedge fund managers do not want to tip their investing hand as SEC regulations require, unless the hedge funds are “family-owned; as I have commented on before. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Budget Cuts That Are Really Increases

What if you don’t need a new car but you pass a new car showroom and look at some new models?

                       

You look at one for $60,000 that suddenly catches your fancy, and you decide, why not, I’ll buy it.

                       

But you get a twinge of conscience when you look at the payments, and you buy another car in the showroom for only $20,000.

                       

Do you go home to explain your purchase to your spouse and boast;

don’t worry, you just cut the household budget by $40,000. All by

spending $20,000 instead of $60,000, either of which you cannot afford?

                       

Well, that’s how liberal politicians boast about cutting their budgets.Their attempt is to cut the increased spending they can’t afford

                       

Note: Federal budgets are automatically increased by current law every year.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Government Bailouts Are Dangerous Economic Failures

Bailouts have invariably been failures; why do some liberals still consider them as ongoing solutions? The 2008 financial disaster was a bailout attempt through a whole assortment of action:

                       

Some Examples follow: The takeover of banks. The takeover of Fannie Mae and Freddie Mac. The takeover of AIG.The Troubled Asset Relief Program (TARP) to buy bad mortgages from banks. The Public-Private Investment Program to buy the same troubled assets. The takeover of GM and Chrysler.The funding of solar energy enterprises doomed to lose out from the very start of rat-hole-type funding.

                       

We had perfectly good operating car companies in the US to pick up business and relocate jobs. Still, the administration had to bail out General Motors and Chrysler. That helped their powerful union but did little else for the economy. Ford and others in the industry operating in the U.S. were able to carry on without bailout help.

                       

The government pumped out money. Federal Reserve funds were priced down to practically nothing in the banking system.

                       

All this outlay cost trillions upon trillions, all with little success to show for it, compared to what would have happened if the politicians and their experts sat on their hands. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Wall Street’s Separately Managed Accounts

Wall Street advisers, with their usual marketing diligence, have been doing relatively well, marketing yet another way to make money: Assets held in investor’s name, called Separately Managed Accounts or SMAs.

           

I repeat my past comments about SMAs: They’re expensive. 

Over $600 billion are being handled this way. They represent the same advisory problem, of high cost for a service available from mutual funds and ETFs, when you are a relatively modest investor.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Investing in Small Cap Stocks

Mutual funds that invest in smaller companies may at times do better than index funds which specialize in similar, so-called smaller cap stocks. At times they have not done badly, when trying to outperform the indexes of larger companies.

           

But there is a fallacy here. Few managers can truly evaluate smaller companies, even less than they can evaluate larger companies. Smaller companies are more erratic than those larger, and their corporate fortunes are more difficult to anticipate.

           

Smaller public companies may do better than larger companies for shorter periods but are more susceptible to business hazards and cycles.

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

           

Dodd-Frank’s Instrument for Political Influence

It’s always nice to have friends in the right places in government.

One example: Hedge funds of any consequence, under the Dodd-Frank Act, have to register with the Securities and Exchange Commission. Unless they are considered “family office.” That is, they have no outside investors. No matter their size in multi-billions of investments at play.

The whole idea of registration with the SEC was that the size and presence of such market players, with their lack of market transparency, could make the markets risky with their actions.

Hedge funds had little to do with the 2008/2009 financial meltdown but Washington liberals still castigated them. Until now. 

Political influence does help; regs were tailor-made to aid family-owned funds. And huge hedge funds made sure their families took control where they hadn't before. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Government Spending Cuts Do Produce Jobs

Liberal politicians insist that they cannot cut spending in order to create jobs during a recession or depression. They cite Keynesian economics for their reasoning; the theory of the early 20th century English economist John Maynard Keynes.

However, they have been –over simplifying Keynes’ short term ideas with a religious-like permanent philosophy and are overlooking some pertinent comments and critiques Keynes had made about his ideas.

Need real-life  proof? President Reagan’s years show that spending cuts do work. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

How Effective is Sales-to-Price Investing Strategy?

One of the strategies I have investigated is at times recommended by financial observers; it has to do with sales/price ratios, rather than the usual earnings/price ratios.

You can find many instances where companies which excel in the sales category do better than most. But when you look at the pros and cons, in too many instances, the inability to convert sales into earnings is an overwhelming problem, not an asset to be sought when investing.
 
Of all the strategies I have studied. price/earnings are the least favorable despite their wide use; they cannot be disciplined, as I have often explained in detail. ( (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Bailing Out Banks

The  administration says it wants to help business. One way is to loosen credit. At the same time, however, the  administration is creating regulations which will diminish big bank credit.

This means many bigger banks will receive lower credit ratings. Should they do, they will have to borrow at higher cost in the bond markets. Moreover, the regulations will not have any practical effect in making banks more secure.

The administration cannot have it both ways. The media go along with the charade, and give the administration a free pass.

So far, surprisingly, the markets allow big banks to borrow more cheaply than smaller banks. This means that the market feels that big banks will be bailed out once again by Uncle Sam, no matter what the administration has been saying. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

What Are Credit Default Swaps?

Credit Default Swaps are insurance on U.S. Treasury bonds and notes and on other global government bonds.

The insurance is that additional cost over the market level. Incidentally, early in shaky 2009, the CDS were about 1% over prevailing rates for the five-year Treasury bond.

In practical ways, Credit Default Swaps are actually credit ratings and are useful in any debt emergency. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Invest Wisely Recap:

Further to my previous thoughts for investing wisely; media comments and adverts aside.

If you are starting out you may want to use a minimum amount with which to invest in a corporate bond index fund or ETF and also a minimum amount in a total market securities fund or ETF. If you have sufficient funds do the same in an REIT fund or ETF. In all cases, reinvest your dividends.

In dealing with bonds, keep your duration factor below the term of your holdings. If you will be holding the securities for more than 7 years, for example, the duration can be 7 years or less. If you will be holding the securities for more than 10 years, the duration can be 10 years, etc.

Avoid media noise at all times. Once you have an investment strategy in place, and you are set in your strategy, why let incessant, daily media chatter and sheer nonsense dissuade you from your original goals?

The only adviser you need is an accountant for taxes or a lawyer for your estate. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

How Expensive Sales Advisers Really Are

Further to all my previous comments on conventional advisers and hedge funds, and their steep costs that make it tough for investors to succeed.

I advise against taking investment advice from salesmen and sales ads. You get only one story they want you to hear. It’s the other side or comment that would probably be the correct one for you.

Also be wary of stock brokers who have to sell you to make a living or who simply do not have the time or expertise to be of real help. Their training is mostly brokerage back-office and to conform to extremely broad “suitability” standards. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Should We Have a Gold Dollar Standard?

We made a major mistake when we allowed Ivy League professors advise President Nixon into going off all vestiges of a gold standard in 1973, when the dollar became the world’s reserve currency.

Paper with no intrinsic value has since been accepted as having value but has been constantly devalued by American politicians with spend-and-spend and tax-and-tax philosophy.

Unfortunately, the limit of the world’s patience about our budget discipline has about been reached.

Individual holding of gold is no solution for ensuing inflation. Gold provides no income. There are better ways to overcome inflation. But the cheapening dollar is a major domestic and global problem. Particularly, if it should no longer serve as the world’s reserve currency, and no one accepts it as having global value

We need gold as the standard of dollar value. Liberals won’t like such backing because they will not be able to play games in order to entice ignorant voters. Wall Street insiders may not like gold backing because of the absence of easy money.

But it will save the economy.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Smarter Investing Rules

More thoughts for investing.

If you are starting out you may want to use a minimum amount to invest in a corporate bond index ETF and also a minimum amount in a total market securities ETF. If you have sufficient funds,  do the same in an REIT ETF. In all cases, reinvest your dividends.

In dealing with bonds, keep your duration factor below the term of your holdings. If you will be holding the securities for more than 7 years, for example, the duration can be 7 years or less. If you will be holding the securities for more than 10 years, the duration can be 10 years, etc.

Avoid media noise at all times. Once you have an investment strategy in place, and you are set in your strategy, why let incessant, daily media chatter and sheer nonsense dissuade you from your original goals?

The only adviser you need is an accountant for taxes or a lawyer for your estate.
(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Can Bond Duration Principles Apply to Stocks?

I have in the past discussed the rules behind bond duration, which include the need to reinvest the periodic dividends of funds in which the bonds are held.

There is a somewhat similar principle with stocks that have an assured high income. REITs are one example.

If high periodic returns are reinvested in the same entity, you get a similar effect. Such purchases help mitigate risk and reduce average costs of long-term holdings; hit-and-miss market-timing is avoided. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Steps For Smart Investing

How do you invest if you are just starting or are not a professional investor?

You can start doing what the most experienced never do, and avoid many of the pitfalls they may stumble into.

Do not trade securities for this basic reason: Research invariably shows that you cannot time the market. So avoid any web sites that entice you with stock trading tips.
Open an account with a very low cost mutual fund family of funds.  
    
Do not make a habit of buying individual securities.The analysts who claim they know all about them know very little for two reasons. First: Analysts are not really versed in business. Secondly: They cannot get close enough to understand a business that even the CEO often finds difficult to comprehend. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Why Use Expensive Advisers?

 
I always advise against the use of expensive advisers who take, on average, 1 1/2% or more of your assets each year. That can represent as much as 20% and up of your annual investment earnings.

For those who invest in hedge funds, be prepared to part with about another 20% of any investment earnings on top of that management fee. You have lots of catching up to do just for all that advice that is often wrong or merely not worth it.

Look at any compound interest table and see what that chunk of your wealth this will add up to. in over just short years. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Experts Flunk Bond Investment Lessons

Far too many financial “experts” flunk bond market basics. They constantly have an unwarranted fear of the adverse effects of higher interest rates on individual bond prices and values.

Fact: Very few investors buy outright, individual bonds of any maturity, They invest, instead, in convenient, low-cost, fully diversified, mutual funds or ETFs.Therefore, the bulk of so-called expert comments on individual bond purchases and holdings don’t apply.

Fact: For the most part, bond fund owners reinvest their periodic  dividends.This is impractical and usually impossible for individual bond buyers to accomplish.

Fact: While it’s true that bond prices fall when interest rates rise, and bond prices rise as interest rates fall, these effects can be modified by duration and reinvestment principles. Duration explains why shorter-term bonds are not affected as much by interest rate movements as are longer-term bonds.

Fact: More important: Bond mutual fund investors who are aware of duration principles need not be hurt over the long term by interest rate moves; they can actually prosper when interest rates go up, with duration rule usage. .

Fact:  A bond holder is a lender. The higher interest rates go, the better off that lender is, provided he or she uses duration and reinvestment principles. And sticks to a plan of how long the bond fund is to be kept.

Note: Bond funds usually list their duration numbers. Look for, or ask  if they’re available for funds you seek. If not, approximate the figure to an extent by assuming that the shorter-term the bond portfolio maturity, the smaller the fund’s average duration.

The reinvestment solution:  The bond investor who reinvests dividends then holds the key to better performance. He should hold the fund longer than the stated duration period of that fund. If his intended investment period is more than 4 years, for example, it will be profitable to hold a bond fund with duration of at least 4 years. Long-term bond fund investors are always ahead in this game.

Fact: Experts love to bring up the question of credit defaults when evaluating bonds. But here again, pundits generally generate  more bluster than thought; the defaults rate is always built into the market price of a well-diversified fund. So higher defaults are offset by commensurate higher rates.

All these facts ruin arguments pundits have concerning values of individually-bought, non-in-kind, non-reinvested earnings, that apply to rates or interest-effected changes and looming inflation. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Comparative Recessions

Politicians describe recessions to suit their views. It comes in handy when they're running for office, when they need to paint a suitable economic picture.

In 2000, with unemployment about 4.0%, we were told by Democrats out of office, that we had the worst depression since the 1930s. We actually were in the midst of a booming economy.

In the mid 1970s, when President Reagan took office. We were experiencing a severe downturn as bad, if not worse, than what we have today. The fall in GDP was 4.9%. Compared to a drop of 18.2% in 1937-38. That truly was the worst economic cycle since the 1930s. What we can therefore correctly say is that today’s is the worst recession since 1973-75.

 President Reagan never blamed the previous president, Jimmie Carter, for the job Reagan had in making the prodigious economic recovery.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

A Financial Bubble Again?

Past experiences from financial bubbles are always forgotten.

In my studies as a market analyst and businessman, I have seen how bubbles originate, and then cause damage.

Bubbles are not stopped by Federal Reserve action on interest rates, as is usually suggested by pundits. That's because politicians always take over, and often influence any dampening of efforts by the Fed.

All with an adverse effect. It would, for example, have done absolutely nothing with the internet bubble. Or even the mortgage bubble because interest rate adjustments then would have been applied too late. The Fed’s miscues were too early to have been recognized.

Interest rates today are too low to start with, so the Fed inflates with bond purchases;

Action or inaction by the Securities and Exchange Commission would have been effective. Just sitting on obviously useless and dangerous financings, instead of open-handed approvals of questionable underwritings created the internet bubble. By merely slowing down the underwriting of deals, the SEC would have dampened many such past debacles.

So the Fed has had little to do with the bubble solution all the time. In fact, it has aided and abetted the problem. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Invest in Commodities?

Is investing in oil, gas, mining shares, gold, silver and other precious metals, the means to profit and overcome inflation? It is not simple.

Many commodities can only be held in the form of futures contracts of less than a year. They are speculative and have to be continually renewed for the long term. It takes trading experience, with no assurances of lasting success.

Mining corporation investments have all the complications of securities investing that involve conventional strategy. The ability to master discipline is essential. Few investors, professionals or amateur, are adept at this aspect of successful investing.

Buying gold or silver coins or bullion presents other problems including that of storage and insurance.

My comments on other investments to offset inflation appear here from time to time.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Tricky Currency Trading

 Currency trading, the biggest financial market, is dominated by banks, funds, investment companies and commercial corporations. Over $4 trillion are traded every day; the amount is growing by double digits.

Currency trading involves buying one currency while selling another at the same time. Americans now prefer the Dollar/Euro relationship.

However, such trading is not truly suitable for small investors, for whom it’s more like gambling. The lure is the small entry amounts and considerable leverage, as much as 50 to 1, much more than is possible with securities and other commodity trading.

The basic downside is risk: Only about 30% of currency accounts are profitable

If you insist on trading, you have to have a set strategy. There are automated programs that help but are no guarantees for success. No matter how much research you do, so many constant influences beyond a trader’s control, domestically and globally, affect currency prices (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

The U. S. Credit Rating

Credit rating agency importance cannot be overlooked in the discussion whether the U.S. keeps spending beyond its means today, or into the distant future when today’s politicians are dead or retired.

Liberal politicians cavalierly seem to think it’s o.k to have budget deficits as long as you keep raising the debt ceiling. The reality: No one in the rest of the world will consider the dollar convertible, thus an investment. The cost of U.S. borrowing will go sky-high. The budget deficit will be truly unmanageable. Thus, credit agency downgrading is the timely warning.

The debt ceiling is the key that permits liberals to go on spending; yet taxation always restricts business expansion and total government revenue.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Too-Big-to-Fail Institutions

The one member of the administration involved with financial regulation, who better handled financial institution problems in 2008/09 was Sheila Bair, the retired head of the Federal Deposit Insurance Corporation.

The FDIC, which insures bank member deposits, takes over institutions when in trouble. This often involves takeovers by other, sounder institutions.

The principle can be applied to the problems that perplex so many in Washington. Too many feel the recent Dodd-Frank regulation must entail new government agencies and meddling with unexplored ideas and ventures. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)