Credit Default Swaps

                  

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

                       

The insurance is in the form of additional cost over the market level. Example: 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.)

Investing Wisely Recap

                  

This is a lesson to be always remembered.

                       

If you are just starting to invest 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.

                                           

Again: 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?

                       

I repeat: 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.)

Securities Salesmen Advice

                               

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 could be the correct one for you.

                       

And 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 @BusinessNewshole tweetd.)

Dollar Convertibility Failures

                  

Many countries already have made alternative U.S.dollar conversions.

                       

We need gold as the standard of dollar value. Some politicians won’t like such backing because they will not be able to play economic games in order to entice ignorant voters. Wall Street insiders may not like gold backing because of the absence of easy money. But some gold backing will save the economy.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Required Gold-Backing of Dollar

                    

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 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 eventual cheapening dollar is a major domestic and global problem. Particularly, if it no longer should serve as the world’s reserve currency, and no one accepts it as having global value. (See the Earl J Weinreb NewsHole® comments and @BusinessNewshole omotedat twitter.)   

Important Rules of Investing

 

If you are starting to invest you may want to use a

minimum amount to start in a corporate bond index fund or ETF and also a minimum amount in a total market securities ETF. If you have sufficient funds do the same in an REIT, preferably an 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 rule 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.)

Stocks' Duration Principles?

The rules behind bond duration principles 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 durations 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.)

Starting Smarter Investments

                

How do you start investing if you are just beginning or are not a professional investor? You can start doing what the most experienced never do, and avoid many of the pitfalls they face.

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 markets know very little for two reasons. First: they’re not really versed in business. Secondly: They cannot get close enough to understand a business that even CEOs often find difficult to comprehend. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

A Lesson About Expensive Advisers

                               

Why use 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 just short years. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Bond Fund Default Rates?

                 

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

Duration Numbers.of Bond Funds

Look for, or ask if duration numbers are 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. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Bond Fund Duration Figures

                

The bond investor who reinvests dividends 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.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Bond Fund Investing Strategy

                   

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

Long Recessions?

          

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

                       

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

                       

In the mid 1970s, when President Reagan took office, we were experiencing a severe downturn. The fall in GDP was 4.9%. Compared to a drop of 18.2% in 1937-3.8. That truly was the worst economic cycle since the 1930s.

                                           

Incidentally, 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.)

Government Restrictions to Prevent Debacles

Interest rates today are too low to implement monetary policy; the Fed inflates only when it makes bond purchases.

                   

Action or inaction by the Securities and Exchange

Commission could help provide correctives. Just sitting on obviously useless and dangerous financings, instead of open-handed approvals of questionable underwritings created the past internet bubble. By merely slowing down the underwriting of deals, and the SEC would have dampened many 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.)