High Frequency Trading Suspicions

Those who defend high frequency trading say such 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 in that it reduces 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, but it will further study the matter.

Making Big Banks “Secure” and Business Recovery

As I have noted in my previous comment,s, 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.

Dodd-Frank overlooked a major fact. Monetary policy has been set up merely to accommodate this “too-big-to-fail” doctrine at the expense of business 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 shoulder, suggesting that risky business loans are taboo?

Only government bureaucrats can think up such absurdities when rescuing banks, while supposedly attempting to get business out of a deep recession.

Banks Too Big to Fail

One of the driving reasons for the Dodd-Frank legislation was fear of financial institutions failing. That fear produced monumental bailouts, resulting in 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 clue 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.

Jobs and Government Efforts

Economic stagnation persists when business cannot risk hiring permanent workers.

I have commented about jobs for some time. They 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

Buying Securities According to Supply/Demand Law

Never buy securities on the basis of a public recommendation. Many, perhaps thousands, or hundreds of thousands, are receiving the message at the same time or may have gotten it earlier than you. The 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.

Media Financial Advertising

There always is a conflict of interest when an ad or public relations announcement gives financial advice.

Especially with the repetition of those ads and announcements.

Because all you get is one side of the story. You get one financial idea or strategy’s positive 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.

Mutual Fund Total Costs

Mutual funds have to be shopped carefully. The fundamental differences among 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.

Then, 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.