The Japanese Economy

We know of of the corporate growth of Hitachi and Nissin Foods but the Japanese economy has been flat and practically dormant for the past twenty or so years. This has been the case despite huge Japanese government spending, In fact, Japan public debt is now over 200% of GDP.

Unfortunately, it does not appear their economy will recover anytime soon.

The problem for the U.S. is that the Obama administration has been on a path to “stimulate” the American economy, much the same way the Japanese did their's two decades ago. That is, spend and borrow their way to prosperity they have failed to achieve.

Blame Bankers?

Listening to public comments and opinions of those from all walks of life, most folks know little about finance and banking. Politicians on the left are among this group of the financially ignorant. If they knew more about finance, they would not be intellectually on the left.

Thus, it’s entirely understandable that bashing bankers is fashionable, especially during tough economic times. Finding scapegoats is handy. It makes up for any guilt politicians may have in helping foment economic distress.

Government excesses, such as poor fiscal policy from the White House and monetary policy from the Federal Reserve, most often produce economic problems, not bankers who become bystanders by necessity and happenstance.

What else succeeds as political ploys when all else fails? Blame bankers! Most folks haven’t a clue to disagree.

Media Portfolio Advice

Giving advice on investment portfolios without regard to a client’s age, family condition, and needs, is ridiculous. Everyone has a different investing time horizon and current and future income needs. Those factors affect the choice of securities. In turn, they influence the percentage ownership and type of stocks or bonds to be held. And where bonds are chosen, the “duration” of the bonds used.

I would strongly advise everyone to be fully aware of what duration is and how it works. Very few media pundits write on the practical use of bond duration and its adaptation to take advantage of inflation, rather than avoidance of inflation.

Much of the practical value of media portfolio advice is, unfortunately, used merely to fill up space and not to enlighten.

Credit Card Debt Reduction

When you hear a credit card balance reduction ad, two points will probably never be mentioned about credit card use.

One: you pay income tax on any amount of debt you have reduced. Therefore, cutting that balance is not as simple as it may appear. Reduce your balance by $4,000 and it’s as if you had a taxable gain.

Two: you have hurt your credit standing by resorting to such debt reduction. This may not bother you at first, but it may eventually cost you.

Another point: How many folks who have so much credit card debt, that they have to resort to drastic measures, are actually permanently getting out of debt?

You can be sure their spending habits will be getting them into the same situation again in a few years.

12b-1 Mutual Fund Fees

Most funds no longer charge 12b-1 mutual fund fees but they are still around. These were originally permitted by the SEC to allow marketing to new investors.

These actually represent a small sales load that adds up over the years. The 12b-1 charges originally were used to pay fees for the distribution of funds by brokers. But they still persist even when brokers are not involved, but are ostensibly used for sales and marketing.

My suggestion: Avoid mutual funds that charge them. Those fees become significant deductions from your accumulated holdings over the years.

High Frequency Trading

Small investors benefit from a reduction in trading costs, High-frequency trading helps, despite much of the notoriety it’s getting in the media. Among costs are the bid-ask spread.

A wide spread means the fund must pay significantly more to acquire a stock than it could sell it for.

High- frequency trading has reduced this cost by narrowing spreads, Generally, wide spreads are seen as inefficient, with buyers and sellers having difficulty agreeing on an accurate price. Narrow spreads mean the market is working better.

Another transaction cost arises from the fact that a fund's huge trades can drive prices up or down by tipping the balance of supply and demand. High-frequency trading has helped reduce "market-impact" cost by making it easier to break big trades into many little ones while transacting them very quickly,

Trading costs from spreads and market impact have been cut in half over the past decade, From 0.5% of the trade amount for big company stocks to 0.25%. For small stocks, trading costs have dropped from 1% to 0.5%. In addition, high-frequency trading helps bring out hidden liquidity.

The positives seem to outweigh the purported negatives

Don’t Overdo Credit Card Balance Transfers

Should you get offers from credit card companies to transfer your current outstanding balance to another card because of lower charges, you may be easily tempted. Especially if you have good credit, and those offers are frequently in the mail.

But remember, you may be hurting your credit score, should you take the bait.

When you make lots of credit card transfers it appears you may be applying for fresh credit.That tends to hurt your credit card score.