The Derivatives Scapegoat

Regulation of derivatives is covered by the Dodd-Frank Act where trades have special collateral and margin.

Past regulation did not work satisfactorily for Washington; then there was little regulation, nor collateral required. However, independent studies have shown that they had little to do with the 2008/2009 financial meltdown.

Derivatives are essential to trading of securities for any orderly financial securities market. Derivatives are financial instruments derived from other assets. instead of trading that asset itself. One basic example is a futures contract, an agreement to exchange an underlying asset at a future date.

Derivatives are leveraged, so that a small movement in the underlying value can cause a large difference in the value of the derivative.

They can be used to speculate for profit or to hedge in order to reduce risk in that underlying asset.

These bureaucratic regulatory efforts are actually too binding to be effective. (See the Earl J Weinreb NewsHole® comments.)

Trading in Currency

Currency trading is not for the faint-hearted; it can be especially dangerous to your pocket book unless you have the capital and know-how.

Currency trading success depends on trends that can be suddenly reversed by events beyond your control. Quick changes can blip out your equity, when down payment margins are so small in commodity contracts.

Moreover, the value in a currency is not easily discerned, even by experts. A currency is valued in relation to another. Examples: The dollar, in relation to the British pound, the Euro, the Chinese yuan and the Japanese yen. Each can be temporarily overvalued or undervalued by volatile markets.

Any investor who would like to trade currency, should first become an expert in the intrigues of this highly complicated game. That means that one must first read all that he can about the subject’s mechanics.

That also requires knowledge of the futures markets and its intricacies. And once you feel you know the technicalities, do sessions of what I refer to as “dry-runs.” Make fantasy trades without real money just to see approximately how well or poorly you would have fared with actual investments. ( See the Earl J Weinreb NewsHole® comments.)

Deflation Fear When Inflation Lurks?

The Federal Reserve is on a mission to counter deflation and recession more than rising prices which are more apparent to most Americans.

In the media facts are often rewarded with obscurity or superseded by public relations article placements that need not have too much factual content.

Therefore, some of the deflation and pump-priming information has to do with economist comment, or technical aspects of Treasury bond price history, or the Japanese bond markets of the past two decades, none of which are fundamental analysis of current U.S. inflationary/deflationary factors.

They fill up media space and content. But they confuse and never enlighten the public. Deep recessions don’t necessarily produce deflation. Most often, it can be stagflation or runaway inflation.(See the Earl J Weinreb NewsHole® comments.)

Options For Life Insurance Proceeds

For years life insurance companies have placed life insurance proceeds into a money market type account at interest if the beneficiary did not ask for a lump sum right away. It was a viable and correct option.

Many do not want large sums right away. They haven’t fully decided their investment options.

What is more, these days of “easy money” the insurance companies pay a little more interest on such accounts, even more than do banks.

But politicians on the Left always need to demagogue and a financial institution always suits the purpose. Why should giant life insurance companies profit, they say, by holding insurance proceeds of the little guys? ( See the Earl J Weinreb NewsHole® comments.)

Back-Testing Financial Strategies

Financial back-testing is when the strategies of the past are used to see what would happen, hypothetically, when projected into the future.

Wall Street financial models often use such data mining; Information for investing strategies of the past. They’re collected and tested on a “what if’ basis.

All this is based on many assumptions that the mathematical models are supposed to predict.

As I’ve noted before, I have made a unique mini-career of looking at well over 1,600 investment strategies used by investors over the years. I have investigated advantages and disadvantages of each.

And I can tell you there are some worthwhile concepts as well as gibberish in all. But no panacea. Most of the data mining is therefore useless, except for their marketing of investment management services. (See the Earl J Weinreb NewsHole® comments.)

Regulators Stop Financial Bubbles?

Regulators talking about financial bubbles get it all wrong, usually scapegoating Wall Street.

Then you get political solutions. More regulation, to see to it that the regulators catch the next bubble before it starts.

It cannot be done, except in political circle imagination. Bubbles are hard to recognize in advance. That’s only easy in retrospect.

Example: The residential housing bubble. Then, Congress went out of its way to actually exacerbate a future problem.

There was legislation introduced years ago to minimize Fannie Mae and Freddie Mac leverage. That would have reduced the fuel that fed the fire under the housing financial bubble. And it was turned down by politicians who did not want to squelch the boom that gave lower classes an opportunity to own homes they could not afford. ( See the Earl J Weinreb NewsHole® comments.)

Hedge Fund Fancy Fees

Conventional hedge fund fees still average 2% of assets under management and 20% to 25% of profits generated.

True, it’s getting tougher for hedge funds to find as many clients as before the recession but demand is still good.

Considering the 2008/2009 financial meltdown, hedge fund fees have been more stable than expected. Some hedge funds continue to make big money. But they are a decided minority, compared to the past. Many do well, but not in line with risks they take. ( See the Earl J Weinreb NewsHole® comments.)