Mathematical Financial Model Use

I’ve commented on this subject many times. The result of my observing the successes, failures and foibles that I have noted on Wall Street.

                       

One has to do with the study of the many mathematical models that have been

devised to reduce risk. The models have not cut investment risk that is their primary objective.

                       

I am not referring to the well-discussed Black Swan concept of risk that happens once every fifty years or more. But they regard the constant use of financial models which don’t seem to work as they are intended to do.

                       

The truth is, some complex models work for a while but they are destined to eventually fail, no matter the brain-power and effort applied.(See the Earl J. Weinreb NewsHole® comments and

@BusinessNewshole at Twitter.)

Regulator Mistakes

                

All recessions tend to start when business people and consumers get pessimistic and stop investing, spending or buying.

                       

The twelve regional Fed banks and system head all have regulatory remedies or correctives. But within the regulators there are often disputes as to what exactly is to be done.

                       

Supervisors and regulators within the Fed system have different functions, with varying answers, from their observations. A human element often governs.

                       

Errors inevitably turn up with individual decisions and action that would not happen when free markets determine outcome.. This fact has been established from years of experience.

                       

Remember what I have said in the past about how future markets often

anticipate events, as opposed to that of a small group of experts. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Analyzing Bank Stocks

   

Bank analysts are never privy to inside banking operations. Example: complicated derivative portfolio information, or “repo” positions. In fact, analysts know so little of the plain- vanilla type. And if they were informed, they could not understand the inherent complexities.

           

Yet every negative word analysts can utter can doom the soundest financial institution, to the point where that organization sinks towards insolvency.

           

Rumors are often circulated about banks,

fomented by bank analysts who cannot possibly see a bank’s true asset portfolio. That makes for self-fulfilling events. Especially when bank holdings must then be marked-to-market.

                       

Fear-frenzy takes hold as analysts persist in this self- fulfilling bearish sentiment.

                       

There was a time when bank stocks were bought on the basis of book value, which can now be suspect, and dividends, which these days have been curtailed by governmental regulation and oversight.

                       

Then the question arises of how secure is

each bank’s capital, in our fragile economy?

                       

Another reason why I believe in index funds. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Financial Services Ideas

                

You can easily be a smarter financial services consumer without government assistance.

                                        

Always look at the fine print. It’s basic and not complicated when you bother to read carefully.

                     

Another tip is remembering that there is no such thing as a free lunch. You pay for what you get in one way or another.

                     

Figure out what you are getting. Consider comparable costs and what you pay for, in return for something you could receive that’s better. Take time and use a calculator when necessary. Most often you don’t have to be a math whiz.

                     

And learn how compound interest tables can be your magic instructors.

                     

Anything the government gives you is actually your money, either in the form of direct or hidden taxes, or worthless currency down the road.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Life insurance Investments

                  

Non-Term, Whole Life form of life insurance combines life protection and savings at a fixed return. It’s an expensive choice.

                     

Sales pitches about tax deferred benefits behind whole life insurance can be misleading. Other secure, tax deferred investment options are available.

                     

Whole life is not a true investment vehicle, despite any sales pitches. Were you to buy term insurance separately for protection and invest the difference in a secure, low-cost, income=based mutual fund, where dividends are reinvested, you would earn far better returns. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Consumer Finance Suggestions

                 

The current Administration feels a new behavioral concept can provide the consumer with what is best when shopping for complex financial products.

                     

Especially when looking for mortgages;  whether to choose a prepayment option despite penalties. Or the question of which down payment to place on mortgages.

                     

So the Administration has been thinking of simplified versions of financial choices for consumers, to take the burden away. It takes the term plain-vanilla to a new level, by suggesting a preferred option for all.

                     

I can see having all choices spelled out on two sheets of paper, in large print and in plain English. The problem, however, is that such a standard option would soon become the only one available. You will then get what the government thinks is good for you.

                                        

You can be certain that the threat of a lawsuit from an enterprising lawyer would drive away any other product from a financial institution. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Life Insurance Policies

                

Term insurance is the cheapest form of protection per premium dollar, as it contains no low-return savings function.

                     

As for the cheapest protection you can get, policies today can be quickly-acquired, over the internet or by phone. No physicals are often required for plans up to certain dollar limits.

                     

How do you get the best protection for your money?

                     

Even though screening is currently computerized, bigger-dollar plans with no mandatory medical screening may be more expensive. If you’re healthy, why not pay less with more scrutiny for your coverage?

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