The Securities Market

Investing in the securities market is never simple. But you can simplify the process somewhat by specifying your aims. Financial media reports and suggestions often fail to make this point.

Are your goals short term or not? Are you taking proper consideration of age? What are your feelings about risks?

Consider the economy. We have been in more than an ordinary recession. It may not bounce back for several years.

And inflation will be a distinct prospect, probably quite heavily, within a couple of years.

Economic stagnation and high inflation could stifle corporate profits. ( See the Earl J. Weinreb NewsHole® comments.)

Brokers Acting as Principals

Be careful that some of the brokerage transaction you make are just simple broker transactions. In many instances, the broker may be acting as a principal, selling you a security from his inventory, or perhaps buying the security into his inventory.

That could actually represent a very short period, an in-and-out transaction with another party. Nevertheless, the broker is technically not a broker but a dealer.

That is legal provided his markup is reasonable. In many instances a 5% markup is not acceptable when the security is traded in a liquid market.

The Financial Industry Regulatory Authority or FINRA has been attempting to fine tune the activity. ( See the Earl J. Weinreb NewsHole® comments.)

State and Local Public Employee Retirement Programs

State and local public employee retirement programs now have unfunded liabilities of about one trillion dollars. according to Pew Center on the States. Despite the current publicity the subject is getting, most folks have no concept of the real problem, nor the solution.

Unlike the federal government in Washington, states and local entities cannot print money. They cannot continue to keep borrowing either.

Talk of fed-enabling legislation for states to go bankrupt is not a practical solution. The public employees’ unions will not like the haircuts and shaving bond prices will starve the source of future financing, as well as decimate smaller savers in those bonds.

But there is no reason to panic if public employee pensions are negotiated to realistic levels along with state and local budgets.

Financial Odds

Most of us are not familiar with the odds of finance and it affects our outlook on financial matters.

An example: Flip 100 coins, heads or tails; there is a 75% chance of a streak of 6 or more. And a 10% chance of a streak of 10 or more

Look what this does when we observe analysts and securities’ markets. You hear comments after market closings about events which really reflect randomness. But the comments attribute specific causes that occur only in the minds of the commentators. ( See the Earl J. Weinreb NewsHole® comments.)

Misguided Government “Experts”

An idea of just how unsure and inexpert the “experts” can be: The Federal Reserve Bank is still on its path of buying $600 billion of government bonds. This inflates the economy by, in effect, printing fresh currency. The Fed intention is to rouse the economy

But at the same time, the Fed is allowing some big banks to raise their dividends, which soaks up capital and their lendable funds. The Fed, after all, wants to rouse the unemployment problem.

While some banks, instead, use excess cash to buy up shares. All this adds to a mix which makes the Fed’s actions very imprecise, to go along with the rest of their their seat-of-the-pants decisions.

Faulty Retirement Planning

Retirement planners use dubious assumed models. They take into account investments, forms of diversification, along with outlay plans and a number of probabilities. One may be Monte Carlo simulation, a well-known model used by investment advisers for this purpose.

But such investment planning fails to work for many reasons.

A major financial market meltdown is one. And other unforeseen events happen; illness, a job loss, business failure, unexpected educational expenses. The result of a lifetime of retirement planning is often failure.

The solution is to be realistic. Be prepared to work at least part-time past what you had originally thought would have been retirement age. ( See the Earl J. Weinreb NewsHole® comments.)

A Financial and Legal Analytical Can of Worms

Law suits can arise when credit rating agencies, who judge the quality of bond or derivative issues, are considered the cause of investors’ loss of money. Making it easier to sue can thus open a can of worms.

The First Amendment is supposed to guard free speech. That usually protects financial analytical reports. Including opinions on Structured Investment Vehicles or SIVs, or derivatives, or any form of corporate and municipal bond.

Can analysts and their employers be sued for malpractice if their opinions have been wrong? Or are they covered by the First Amendment? What does any court decision do to those who evaluate due diligence in the future?

Every so often a move is made to sue credit agencies for alleged malpractice.