Dodd-Frank and Political Influence

These days especially, it’s nice to have friends in the right places in the government.

Hedge funds of any consequence, under the Dodd-Frank Act, have to register with the Securities and Exchange Commission. Unless they are considered “family office.” That is, they have no outside investors. No matter their size in multi-billions of investments at play.

The whole idea of registration with the SEC was that the size and presence of such market players, with their lack of market transparency, could make the markets risky with their actions.

Hedge funds had little to do with the 2008/2009 financial meltdown but Washington liberals still castigated them. Until now. Political influence does help. ( See the Earl J. Weinreb NewsHole® comments.)

Proof That Spending Cuts Produce Jobs

Liberal politicians insist that they cannot cut spending in order to create jobs during a recession or depression. They cite Keynesian economics for their reasoning; the theory of the early 20^th century English economist John Maynard Keynes.

However, they have been –over simplifying Keynes’ short term ideas with a religious-like permanent philosophy and are overlooking some pertinent comments and critiques Keynes had made about his ideas.

Need proof? President Reagan years and Canada today show that spending cuts do work. ( See the Earl J. Weinreb NewsHole® comments.)

The Sales to Price Strategy

One of the strategies I have investigated is one at times recommended by financial observers, having to do with sales/price ratios, rather than the usual earnings/price ratios.

You can find many instances where companies which excel in the sales category do better than most. But when you look at the pros and cons, in too many instances, the inability to convert sales into earnings is an overwhelming problem, not an asset to be sought when investing.

Caution! Of all the strategies I have studied, price/earnings are the least favorable despite their wide use; they cannot be disciplined, as I have often explained in detail. ( See the Earl J. Weinreb NewsHole® comments.)

The Obama Administration and Bailing Out Banks

The Obama administration says it wants to help business. One way is to loosen credit. At the same time, however, the Obama administration is creating regulations which will overhaul big bank credit.

This means many bigger banks will receive lower credit ratings. Should they do, they will have to borrow at higher cost in the bond markets. Moreover, the regulations will not have any practical effect in making banks more secure.

The administration cannot have it both ways. The media go along with the charade, and give the administration a free pass.

So far, surprisingly, the markets allow big banks to borrow more cheaply than smaller banks. This means that the market feels that big banks will be bailed out once again by Uncle Sam, no matter what the Obama administration has been saying. ( See the Earl J. Weinreb NewsHole® comments.)

Credit Default Swaps (CDS are Real Credit Ratings

Credit Default Swaps are insurance on U.S. Treasury bonds and notes and on other global government bonds,

Right now, for instance, the cost of such a so-called CDS on a five year U.S. bond is about 0.5%. The insurance, in other words, is that additional cost over the market level. Incidentally, early in 2009, the CDS was about 1% over prevailing rates for the five-year Treasury bond.

In practical ways, Credit Default Swaps are actually credit ratings and are useful in the current debt emergency.( See the Earl J. Weinreb NewsHole® comments.)

Investing Wisely Rules Recap: Part 2

Further to my previous thoughts for investing. Some additional rules:

1) If you are starting out you may want to use a minimum amount with which to invest in a corporate bond index ETF and also a minimum amount in a total market securities ETF. If you have sufficient funds, do the same in an REIT ETF. In all cases, reinvest your dividends.

2) In dealing with bonds, keep your duration factor below the term of your holdings. If you will be holding the securities for more than 7 years, for example, the duration can be 7 years or less. If you will be holding the securities for more than 10 years, the duration can be 10 years, etc.

3) Avoid media noise at all times. Once you have an investment strategy in place, and you are set in your strategy, why let incessant, daily media chatter and sheer nonsense dissuade you from your original goals?

4) The only adviser you need is an accountant for taxes or a lawyer for your estate? And see the Earl J Weinreb NewsHole® comments.

Expensive Advisers

Further to my previous comments on conventional advisers and hedge funds, and their steep costs that make it tough for investors to succeed.

I advise against taking investment advice from salesmen and sales ads. You get only one story they want you to hear. It’s the other side or comment that would probably be the correct one for you.

And be wary of stock brokers who have to sell you to make a living or who simply do not have the time or expertise to be of real help. Their training is mostly brokerage back-office and to conform to extremely broad “suitability” standards. ( See the Earl J. Weinreb NewsHole® comments.)