Market Panic Advice

                     

A market panic?  Some history:

U. S. financial breakdowns usually have to do with governmental “experts” in the past, reacting to problems in a panic mode. I’m referring to the Great Depression and our 2008-2009 “Great Recession.”

                       

The 2008-2009 rescuers had come from the financial community, attuned only to the short term, and thus could not see how caution and avoiding panic would overcome problems. Nor did they truly envision the danger of acting in haste.

                       

Example: The value of collateralized debt obligations, CDOs. or their derivatives, were “marked-to-market,” under so-called fair value accounting rules.

                       

But such rules could have and should have been

suspended for the emergency. CDOs were not some other product that accountants usually measure on balance sheets.

                       

As a result, bank and investment company net worth figures were daily being devalued to so-called “toxic” levels. Those levels were actually a fiction, brought on by an illiquid market, where true fair value was impossible to determine. The rescuers were blinded by their own personal and business backgrounds. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

How Banks Get Regulated

                

You have heard how complicated, arcane deals undermined global finances? Because those “greedy” bankers, intent on “obscene” profit-making schemes, used them to the detriment of all.

                                   

After lengthy investigations were made, and our politicians in Washington completed their pious, populist speeches. The media duly contributed their remarks.

                       

And then Congress made its conclusions. The result? Perhaps some insights were finally gained on how derivatives really work and their purpose. The upshot of all the nattering? Draconian regulation in the form of Dodd- Frank,(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

ETF Holdings Trading Profits

                   

ETFs are different than mutual funds, in that they are traded on exchanges; they are indexes that are usually not managed by any advisers.

                       

From time to time, their securities may be lent for purposes of short selling, It’s a source of added income. The stock lending profits of such ETF funds can be substantial.

                       

Do earnings go back to shareholders of the ETF, or to its managers? In some funds, almost all go to the shareholders, while as little as half may be returned to other holders.

                       

You should check your ETF investments, to see how your managers treat these earnings.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Political Federal Reserve

                   

Central banks were set up for independent banking functions, on the premise it’s best for a country to keep its financial system from political influences.

                       

Politicians have always had a tendency to use financial and economic pressure to change any banking independence during stressful economic times.

                       

How are major central banks doing with regard to their current national financial crises?

                       

The Bank of England had been relatively independent but is now rather involved with its government bond market. The Bank of Japan often has been politically directed.

                       

Congress, which always loosely supervised the Fed now wants  more disclosure, which exerts pressure.

                       

However, the Dodd-Frank Act has the Fed go more deeply into the American economy than it had before, and present Fed Chairs have had a tendency to lean more to administration policy. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at

Twitter.)

                   

Personal Investment Behavior

                  

Research on human investment behavior indicates how personal psychology has lots to do with the way securities markets operate.

                       

I have mentioned in the past my studies and evaluations of over 1,600 investment strategies, and their pros and cons. I have always said there is no one that I have found to be better than any other. What makes for investment success is strict discipline of strategy use. Psychology controls discipline.

                       

Furthermore, discipline can be mastered with proper personalized control over those psychological hazards.

                       

I would suggest investors look at the work done by Kahneman and Tversky. It will provide a glimpse of how

investors think, often to their disadvantage. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Aig Debacle

                                    

So-called dangerous derivatives were not the main cause of the financial meltdown of2008-09. True, AIG lost $39 B on derivatives but also $24 B on mortgages with no derivatives. The counter-parties on their derivatives were paid off 100 cents on the dollar.

                       

After all, government excesses, such as housing and poor monetary policy, produced economic problems, not bankers who became bystanders by necessity and happenstance. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Derivatives Investments

           

Remember the hullabaloo about securities derivatives, such as interest rate swaps and credit default swaps? And their supposed connection with subprime mortgages and collateralized debt obligations? With their alleged role in the 2008/2009 financial meltdown?

                       

Politicians railed against CDS (credit default swaps), that they caused the financial meltdown in the mortgage market.. But there was a much larger market in interest rate swaps, and there was no problem with fixed income assets.

                       

And, there was an even larger market In foreign exchange swaps, than in CDS, and there was no problem in the currency markets.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)