Archive for the ‘financial industry’ category

Great America From Down Under

February 18, 2017

I am traveling presently in Australia. The experience has been both stimulating and at the same time therapeutic. There is hope that rational political views can dominate a society.

Thankfully Australian television news offers only snippets of American political drama yo remind me of the opposite. Regretfully Australian international news reports, augmented with internet news, has allowed me to experience the perverse contrast between a sane political system and the pseudo-“Make America Great Again” crowd.

Australia may not be a great power, or great in all things. But in terms of government civility and general hospitality of its population, it offers American visitors a breath of fresh air. To be sure, for xenophobes, religious zealots, and anti-gays, Australia is far less attractive than the Trump/GOP Sponsored America.

The big Australian political debate is whether the country’s energy goal should be 30% renewable or 50%. Cannabis, women and gay rights, and voting requirements are all settled issues. Australia does struggle with integrating diversity into its society but the government’s public face is four square behind respect for all groups.

Conversely, the US public face which most of the world saw as wise and prudent (and maybe a little too timid) under President Obama is flabbergasted over who this person Trump is, and what in the world he is really about.

IMO, all the signs of a George W Bush Administration are present. Trump/GOP combo will with one hand emasculate regulatory and public service departments, and with the other cut and dice Americans by vilifying the media, demonizing certain religions and creating a false fear around Mexico and Mexicans.  The call is clear to take sides.

What does the future look like?

Most likely unforeseen events (like Katrina, Iraq, or the mortgage scandal)  will bring the Trump/GOP regime to its knees. Whether it is hubris or just plain incompetence, Trump et al will reap the consequences of a short sighted, mean spirited populous agenda.

Wall Street Money?

February 5, 2016

Bernie Sanders and Hillary Clinton are going toe to toe for the Democrat Presidential nomination. One of Sanders’ stump speech trademarks is Clinton’s acceptance of $675,000 for speeches given to Wall Street firms. Last night she called him on it and asked what exactly did this money do to change her views on policies? Hillary asked whether Bernie had a specific charge or was he just trying to “smear” her reputation? Hmmm.

Three hundred thousand plus does seem like a lot of money for an hours work. But is it?

Access to someone like Hillary, especially if she should become President would be “priceless”. And for these large banks, $325,000 is not too much money considering what they spend on lobbying anyways. And Hillary is not a new recipient, former Secretary of States Powell and Rice both have received large honorariums.  So, is Bernie pointing out a naked attempt to influence a public figure and potential President, or is he just pointing out a questionable practice?

More probable these firms were willing to spend these large sums of money because Clinton (and former senior Government officials) had both fresh insight and direct knowledge of happenings around the world, including developments in foreign capitals. Hillary also had insight into thinking within the White House and the Administration’s view of the domestic economy. For global financial firms in the business of advising clients around the world, information such as Clinton might have is critically important.

Sanders makes a point of saying he has not accepted Wall Street money and has gone further, saying he has no “Super Pac” money either. Sanders emphasizes his campaign money comes from small donations by average Americans. The implication is that he will be immune to special interest pressure. Hmmm.

From an appearance perspective, Hillary might wish she had not accepted these paid speaking engagements.  Sanders appears to have hit an awakening feeling that income inequality and general dissatisfaction with the American Dream is tied to Wall Street. In the general election, Wall Street money will not be an issue since if it isn’t Wall Street, its big oil, the NRA, or maybe even the Koch brothers. The Democrat primary, however, is another question.

Wall Street money is like salt and water. Too much is lethal while not enough is deadly too. Clinton can’t deny these paid speeches and can only minimize the damage to her campaign. Regardless, should Hillary become President, Wall Street will be only one of many potential special interests trying to reach her.

With the Supreme Court’s Citizens United decision, corporations are “people” and as such have a first amendment right to donate money to politicians. The issue remains whether free speech demands a kick back for the money donated. We shall see no matter who is elected President.  The Supreme Court doesn’t seem so supreme in this light, however.

Stock Market Woes Again

August 25, 2015

Last Friday the Dow Jones Average fell some 500+ points in one day. That is a lot. Over the weekend, pundits breathlessly characterized the fall as “correction like” but technically not a correction. Monday was worse for China are the US stock markets dropped over 500 points.  Hmmm. What were these markets trying to say?

Stock markets are places where most people pretend to make investments (buy or sell stocks for example) when in reality they are making “bets” (wagers). The bet is that an hundred dollar investment will in a short time be worth $200. The thinking goes that when the stock reaches $200, the investor will sell and pocket a profit of $100. Pretty simple and easy to understand how one would make money.

The “bets” can drive the average stock price up and up.  Remember, when the price rises, someone has also decided to sell thereby taking his/her profit.  At some point the average price is viewed as too high and then the market physiology reverses this process and prices drop.  Normally the drop is just a little, these past few days it has been a lot.

Not so long ago (ok, well maybe it was 50 years ago), individuals and conservative investors preferred dividend bearing blue chip companies.  These companies were stable and regularly paid a dividend.  The overall quality of the company investors chose was important.  The stock value appreciated but only slowly, so investors tended to hold onto these stocks for a long time.  The investor made money from dividends and a little appreciation when the stock was finally sold.

Not any more.  Investors want to make money much sooner and quarterly dividends are not enough. Investors care little about the long term prospects of companies they invest in.  It’s all about how much can be made now.   Putting things in perspective, most banks are paying less than 1% on savings, yet stock market investors are hoping for double digit returns (although they will settle for 5+% if they must.

The “stock market industry (the wide range of media, analysts, and financial advisors)”, works hard to make the investment process sound complicated, almost seemingly to make us look the other way when these panics occur. Potential investors are told to look (with the help of an advisor) for “undervalued” stocks or stocks in certain fast growing fields like energy, transportation, or maybe real estate. Investments in those fields are most likely to appreciate in value future investors are told. Advice abounds that conditions remain favorable for growth and it is not too late to “get in the market”. Hmmm.

Compared to China, Wall Street caters more to the “institutional” investor rather than the average individual (mom and pop) investor. Mutual funds as well as hedge funds make most of the Wall Street trades, and make them electronically. Ironically, empirical data shows that funds which mimic the overall averages of sectors or the market as a whole do as well or better than investments by individual expert’s picks. So, indexed funds must be safe? Hmmm.

Lets look at China which is turning an unsettling light upon stock markets. In China, most investors are individuals who make their own trades. The Chinese stock market process has looked more like a casino where “you place your bets and pick up your winnings”. “Don’t have enough money, no problem, just borrow and invest”.

With the overall Chinese economy having been growing at almost 10% per year, experts could predict with some certainty that stocks would be worth more next year than now. Growth rates of 10+%, however, are simply unsustainable and while China has enjoyed over 10 years of this type of growth, China’s growth rate has receded recently to the 7-8% range. While still the best in the world, pundits worry that China’s growth rate will fall further.  What about the possibility that the market is already over priced?

The stage has been set. China’s stock market, loaded with borrowed money and with investors who have had no clue why stock prices were as high as they were, are poised to panic. Like with the US market, the heavy hitters all play the same game. “Get in the market first, get out of the market first. leave the losses to others”.

Last into the market and last out of the market is a prescription for losing a lot of money. Accordingly, when market watchers see the market go down, the urge to panic and sell sets in.  How far of a drop the Chinese market must endure before the “correction” is complete is unknown. What can be counted upon is that market makers will reenter the market at some point and be set to ride the market up again, all the while encouraging average people to invest. The many who have been investing with borrowed money (especial if buying on margin), will likely be wiped out during the current “sell phase”.

The market’s herd mentality, however, can not be denied.. If an investor gets out early, he/she can watch the stock drop further and see others try to emulate the “pros”. Even if the investor gets out too soon, as long as the market does follow him/her to lower levels, these investors will be poised to jump back in and benefit more from a rising market.

The moral of this story is there are no market fundamentals, indicators maybe, but no primary calculations which can inform on when to buy and when to sell. Further there is only money to be made if there are buying and selling cycles. If stocks are high (as measured by market averages and specific stock’s historic record), sell and put money aside. When stocks seem low, buy and hold until stocks seem high, then sell and count your profit. The obvious problem is recognizing the high point and the low point.

Listen carefully what the pundits say over the next few days. Many will tie the drop in US prices to the drop in China’s stock market or China’s overall growth rate (the fear card). This is pure malarkey. The US has a much more diverse economy and while China is an important trading partner, it is only one of many.

A far better explanation lies in the herd effect (one sells, we all sell) and the reality that a steep correction (large drop) just creates more room for speculators and market makers to make a killing on the way back up.  Hopefully your financial advisor is not recommending “rebalancing your portfolio” which of course involves selling.  The wise investor is already “diversified” and should be able to wait out this current Wall Street chill.

Lastly, the pundits may predict tough times ahead because a slowing Chinese economy will have knock on effects in the US.  The notion is that US business earnings will decline.  Hmmm.  Maybe but just how much?  Some corporate earnings may be less with a slow or not growing China, but that should be only a small fraction of US companies.  And more to the point, betting on future earnings growth should remain unchanged.  Without a doubt there will be confusion around a slow down in China, but US fundamentals seem as sound as the ones that got the Dow Jones to 17,000+ in the first place.