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Finisar Shares Fall Due to LR4 Module Issues

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By RitaE from PixabayFinisar Shares Fall Due to LR4 Module Issues

Shares of Finisar (NASDAQ: FNSR) slumped on Friday after Craig-Hallum analyst Richard Shannon suggested that it could take one to two quarters for the optical communication component maker to qualify its LR4 optical module again. That module has been plagued by compatibility issues at several major OEM and cloud customers.

The key facts

In late January, Chinese networking hardware giant Huawei reportedly disqualified Finisar’s 100G CFP2 (which uses the LR4 technology) due to firmware issues that made the modules incompatible with its other equipment.

At the time, Rosenblatt analyst Jun Zhang stated that the misstep would reduce Finisar’s annual revenues by $20 million (compared to its estimated revenues of $1.5 billion this year) and reduce its gross margins by three to four percentage points.

That blunder notably became a tailwind for Finisar’s rivals Oclaro (NASDAQ: OCLR) and Lumentum (NASDAQ: LITE) — which didn’t suffer similar firmware compatibility issues.

Just a speed bump in a super cycle…

Despite the bad news about Finisar’s compatibility woes, the company’s stock remains up more than 140% over the past 12 months. Oclaro and Lumentum have respectively rallied 140% and nearly 110% during that same period.

Shares of all three optical equipment vendors have been lifted by soaring demand for optical modules and components. That’s because companies and data centers are in the stage of a technology super cycle that requires them to upgrade their infrastructure to deal with the higher bandwidth demands of streaming video, cloud-based apps, app virtualization, and other data-intensive tasks.

As a result, Finisar’s revenue and earnings are expected to rise 18% and 113% respectively this year — so the company should easily bounce back once this compatibility issue is finally resolved. Shannon notably still has a $46 price target on the stock — nearly 40% above current prices.

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Published at Fri, 17 Feb 2017 20:05:03 +0000

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SoftBank shares up; sources say company willing to cede control of Sprint

File Photo: SoftBank Group Corp Chairman and CEO Masayoshi Son attends a news conference in Tokyo, Japan, February 8, 2017. REUTERS/Toru Hanai

SoftBank shares up; sources say company willing to cede control of Sprint

Shares in SoftBank Group Corp (9984.T) rose nearly 3 percent in morning trade on Monday after a Reuters report that the Japanese company is prepared to cede control of Sprint Corp (S.N) to T-Mobile US Inc (TMUS.O) to clinch a merger of the two U.S. wireless carriers.

SoftBank is expected to approach T-Mobile parent Deutsche Telekom AG (DTEGn.DE) for negotiations when an ongoing auction of airwaves ends in April and a ban on talks between rivals is lifted, people familiar with the matter told Reuters.

A potential deal could bolster SoftBank’s shift towards what billionaire founder Masayoshi Son calls the “Berkshire Hathaway of the tech industry,” or a company with cutting-edge tech investments as the telecoms services markets mature.

The proceeds of the possible sale of all or a portion of its Sprint stake to a third party could improve SoftBank’s credit rating and “allow it to dedicate more of its managerial and financial resources to growth businesses,” analysts at SMBC Nikko Securities said in a research note.

While SoftBank’s domestic mobile business remains a cashcow necessary to fund investments, analysts have said it may be hard for Sprint to grow on its own as it lacks the scale to challenge larger rivals.

Son told reporters earlier this month that he was focused exclusively on an acquisition of T-mobile three years ago, but that Sprint’s return to profits has opened various new possibilities for SoftBank in an upcoming industry realignment.

Son’s previous attempt to merge T-Mobile and Sprint, ranked third and fourth respectively, fell through amid opposition from U.S. antitrust regulators.

 

(Reporting by Makiko Yamazaki; Editing by Chang-Ran Kim and Stephen Coates)
Published at Mon, 20 Feb 2017 00:56:59 +0000

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BlackRock’s largest mutual fund sours on Google

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 BlackRock’s largest mutual fund sours on Google

By Trevor Hunnicutt| NEW YORK

Managers of BlackRock Inc’s (BLK.N) largest mutual fund, fearing Trump administration policies could hurt technology companies with hefty foreign revenue streams, have reshuffled their top holdings, and it appears one of the first casualties is Google.

Alphabet Inc (GOOG.O) has dropped out of the fund’s top-10 holdings list after the $41 billion BlackRock Global Allocation Fund (MALOX.O) (MCLOX.O) pared back its near-half-billion-dollar stake in the parent of the leading search engine in January.

Last year, Alphabet C-class shares worth about 1 percent of the fund’s total assets were on its top-10 list. The Global Allocation Fund holds hundreds of stocks and also invests in bonds.

The C-class shares have no voting rights. Alphabet’s A-class shares (GOOGL.O) were not a top-10 holding of the fund.

As of Jan. 31, the list still included other tech innovators, such as Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Uber Technologies Inc [UBER.UL] and Facebook Inc (FB.O), according to BlackRock’s website.

Global Allocation held about $443 million in Alphabet C-class shares, as of Oct. 31, down from $550 million the prior quarter, according to regulatory filings. The fund has held the stock since October 2015, according to Morningstar Inc.

The latest disclosures do not make clear how much of the Alphabet stake has been sold. The 10th-largest Global Allocation holding, Pfizer Inc (PFE.N), accounted for about 0.58 percent of the fund, which would work out to $237 million, suggesting the Google stake had fallen at least to that level.

Alphabet did not respond to requests for comment. BlackRock, the world’s largest asset manager, declined to comment.

“Our enthusiasm for U.S. stocks is tempered by elevated valuations, a lack of fiscal policy specifics, and uncertainty regarding future U.S. trade policy,” the fund’s managers wrote in a summary covering their January trades.

“We reduced the fund’s exposure to select technology stocks, including U.S.-based companies that generate a significant portion of revenues from non-U.S. dollar sources.”

Alphabet earned 53 percent of its revenue outside of the United States last year, according to its earnings statements. The value was reduced by the U.S. dollar’s strength against the British pound, euro and other currencies.

U.S. President Donald Trump has touted a series of trade and tax reforms to boost domestic growth, some of which could also push up the U.S. dollar.

A Republican proposal to reform taxes that would levy a 20 percent tax on imports and exclude export revenue from taxable income has been circulating. Trump has said he would announce his own tax plan in coming weeks.

 

(Reporting by Trevor Hunnicutt; Editing by Richard Chang)
Published at Fri, 17 Feb 2017 22:55:09 +0000

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Fake and Real Education in Trading

 

Fake and Real Education in Trading

We’ve heard a lot lately about fake news, both from the political right and left.  The truth is that it’s difficult to report truth, objectively.  Too often agendas slant what we present, turning what should be enlightenment into persuasion or, at worst, propaganda.  A credible academic journal presents studies supporting and not supporting various ideas, allowing the data to speak for themselves as much as possible.  No one would read an academic journal that only published information supporting specific views, suppressing contrary evidence.

In trading, we see a great deal of web content, seminars, webinars, and books offered as “education”.  Too often, this is fake education, in that it promotes a particular agenda that is marketed by the writer.  How often have we seen something offered as education that starts with a tease and ends with a sales pitch to get interested students to purchase a service or product?  That’s an infomercial, not information.  It’s not education; it’s advertising.

So what is *real* trading education?

*  Real education educates.  You come away with specific information and/or skills that you didn’t previously possess.

*  Real education is on the cutting edge.  It provides new information and new skills.  It does not merely repeat what has been written many times previously.  If what you encounter in a book or webinar could have been encountered three years ago, thirteen years ago, or thirty years ago, it’s rehashing, not educating.

*  Real education is grounded.  It draws upon actual research and actual practice.  It is not mere opinion or preference.

*  Real education stands on its own.  It is not a throwaway lead-in for commercial products or services.

As many of you know, I teach in a medical school.  I value the education and training of medical students and residents, and I especially respect the continuing education of practicing physicians.  Without continuing education, a physician is locked in old information and old practices and become stale.  Patients suffer.  Without quality continuing education, traders–and their capital–suffer the same fate.  Education is far too important to be left to fakery.

True continuing education for experienced traders is the next great frontier in trader development.  Not rehashings of worn out technical trading patterns, bromides about discipline, or trading tales from old timers.  Real, actionable education based on real research and real practice.  It’s an important part of what distinguishes a profession from a hobby.

Further Reading:  Toward a Curriculum for Traders

Published at Sat, 18 Feb 2017 12:48:00 +0000

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Ouch. Fund loses $600 million betting against Trump rally

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Stocks on longest record run in 25 years
Stocks on longest record run in 25 years

  @mattmegan5

Betting against Wall Street’s ferocious Trump rally can be dangerous.

A mutual fund using complex trading strategies lost $600 million over just five days because it picked a terrible time to be bearish.

Thealarming losses for the $3.2 billion Catalyst Hedged Futures Strategy Fund underscores just how powerful the rise in the stock market has been.

The Dow, S&P 500 and Nasdaq all closed at record highs for five days in a row through Wednesday, something that hadn’t happened since January 1992. President Trump even tweeted about the feat.

The problem is that Catalyst placed defensive bets that would protect investors from market turmoil, but expose them to losses if the market got any higher.

That’s exactly what happened, causing the mutual fund to suffer a loss of 15% through Thursday’s close, Catalyst confirmed to CNNMoney.

The situation was worsened by the fact that the options that Catalyst had bet on were set to expire on Friday, making them virtually worthless given the market rally.

“This type of market, rapidly rising prices with low and falling volatility, is the exact thing the fund is positioned against,” Catalyst Capital Advisors CEO Jerry Szilagyi said in a statement.

The losses sparked rumors on Wall Street over the fund’s financial health. But Szilagyi said investors didn’t dramatically yank their money and insisted the fund “is not, and has not been, under any duress.”

Szilagyi said the losses triggered a risk management process to “kick in,” causing Catalyst to reverse its bearish position into a bet that the market would rise.

Michael Block, chief strategist at Rhino Trading, said the fact that Catalyst and possibly other firms had to turn bullish may have actually helped contribute to the rally on Wall Street. He said the episode shows how strong market momentum can run over funds leaning in the wrong direction.

“It spirals and snowballs, forcing you to buy high and sell low,” Block said.

Catalyst emphasized that it has no further exposure to the bets that got the fund in trouble.

“We have navigated through this type of market in the past, and we believe we will do so again,” Szilagyi said.

Of course, the big rally on Wall Street has now cooled off a bit. The Dow opened down nearly 100 points on Friday after six-consecutive record days.

Block noted that the markets dipped a bit on Thursday during Trump’s press conference. He said Trump didn’t inspire confidence during the event because he focused way more on attacking the media than touting pro-growth tax cuts and deregulation.

“We’ve seen the market rally quite a bit when he talks about tax cuts and Dodd-Frank going away,” Block said. “But when he’s hectoring a journalist, it just reminds me of Hugo Chavez. What’s he doing?”

Published at Fri, 17 Feb 2017 17:16:31 +0000

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With stocks at highs, investors eye consumer results

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 With stocks at highs, investors eye consumer results

By Saqib Iqbal Ahmed| NEW YORK

U.S. stock investors may look to a host of results from consumer-facing companies including Wal-Mart Stores Inc (WMT.N) next week for signs on whether the recent market rally has more room to run.

The consumer names are among the last major companies of the S&P 500 earnings season to report, but the results will also be watched for a read on spending as well as for commentary from executives on President Donald Trump’s proposal to tax imports.

Retail executives, some of whom met with Trump this week, have argued such a tax will raise consumer prices and hurt their businesses.

Besides Wal-Mart, Macy’s (M.N) and Home Depot Inc (HD.N) are among the heavyweights due to report next week.

Investors also will keep a close eye on housing-related data to gauge if a recent rise in consumer spending and inflation data is translating into higher home prices and a pick-up in home sales, market strategists said.

Wall Street ended the week on a high note, with all three major indexes registering record highs and the Dow reaching a seventh straight record close. [.N/C]

Investors were watching consumer names this week as Trump met with chief executives of Target Corp (TGT.N), Best Buy Co Inc (BBY.N) and six other major retailers.

Next week, investors may be looking for more clues about the impact of Trump’s proposals on retailers, with particular focus on Wal-Mart, JJ Kinahan, chief market strategist at TD Ameritrade in Chicago said.

“Maybe not so much what their earnings say as much as what their conference call will say about some of the president’s proposals around border taxes and immigration,” he said.

Results from some of the largest consumer-facing companies will also provide a read on whether improving consumer sentiment is reflected in actual results, said Steve Chiavarone, portfolio manager at Federated Investors.

“Does sentiment continue to work higher and eventually pull up actual results or can sentiment only take you so far until you have some follow-through in the real data? Those are the things that will be on our minds,” he said.

Results from small-cap retail companies will also be pored over as these companies have struggled from a profitability standpoint, said Steven DeSanctis, equity strategist at Jefferies.

“Though retail sales numbers have been good, profitability for a lot of the retailers has not been good,” he said.

“That’s going to be a big telltale sign for us. We’re overweight discretionary, thinking that was the cheapest group out there, and it still is the cheapest but… if the E drops out the PE, you run into a problem there,” he said, referring to price-to-earnings for the group.

 

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Caroline Valetkevitch; Editing by James Dalgleish)
Published at Fri, 17 Feb 2017 22:44:46 +0000

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When Trading Problems Are More Than Trading Problems

 

When Trading Problems Are More Than Trading Problems

Consider the following situations that I’ve encountered recently:

*  A trader was concerned about his inconsistent performance.  He asked for help with sticking to a set routine.  When I gathered background information, it turned out that he had significant symptoms of depression and a family history of depression.  Because he did not have a full-blown major depressive disorder, he assumed that his inconsistencies of mood and energy level were simple lapses of discipline.

*  A trader asked for help with overtrading.  He took too many trades, especially when he became frustrated.  His impulsive decision making was costing him money.  He wanted to find a way to achieve greater discipline in his trading.  His history documented a lifelong pattern of attention-related problems and poor frustration tolerance.  He had been diagnosed with attention deficit disorder in grade school but stopped taking medication and assumed he had outgrown the problem.

*  A trader showed good trading results, with superior risk-adjusted returns.  He did not take meaningful risk, however, and as a result never made much money.  Despite encouragement from his manager, he found it difficult to increase the size of his trades.  His early adult history included episodes of social anxiety and psychosomatic problems related to anxiety.

In each of these cases, the trading problem was the result of a larger problem.  The trader approached the problem as if it was a trading issue when in fact it required professional attention.

Not every problem that impacts trading can be solved by goal setting, writing in journals, and placing motivational post-it notes on a computer monitor.  Sometimes a trading problem is a manifestation of a much broader problem.  No amount of talking with a trading coach can properly address issues of depression, ADHD, or anxiety.  If you examine your history and find problems that have occurred outside of your trading, perhaps those need to be considered as possible causes of your trading concerns.  The right diagnosis and the proper help can be the best thing you could do for your trading.

Further Reading:  Best Practices for Dealing With Drawdowns

Published at Fri, 17 Feb 2017 09:45:00 +0000

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Wall Street slips as bank, health stocks weigh

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Wall Street slips as bank, health stocks weigh

The Dow and S&P 500 dipped on Friday, led by bank and healthcare stocks, as investors booked profits after a record-setting few days, while gains in Kraft Heinz help limit losses on the Nasdaq.

Since President Donald Trump vowed last week to announce a tax reform in the coming weeks, Wall Street has inched up to record intraday and closing highs in successive days in a rally where financials, mainly banks, outperformed other sectors.

But, with a strong fourth-quarter earnings season mostly complete, many investors say they need concrete signs of progress from Trump on his policy plans to justify more gains.

“While the markets have continued to melt up a little in the past two weeks, I’m not seeing depth, volume or conviction of the market that is looking to break out higher,” said Joe Brusuelas, chief economist at RSM US LLP.

“If anything I think we are setting up for a period of profit taking, while forward-looking investors await more signs from the White House.”

With a long weekend ahead due to the Presidents Day holiday on Monday, investors are unlikely to make too many new bets and trading volumes are likely to be thin.

At 11:04 a.m. ET (1604 GMT), the Dow .DJI was down 56.36 points, or 0.27 percent, at 20,563.41, the S&P 500 .SPX was down 4.75 points, or 0.20 percent, at 2,342.47.

The Nasdaq Composite .IXIC was down 0.68 points, or 0.01 percent, at 5,814.22.

Nine of the 11 major S&P sectors fell, with gains only in the defensive consumer staples .SPLRCS and real estate .SPLRCR sectors.

The S&P 500 financial index .SPSY, which has also gained on prospects of higher interest rates, was down 0.7 percent and the KBW Bank index .BKX fell nearly 0.8 percent.

The biggest drags were Bank of America (BAC.N) and Citigroup (C.N), which fell about 1 percent.

UnitedHealth (UNH.N) sank 3.7 percent to $157.55 after it was sued by the Justice Department over Medicare charges.

Other health insurers also fell, including Aetna (AET.N) by nearly 3 percent.

Kraft (KHC.O) jumped 8.2 percent to $94.45 after it said it would continue to pursue a $143 billion bid for Unilever (ULVR.L), despite being rebuffed. Unilever’s U.S.-listed shares (UL.N) surged 9.5 percent.

Declining issues outnumbered advancers on the NYSE by 1,886 to 904. On the Nasdaq, 1,624 issues fell and 1,041 advanced.

The S&P 500 index showed 23 new 52-week highs and one new lows, while the Nasdaq recorded 71 new highs and 15 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D’Souza)
Published at Fri, 17 Feb 2017 16:39:30 +0000

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Five Key Questions Traders Need to be Asking

 

Five Key Questions Traders Need to be Asking

Here are five helpful questions that traders too rarely ask:

1)  What was the price path of what I was trading *after* I stopped out of the trade?  Does my exit execution actually add value?

2)  What has been the price path of what I’ve been trading after I entered the trade?  Does my entry execution have positive expected value, or am I better off entering in a rule-based, mechanical fashion?

3)  When I’ve added to trades, what has been the P/L just for those added pieces?  Does adding to trades truly add to my profitability?

4)  What has been the price path of trades I decide to not take because of lack of conviction?  Does my conviction in an idea truly correlate with the profitability of trading that idea?

5)  How does my P/L behave after I’ve had a string of winning trades?  A string of losers?  Does recent performance affect my trading, and–if so–is that impact positive or negative?

Tough to come up with answers for better trading if we’re not asking the right questions.  

Perhaps the best question of all:  How much time do you spend studying your trading vs. studying the markets you trade?

Further Reading:  Preparation and Success

Published at Thu, 16 Feb 2017 14:08:00 +0000

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Inflation – What It Is, What It Isn’t, And Who’s Responsible For It

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By MichaelGaida from Pixabay

Inflation – What It Is, What It Isn’t, And Who’s Responsible For It

By: Kelsey Williams | Wed, Feb 15, 2017


Inflation is the debasement of money by the government. PERIOD.

It is NOT a general increase in the level of prices for goods and services.

The above statements are critical to an understanding and correct interpretation
of events which are happening today – or expected to happen – that are casually
attributable to inflation. So, let’s go one step further.

There is only one cause of inflation: government. The term government also
includes central banks, especially the US Federal Reserve Bank.

Inflation is not caused by “greedy” businesses, excessive wage demands, or
accelerated consumer spending. Even government’s own propensity to spend, as
reckless as it is, does not cause inflation. And that does not contradict my
earlier statement that government is the only cause of inflation. They are.
But not because of their spending habits.

Economic growth does not lead to higher inflation. There are statements made
often that imply a link between growth in our economy and inflation. And that
we have to “manage the growth” so the economy doesn’t “grow too quickly” and “trigger
higher inflation”. These statements are false and misleading.

Also, inflation will not “accelerate over the next couple of years due to
higher energy prices and stronger wage growth that leads firms to raise prices”…Gus
Faucher/PNC Bank/WSJ (It is possible that inflation will accelerate over the
next couple of years, but it can’t/won’t be for the reasons stated.)

So how does the government cause inflation? It’s time for a bit of history…

Early ruling monarchs would ‘clip’ small pieces of the coins they accumulated
through taxes and other levies against their subjects.

The clipped pieces were melted down and fabricated into new coins. All of
the coins were then returned to circulation. And all were assumed to be equal
in value. As the process evolved, and more and more clipped coins showed up
in circulation, people became more outwardly suspicious and concerned. Thus,
the ruling powers began altering/reducing the precious metal content of the
coins. This lowered the cost to fabricate and issue new coins. No need to clip
the coins anymore.

From the above example it is not hard to see how anything (grains and other
commodities for example) used as money could be altered in some way to satisfy
the whims of government. But a process such as this was cumbersome and inconvenient.
Of course it was. What a shame. There had to be a better way. And there was.

Enter: Paper Money

With the advent of the printing press (moveable type) and continued improvements
to the mechanics of replicating words and numbers in an easily recognizable
fashion, paper money was now in vogue – big time.

However, people viewed the new ‘money’ with healthy skepticism and coins with
precious (or semi-precious) metal content continued to circulate alongside
the new paper money. Hence, it was necessary, at least initially, for government
to maintain a link of some kind between money of known value vs. money
of no value (in order to encourage its use).

Over time, eventually, that link was severed; partially at first, then completely.
And it was done by fiat (a decree or order of government).

Not only does our money today have no intrinsic value, it is inflated (and
therefore debased) continuously and ongoing through subtle and more sophisticated
ways such as fractional-reserve banking and expansion of credit. The printing
press is still at the core and is humming 24/7 but the digital age has ushered
in new and ingenious ways to fool the people.

Government causes inflation by expanding the supply of money and credit.
And that expansion of the money supply cheapens the value of all the money.
Which is precisely why, over time, the US dollar continues to lose value. It
takes more dollars today to purchase what could have been purchased ten years
ago, twenty years ago, etc. And it has been going on for over one hundred years.
It dates back to the origin of The Federal Reserve Bank in 1913.

What most people refer to as ‘inflation’ or its causes are neither. They are
the effects of inflation. The “increase in the general level of goods
and services” are results of the inflation that was already created.

More history… The Arab Oil Embargo in 1973 and the demands for more money
for oil which led to the formation of the Organization Of Petroleum Exporting
Countries (OPEC) followed close behind then President Nixon’s severance of
all ties of the US dollar to Gold. The underlying fact of the matter was that
the dollars which they were receiving for their oil were worth less (not quite
‘worthless’) and had been losing value for several decades. And the price had
been fixed for decades.

To understand this better, imagine that you were a company selling widgets
for $1 each and according to your contract you cannot receive any more than
that. Fast forward twenty or thirty years. You are still selling lots of widgets
and still receiving $1 for each one you sell. But your costs over the years
have continued to climb. And it also costs you more for everything you buy
to maintain your standard of living. And it’s not just you. Everyone is paying
more for everything. Yet, on an ongoing, year-to-year basis, things seem reasonably
normal. But prices now are rising more frequently and the rate of increase
is higher than before. What is going on?

The effects of inflation are showing up. Those effects can be very subtle
at first, or not noticed at all. But at some point in time the cumulative effects
of inflation become more obvious and everyone starts acting differently. Businesses
try to plan for it and individuals invest with inflation in mind.

If your dollars were freely convertible into equivalent amounts of gold based
on the prices in effect at the time of your original contract to produce widgets
– or sell barrels of oil – then you could just exchange your dollars for gold.
Which is exactly what happened. Foreign governments in the late sixties began
to demand the gold to which they were legally entitled. And countries which
produced and sold oil wanted a higher price for their oil. Wouldn’t you?

As people become more aware of the effects of inflation they start looking
for reasons. And for guilty parties. Government is quick to act of course.
They start by implementing wage and price controls. This is like setting the
stove burner on ‘high’ and putting a lid on the pot with no release for the
pressure. And they talk a lot.

They have talked enough over the past thirty years to frighten us into thinking
that our own spending and saving habits are the problem. Sometimes the blame
is directed at foreign countries and their currencies (China/Yuan for example).

Our sense of ‘unfairness’ over China’s attempts to weaken the Yuan seem to
be misplaced. We criticize them for doing the same things the US government
and Federal Reserve have been doing for over one hundred years.

The inflation (expansion of the supply of money and credit) produced by the
Federal Reserve is deliberate and intentional. And ongoing. The effects of
that inflation are volatile and unpredictable.

Even with the hugely, inflationary response of the Federal Reserve in 2008
and afterwards we did not see the “obvious substantial increase in the general
level of prices for goods and services” that some expected and predicted. But
we did see a resurgence of higher prices for financial assets like stocks and
real estate.

During the seventies, prices
for basic necessities
were rising on a weekly, even daily, basis. But
things eventually settled down and we had an extended period of stability
and relative US dollar strength for a couple of decades.

And yet, the effects of inflation are very clear. How much are you paying
for things today compared to fifteen years ago? Ten years ago?

As time marches on, the effects of government inflation will become more extreme
and more unpredictable. And the loss of purchasing power of the US dollar will
reflect that.


Kelsey Williams
Kelsey’s Gold Facts

Kelsey Williams is retired (2005) and living in Southern Utah. He has forty-five
years experience in the financial services industry. In 1972 he acquired his
first “real” money by exchanging some depreciating paper dollars for gold and
silver coins. The U.S. dollar price of gold at that time was less than $70/oz
and silver at $1.60/oz. He advised clients professionally between 1975-80 regarding
similar acquisitions and has always counseled his clients throughout his financial
planning career to maintain positions in gold. He enjoys swimming, reading,
writing, and listening to music.

Copyright © 2017 Kelsey Williams

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Published at Wed, 15 Feb 2017 08:52:11 +0000

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What In The World Are You Trading?

 

What In The World Are You Trading?

The beauty of financial markets is that, quite literally, you can trade almost any publicly listed asset in the world.  If you want to buy stocks in India, Brent crude oil, Japanese currency, or a curve spread in European interest rates, it’s very doable.  Despite this historic access to global assets, something unheard of for the public just a few decades ago, we find traders locked into trading the same things, the same ways.

Too often developing traders focus on finding the right trading signals and setups; some hidden formula for making money.  The reality is that trading success is as much about what to trade (and when) as how to time market tops and bottoms.  The past six months in the U.S. stock market have been quite bullish, but notice from the excellent chart from Finviz that sector performance has varied widely over that period.  If you were trading interest rate sensitive utilities and consumer shares or healthcare issues, you barely made money if at all.  If you were trading financial shares, such as banks, you likely killed it.

What you trade is as important as how you trade.

Some years back, a successful trader I knew well found it difficult to make money trading stocks because volatility had declined.  He scanned the universe of commodities and found several that moved similarly to stocks when stocks were volatile.  He began trading those commodities and–lo and behold–he started making money again on a sustained basis.

When I recently visited SMB, I met with several traders who were achieving unusually positive results.  I quickly calculated their Sharpe ratios and found that, not only were they making significant money: they were doing so with excellent risk/reward.  It was clear in speaking with them that they had leveraged technology to identify stocks with the right kind of movement, that provided the best opportunities for that day.  Had they traded the exact same patterns in large cap energy or retail shares, they would have struggled for profitability.  

A macro portfolio manager who I recently worked with also had achieved consistent profitability with excellent risk-adjusted returns.  The strategy involved tracking macroeconomic data in detail and identifying which economies were accelerating and decelerating.  The portfolio then went long the growing economies and short the weakening ones.  Results were not only positive, but completely uncorrelated to the major market indexes.  All because that trader looked in places in the world that others were ignoring.  While the great majority was focused on the U.S. President’s policies and trading only U.S. currency and rates, the successful trader was long some Latin American assets, short others; long some Asian assets, short others.

If your trading results have been subpar, consider the possibility that your problem may not be psychological and may not even be with your methods.  Instead, you could be like the gold prospector who is digging where everyone else has been mining.  If you wanted to successfully mine for gold, you’d conduct geological surveys, inspect the land, and go somewhere promising where no one else was looking.  Purchasing better equipment and doubling down on your “passion for mining” can’t help you if you’re digging in the wrong places.

Further Reading:  Reflections on Opportunity

Published at Wed, 15 Feb 2017 13:05:00 +0000

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How Trading Success Happens

 

How Trading Success Happens

When I first began working with traders, my central insight was that trading is a performance activity.  What makes for trading success is not so different from what makes for success in other performance fields, whether they be performing arts, athletics, chess, or surgery.  In each of these fields, the star performer begins with certain inborn talents and then refines those through a process of training, mentoring, and coaching.  Training and mentoring build knowledge and skills and accelerate the learning process.  Coaching provides guidance and helps performers channel their talents and skills to where they can be most successfully applied.  Long before elite performers acquire fame or fortune, they spend long hours in becoming.  Their focus is on improvement, the refinement of skills, and the development of new ones–not on the the trappings of success.

There are few, far too few, places where developing traders can benefit from the thoughtful integration of training, mentoring, and coaching.  It’s one reason I’ve been such a fan of the building of teams within trading firms.  Those teams enable senior traders to benefit from the work of junior traders, and they provide hands-on learning, mentoring, and coaching for those juniors.  The learning takes place on the desk, just as an athlete’s learning takes place on the field–in practice and during games.

No one expects an athlete to develop by reading books, taking classes, or practicing on their own.  No one develops as a performing artist by writing in journals and trying out different songs or plays.  In performance fields, aspiring performers learn from experienced performers and those knowledgeable about the performance domain.  Medical students are trained at the bedside by practicing physicians; chess players hone their talents in academies run by chess masters and grandmasters.

If I were looking to become successful in the trading world, I would learn some skills and/or develop some area of expertise that would make me valuable to a trading team or firm.  I would then contribute my skills to that team and learn everything they’re doing that makes them successful.  Over time, I would integrate my abilities and experience with what I’ve learned to develop my own path to success–and then I would cement that learning/development by serving as a mentor for a new generation of juniors who could in turn make me better.

I’ve worked with many individuals, many trading teams, and many trading firms.  That is how success happens.

Further Reading:  The Foundation of Trading Success

Published at Tue, 14 Feb 2017 12:52:00 +0000

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Pushing Our Trading Boundaries

 

Pushing Our Trading Boundaries

I had an interesting experience recently.  Until the snowfall of the last few days, I had been doing my jogging outdoors.  It’s great exercise, and it is very effective in clearing out the head and starting the day.

With the recent snow, I went back to the treadmill and resumed my jogging.  The great thing about the treadmill is that it continuously measures pulse rate, calories burned, distance traveled, heart rate, and more.  As I replicated my outdoor run on the treadmill, an uncomfortable reality hit me:  I was not coming close to my target heart rate for optimal aerobic benefit.  In simple terms, my outdoor runs were not pushing me nearly hard enough.

That’s the great thing about keeping score:  there’s far less room for making faulty assumptions about your performance.  In trading, we think we’re working hard at improvement when in fact we’re not really breaking a sweat: we’re not truly pushing ourselves outside our comfort zones.  When I gave a recent talk to the SMB traders, I was asked about patience and discipline and proposed the following exercise:  calculate the median number of trades you’ve placed each day over the past two months.  Then divide that number by two and limit yourself to that number of trades for the day.  Once you hit that limit, you’re done for the day.

Now that is a bit like getting on the treadmill.  We’re no longer relying on a subjective intention to trade more selectively; we’re keeping score and forcing ourselves to actually *be* more selective.  If you’ve averaged four trades per day and now can only take two, you’ve created a situation where you use half your bullets for the day if you take a single marginal, low-quality trade.  Knowing you only have two trades to make during the day forces you to look for the best opportunities and to keep powder dry for possible later opportunities.

When I’m on the treadmill, I can’t avoid looking at the screen that tells me if I’m cheating or not.  When you’re limiting the number of trades, you can’t overtrade and somehow convince yourself that you’re working on your game.  There’s a saying that talk is cheap, but it’s not.  It’s quite expensive if it deludes us into thinking we’re making progress when in fact we’re not making sufficient efforts.  Bella was right to lay into some of the traders, just as I was right to chastise myself and double down on sticking with the treadmill.  If I want to clear my head and get fresh air, great, go for a jog.  But if I want to work out and develop myself, then dammit keep score, track objective reality, and really figure out if I’m truly developing.

It’s all about use it or lose it:  if it doesn’t grow, it stagnates.  And if we don’t break a sweat and push our boundaries, we never truly grow.

Further Reading:  The Greatest Mistake Losing Traders Make

Published at Mon, 13 Feb 2017 13:05:00 +0000

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As banks surge, will shareholders get their cut?: James Saft

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A computer screen showing stock graphs is reflected on glasses in this illustration photo taken in Bordeaux, France, March 30, 2016. REUTERS/Regis Duvignau

A computer screen showing stock graphs is reflected on glasses in this illustration photo taken in Bordeaux, France, March 30, 2016.REUTERS/Regis Duvignau

 As banks surge, will shareholders get their cut?: James Saft

By James Saft

That the Trump agenda is good for banks is self-evident; that shareholders will get their cut is a lot less likely.

Friday’s news of the resignation of Daniel Tarullo, the Federal Reserve official who served as quarterback of the effort to tame systemic risk in the banking system, touched off another leg in a sustained and powerful rally of U.S. bank shares, which are up nearly 30 percent since shortly before the election.

Coming just after Trump’s order to review and likely gut Dodd-Frank Act legislation, Tarullo’s exit, planned for April, cements the view that U.S. banks will be allowed to carry less capital. A move to delay implementation of the application of the Fiduciary Rule to retirement advisors is a good indicator that highly profitable but low-value (for clients) products will continue to generate revenues.

To an investor from Mars more revenue spread across less equity would seem to be a sure thing.

Those of us who’ve lived on Earth these past two decades should have our doubts. There is a reason banks, especially the largest and those which operate investment banks, trade at such low multiples of earnings, and it is not because they have a proud track record of rewarding shareholders.

Since February 1993 the KBW index of bank shares has returned only about 60 percent as much as the S&P 500 and done so while treating investors to teeth-rattling sell-offs in 1998, 1999, 2001, 2002, 2007, 2008 and 2009.

The winners? Well, bank employees of course, who’ve trousered serial fortunes at the expense of taxpayers and shareholders. A move to relax oversight or put the capital bar lower will set taxpayers up to fund a bailout once again, but probably not before we see a couple of explosive rallies and some just as explosive sell-offs in banking shares over the next three to five years.

Complexity will come back into vogue, creating more opportunities for banks to sell clients, and bankers their banks, risks they don’t understand. You can hardly blame them. Opportunities to take the upside when others own the risks are few and far between in this life.

Expecting Trump and his appointees to govern otherwise ignores the lessons his own business career teaches. Expecting bankers to police themselves is just silly.

 

SHORT TERM VS LONG TERM

Two elements in the Trump agenda are fundamentally positive for banking profitability: deregulation and reflation. While the former leaves shareholders as likely fall guys for self-interested risk-taking by insiders, the second is legitimately positive.

Fiscal stimulus and tax cuts pose a problem down the road but over the short term even their prospect has already driven interest rate expectations higher and increased the gap between short- and long-term interest rates. As the banking business model is predicated on borrowing short and lending long, a flat yield curve is bad news and negative interest rates, as seen in much of the world last year, are poison. A bit of inflation, even more than a bit, is just what banks need; it makes them more profitable and helps whet clients’ appetite for debt.

And don’t expect the Fed to spoil the party. With Tarullo’s exit Trump will be able to fill three of the seven governor positions at the Fed. If he does not offer Janet Yellen another term at chair next February he may get another.

So why, if they will only get shafted in the end, do investors persist in backing the banking sector follies? An insight from Paul Woolley, of the London School of Economics, about how asset managers are punished and rewarded helps to explain. (here)

Most fund managers are asked to beat a stock market index, or one which tracks other funds, without taking too many huge bets. Outperform, or at least stay close to the pack, and you will probably continue to draw a hefty pay packet. Trail the market badly and out the door you go.

That forces money managers to buy what is going up strongly, and as we are seeing few sectors can rally as explosively as banks when the going is good. Just as bankers have perverse incentives to make money while times are good, so do fund managers, whose performance is judged quarter to quarter or at best over three-year intervals.

We’ve seen this movie before, and though we may like the popcorn we won’t enjoy the ending.

 

(Editing by James Dalgleish)

 
Published at Mon, 13 Feb 2017 21:57:45 +0000

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How Millennials Can Avoid Working Until They’re 75

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How Millennials Can Avoid Working Until They’re 75

By Zina Kumok | February 11, 2017 — 6:00 AM EST

For the longest time, 65 has been the standard retirement age. Not everyone retires at that time, but enough to make it the average. But for Millennials, 65 is going to be early retirement – very early retirement.

Recent research indicates that Millennials may have to work until 75 to fund their nest egg. Here we’ll break down of those findings, and what can be done about it. (For more, see: Why Millennials May Not Be Able to Retire.)

Why Millennials Will Have to Work Longer

Unlike any other previous generation, Millennials face an onslaught of financial challenges. Student loans, rising rents and lower starting salaries point towards a depressing fact – the average Millennial will struggle to fund their retirement. The Great Recession has also made recent graduates wary of investing in the stock market, even though that’s where their money can grow the fastest.

Not convinced? A study by NerdWallet found that Millennials will have to work until age 75 to fund their retirement, compared to current seniors who only have to work until 62. That’s just one piece of research in a growing consensus, and they all point towards the same trend.

Jason Kirsch, author of “The Millennial Advantage” has said in the past that retirement was based on a three-legged stool: pensions, Social Security and personal savings. According to Kirsch, retirees used to get more out of Social Security than they contributed. That’s no longer true.

What Millennials Can Do

The silver lining is that Millennials are still young and can catch up for retirement. If they’re willing to start investing now, that is.

“In reality, if you invest early and prudently, you won’t need to save as much to get to the same point,” said Certified Financial Planner Hui-chin Chen of Pavlov Financial Planning. “The problem is most Millennials don’t get to save early. The less you save during your working years or the later you start, the longer it takes to save enough for retirement.”

So here are some strategies Millennials can use to help ensure they won’t still be working in their golden years:

  • Invest, don’t save. A survey by State Street discovered that 40% of Millennials prefer to keep their savings in a liquid account instead of investing. That’s why they miss out on the returns they’ll need to adequately secure their retirement. A high-yield savings account has an annual percentage yield (APY) of 1%, while an S&P 500 Index fund has an average 10-year return of 6.82%.

  • Save most salary increases. Younger workers see higher gains in their salary as they jump from entry-level staffers to management. Those increases can be substantial, and Millennials can capitalize by setting aside most of that money in a retirement account.

  • Spend less on housing and transportation. Those two categories make up the bulk of household expenses. The less Millennials spend on rent and car payments, the more they’ll have to save, invest and pay off debt.

The Bottom Line

In many ways, Millennials are already facing a huge disadvantage. They’re not making as much as their parents, and just about everything is significantly more expensive. Getting a head start on retirement is a bigger challenge than ever before.

Thankfully, all is not lost. If you are a Millennial, you can better the odds of retiring on time by saving more than 10% of your salary, investing that money and being aggressive in your youth. It’s either that, or embracing the daily grind well into your 70s. Which will you choose? (For more, see: Retirement Planning the Millennial Way.)

Published at Sat, 11 Feb 2017 11:00:00 +0000

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Can Immigrants Over 65 Receive Social Security?

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Can Immigrants Over 65 Receive Social Security?

By Amy Fontinelle | Updated February 11, 2017 — 6:00 AM EST

If you immigrate to the United States when you’re 65 or older, can you draw Social Security benefits just like an American citizen? Under some circumstances the answer is yes. In other cases you can draw your home country’s equivalent of Social Security benefits even if you immigrate to the United States. And some immigrants qualify to draw benefits from both countries. Here’s an overview of how the rules work.

Qualifying for U.S. Social Security Retirement Benefits

Most people who immigrate to the United States after they’ve reached retirement age will not have the 40 U.S. work credits needed to qualify for Social Security unless they worked in the country for a cumulative 10 years when they were younger. However, if you’re able to legally work in the United States for a year and a half after arriving and can earn at least $1,260 per quarter, you may qualify to receive prorated U.S. Social Security benefits under a totalization agreement with a country you worked in previously.

A totalization agreement is an arrangement between two countries with similar social security programs that makes sure that workers and their employers don’t have to pay social security taxes on the same earnings in two different countries. As workers don’t pay into two systems simultaneously, they can’t double-dip when claiming benefits, either. It is not necessary to give up citizenship in your home country or to be a dual citizen with both foreign and U.S. citizenship to benefit from a totalization agreement. The benefit requirements pertain to your legal residency status and work history. The United States has these agreements with 26 countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland and United Kingdom. (For more, see Top Pension Systems in the World.)

“An immigrant who comes to the U.S. from Italy, for example, and has some work history in both countries, but not enough to fully qualify for Social Security benefits in either country, can combine his/her foreign and domestic work history in order to qualify for Social Security benefits,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of Index Funds: The 12-Step Recovery Program for Active Investors.” “When he/she applies for Social Security, the U.S. will contact Italy for his/her work history and he/she will receive a prorated amount based on the contributions to each system.”

How Totalization Agreements Work

Here’s an example of how a totalization agreement works in terms of what U.S. Social Security benefits a late-arriving U.S. immigrant might receive. Maria Carmen has lived and worked in Spain most of her life, but when she was younger she spent nine years working for an American company in the United States coordinating a study-abroad program for adults. During that time she earned 36 U.S. Social Security credits for her work, which is not enough to qualify for U.S. Social Security benefits but is enough to make her eligible for benefits under the United States’ totalization agreement with Spain (which requires a minimum of six credits).

Spain’s requirement for its workers to receive retirement benefits, which it calls a pension, is 15 total years of contributions, at least two of which must have occurred during the last 15 years. Maria Carmen worked for only 12 years in Spain, though, and so also doesn’t have enough credits to qualify for Spanish social security. But thanks to the totalization agreement, she can combine her work credits from both countries and receive social security benefits. Without a totalization agreement, she wouldn’t qualify for benefits in either country despite her 21 years of paying into the two systems.

When Maria Carmen applies to the U.S. Social Security Administration for retirement benefits, the SSA asks the Spanish government for a record of her Spanish social security contributions and eligibility. The benefit payment she receives is prorated based on her contributions to each system. She might apply for benefits in both countries and see which option gives her the larger monthly payment. If she had enough work credits in one country or both, she could simply claim what she was entitled to under either system without needing to rely on a totalization agreement. ​Learn more about the agreements with each country at the Social Security Administration’s totalization agreement page.

Collecting U.S. Social Security From Abroad

What if you earned at least 40 work credits in the United States and qualify for U.S. Social Security but later decide to return to your home country? Citizens of these countries can keep receiving their U.S. benefits no matter how long they are outside the United States: Austria, Belgium, Canada, Chile, Czech Republic, Finland, France, Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland and United Kingdom. In addition, residents of countries that have a totalization agreement with the U.S. can draw the U.S. Social Security benefits they earned even if they reside outside of the United States long term.

Many Immigrants Don’t Qualify for Social Security

While some immigrants over 65 are eligible to draw Social Security benefits in the United States, a sizeable group is not. Almost everyone who has never received Social Security benefits doesn’t have the work credits to qualify, according to a 2011 report from the Social Security Administration. More than 80% of that group consists of immigrants who arrived in the United States at age 50 or older.

Late-arriving immigrants also have a high poverty rate, due to limited income from other sources. This group tends to rely on their existing assets and on income from others with whom they live, such as adult children. The United States doesn’t have a visa program for retirees, and many late-arriving immigrants come on family-based immigrant visas, which require them to have a family member in the United States who is 21 or older and can support them financially. (For more, see Understanding Social Security Eligibility.)

The Bottom Line

While you don’t have to be a U.S. citizen to qualify for U.S. Social Security benefits, you do have to have paid into the system for at least 10 years or have enough credits between the U.S. system and a system in a foreign country with which the United States has a totalization agreement. Your benefits are based on what you earn and whether you’ve paid into the system(s) for enough years.

If you don’t qualify for U.S. Social Security in any way, you still might be able to receive any social security or pensioner’s benefits you earned in your former country – if that country’s laws allow you to receive benefit payments while residing in the United States. (For more, see How to Retire in the U.S.: The Visas, the Process and How the Green Card Lottery Really Works.)
Published at Sat, 11 Feb 2017 11:00:00 +0000

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Tough federal bank regulator calls it quits

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What does a Trump presidency mean for the Fed?
What does a Trump presidency mean for the Fed?

Tough federal bank regulator calls it quits

  @mattmegan5

President Trump’s efforts to unshackle America’s banks just got easier.

Daniel Tarullo, the point man on bank regulation at the Federal Reserve, announced on Friday he’s stepping down in April, more than four years ahead of schedule.

Tarullo spearheaded the Fed’s efforts to put banks under tighter scrutiny following the 2008 financial meltdown.

The departure will give Trump, who has promised to deregulate banks, a third vacant seat at the Fed to fill. The appointments will allow the new president to reshape the most powerful central bank in the world in his mold.

Tarullo, 64, did not explain why he’s resigning but noted that he’s served as a Fed governor for more than eight years. In a very brief letter addressed to the president, Tarullo said it’s been a “great privilege” to serve “during such a challenging period.”

Appointed by President Obama in 2009, Tarullo has emerged as one of the most powerful figures in the banking industry.

He served as chairman of the Fed’s committee on bank supervision, putting him in charge of enforcement and the stress tests that examine if lenders are prepared to weather the next economic storm.

News of Tarullo’s early resignation seemed to lift Wall Street’s spirits. Shares of big banks like Goldman Sachs (GS) and Citigroup (C) rose modestly following the announcement. The gains extend a post-election rally that’s been driven in part by Trump’s promises to roll back bank regulation.

But Jaret Seiberg, an analyst at Cowen & Co., wrote in a report that Tarullo’s departure is unlikely to spark “radical change in regulatory policy” and wasn’t a “political comment on Trump.”

It’s important to remember that Tarullo’s role as the Fed’s point man on bank regulation was expected to wane anyway. That’s because one of the vacancies Trump gets to fill is the position of vice chairman for supervision. That position was created by the 2010 Dodd-Frank Wall Street reform law but was never filled by Obama.

Big banks are obviously hoping Trump taps someone who shares his pro-business philosophy of lighter regulation. Trump has promised to “do a big number” on Dodd-Frank. Last week, he signed an executive order that sets the stage for rolling back parts of the law.

Press reports indicate Trump could fill the supervision role with David Nason, an executive at General Electric (GE)who served in the Treasury Department during the financial crisis.

Nason could appeal to the pro-business faction of the Trump administration, including the handful of Goldman Sachs veterans like top economic adviser Gary Cohn.

But Seiberg warned that the strong “populist forces” within the White House could encourage Trump to tap a vice chairman of supervision who wants to crack down on big banks. One idea is to encourage these mega banks to shrink themselves by imposing higher capital requirements.

During the campaign, Trump supported breaking up big banks, a sentiment that top White House strategist Steve Bannon may share.

“There is a risk that the replacement could be tougher on the biggest banks than Tarullo,” Seiberg wrote.

Fed chief Janet Yellen, whose term doesn’t expire until February 2018, has warned against gutting Dodd-Frank. After Trump’s election, Yellen credited financial regulation with making the system “safer and sounder” and said she doesn’t “want to see the clock turned back.”

Published at Fri, 10 Feb 2017 21:18:53 +0000

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Repubican Hensarling plans to ease Wall Street rules: memo

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Repubican Hensarling plans to ease Wall Street rules: memo

| WASHINGTON

The Republican leader of the House Financial Services Committee plans to scale back banking reforms, curb the consumer finance agency and ease regulations on financial institutions and companies looking to raise capital, according to a proposal seen by Reuters on Thursday.

In a four-page memo on the legislation he intends to introduce, Texas Representative Jeb Hensarling made a slew of proposals, including one that Wall Street banks’ “stress tests” be performed every two years instead of annually as is done now.

He also said he would have the position of director of the controversial Consumer Financial Protection Bureau changed from its current protected status to a political appointment removable “at will” by the president under another change.

The memo, seen by Reuters, outlined dozens of changes to the Financial Choice Act that Hensarling introduced last year and plans to reintroduce. His new bill is expected to pass the House of Representatives, but faces an uncertain fate in the Senate, where it will require 60 votes to pass.

The memo does not mention the Volcker rule, which limits bank’s ability to make speculative investments in banks’ own accounts.

His original bill would have killed the Volcker rule. Its absence in the memo, which details his changes to the original bill, suggests he will again propose to eliminate that rule.

 

“It’s very aggressive and a very good starting point to rolling back a lot of the rules and regulations,” said Paul Merski of the Independent Community Bankers of America.

Besides rewriting lending rules, Hensarling’s Choice Act would add more hurdles to the U.S. Securities and Exchange Commission enforcement program.

The bill would also scale back a variety of rules for public companies, including some accounting and capital raising rules. It would also reduce regulations for credit rating agencies.

(Additional reporting by Amanda Becker and Sarah Lynch. Editing by Cynthia Osterman)
Published at Thu, 09 Feb 2017 20:08:32 +0000

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The world’s largest money manager warns of ‘dark shadows’

The BlackRock sign is pictured in the Manhattan borough of New York, in this October 11, 2015 file photo. REUTERS/Eduardo Munoz/Files

The world’s largest money manager warns of ‘dark shadows’

Donald Trump recently lavished praise on Larry Fink for growing the president’s fortune. But the BlackRock boss isn’t exactly returning the compliment.

Fink warned on Wednesday he sees “a lot of dark shadows” that could rattle global markets in the coming months. That’s quite a warning, coming from the CEO of the world’s largest money manager BlackRock (BLK), which controls more than $5 trillion in assets.

Fink joins a growing list of corporate leaders and Wall Street analysts to raise concerns about the timing of Trump’s agenda and the markets’ overly-optimistic expectations for it.

This week, Irene Rosenfeld, the CEO of Oreo maker Mondelez (MDLZ) expressed worry about “significant disruption and uncertainty” from the “backlash against globalization,” and Goldman Sachs warned about the potential negative effects of restrictions on trade and immigration.

Speaking at the Yahoo Finance All Markets Summit, Fink also specifically cited the “breakdown of globalization” signaled by Brexit and Trump’s election.

Fink is concerned about businesses putting major decisions on hold as they seek more clarity on the timing and details of Trump’s plan to stimulate the American economy through tax cuts, infrastructure spending and regulation-busting.

“Most business people are not investing today. They’re waiting to see what may happen. I believe we’re in the midst of a slowdown as we speak because of all the uncertainty,” Fink said.

Fink has supported Democrats and donated money to Hillary Clinton in the 2016 presidential race. The BlackRock boss was even mentioned as a leading contender to be treasury secretary if Clinton had defeated Trump in November.

Still, Fink was named to Trump’s all-star team of CEOs and the president praised him at the group’s first meeting at the White House last week.

“Larry did a great job for me. He managed a lot of my money. I have to tell you, he got me great returns,” Trump said.

Fink’s words of caution come as U.S. markets are sitting near all-time highs. The Dow has surged more than 1,700 points since Trump’s election and recently crossed the 20,000 milestone for the first time ever.

But markets have priced in little risk of a setback. The S&P 500 has gone 81 days without a 1% selloff, the longest period without a big drop since 2006.

“I think markets are ahead of themselves,” Fink warned.

While Trump has slammed trade deals for shipping jobs overseas, the BlackRock CEO forcefully defended globalization, saying, “I believe the world is better…because of global trade.”

Fink admitted that some people are being “left behind,” but suggested much of that is driven by the powerful force of “technology transformation.”

Recent research supports that point that Americans should be more concerned about robots than Mexico. One study by professors at Ball State University found that between 2000 and 2010 about 87% of the manufacturing job losses were caused by factories becoming more efficient through automation and better technology. Just 13% of the lost jobs were because of trade.

Fink warned that a breakdown in global trade and globalization — Trump has pulled out of the Trans-Pacific Partnership and wants to renegotiate NAFTA — is deflationary.

That’s why Fink said there’s a good chance the 10-year Treasury rate could plunge back below 2%. The closely-watched rate is currently sitting at 2.35%.

Yet Fink hedged a bit, explaining he could also make a case for the 10-year Treasury yield continuing its post-election climb to 4%, especially given the low unemployment rate and promises for more stimulus.

“Obviously you’re hearing from me that I’m pretty confused. We’re living in a bipolar world right now,” Fink said.

Asked for the last time he felt like he was living in a “bipolar” world, Fink responded: 2008.

Andy Serwer, Yahoo Finance’s editor-in-chief, joked that the comparison isn’t all that comforting.

“I’m not relaxed. Sorry,” Fink said.

–CNNMoney’s Patrick Gillespie contributed to this report.

CNNMoney (New York)First published February 8, 2017: 4:20 PM ET

Published at Wed, 08 Feb 2017 21:21:08 +0000

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How to raise financially savvy kids

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How to raise financially savvy kids

By Chris Taylor
| NEW YORK

Wondering why our kids are not so great with money? Just look in the mirror; it’s because adults are often financial train wrecks themselves.

Even so, all is not lost. You can still try to instill your children with the right lessons about spending, saving and investing, to prime them for a more secure financial future.

That is the cause of personal finance guru Beth Kobliner, whose new book “Make Your Kid a Money Genius (Even if You’re Not)” has just been released.

She spoke with Reuters about how to equip kids with money smarts.

Q: Is there a time in a child’s life that is best for giving them money lessons?

A: Start earlier than you think, because by age three they start getting money concepts.

Keep your lessons age appropriate. Using anecdotes is helpful, because we all like stories. Show them the numbers with online calculators, and how savings and interest could one day get them to a million dollars.

Q: You say that chores should not be tied to money and allowances are not a great teaching tool. Why?

A: Tying things like making their bed to monetary rewards is a problem. You are paying a child to do things they should be doing anyways, and then they will start negotiating with you all the time. It can end up backfiring for parents.

 

Allowances start with good intentions, but then people tend to get busy and forget about them. I looked into the research, which is all over the map – sometimes allowances help kids with financial decision-making, and sometimes they don’t.

What is very clear is that, whatever you choose, you need to be consistent about it. Otherwise it sends the wrong money message.

Q: No one is perfect with money; is that why we are so afraid to teach our kids about it?

A: It is a terrifying topic. That is essentially why I wrote the book. It is a primer for parents as well, about basic things like debt and delayed gratification and compound interest, so they don’t feel like they are giving kids the wrong information.

 

Q: What are the money topics we should not be discussing about with our kids?

A: I don’t think you need to talk about your salary, because kids don’t have any context for it, and won’t really understand it. They also might gossip about it at school.

You also don’t need to point out who is the bigger breadwinner, by saying things like ‘Mommy makes twice as much as Daddy.’

And don’t disclose how much is in your 401(k); either they will think you are rich and can buy anything you want, or they will worry that you are totally broke.

 

Q: Is social media putting added financial pressure on families, by pretending that we all lead lives of luxury?

A: Absolutely. There is a constant barrage of Instagram photos, seemingly saying: ‘Look at the beautiful place I am, look at the wonderful food I’m eating.’ All of those things cost money. That is why you need to start early by teaching them about wants versus needs, and get into the habit of saying ‘No.’

Q: How did your own parents shape the way you understand money?

A: My dad is 87 now, and growing up in the Bronx, his family was in pretty bad shape. His father drank and couldn’t hold a job, his mother was overwhelmed, and he had siblings who slept in drawers. So he used to go outside of his tenement building, hang out by the pay phone, and answer the phone for people who lived there. They would give him a nickel, and then he would give it to his parents, so they would fight less. Because of that, he always got how important money was.

Q: You have three kids of your own, so how is their financial behavior shaping up?

A: Pretty good, because they have heard me talk about this stuff their whole lives. What I tell other moms is: Make your financial priorities clear, and your kids will pick up on it. Just giving them more stuff is not going to make them any happier. That is something I know for sure.

 

(Editing by Beth Pinsker and Bernadette Baum)
Published at Tue, 07 Feb 2017 15:55:44 +0000

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