Posts Tagged Investing
WILL DONALD TRUMP AND TREASURY SECRETARY STEVE MNUCHIN PROCLAIM THE NEW 21st CENTURY GLASS-STEAGALL ACT, BUT ONLY METAPHORICALLY?
The Banking Act of 1933, commonly referred to as the Glass-Steagall Act, ushered in various reforms, to assist the Nation’s Recovery from The Great Depression. “Glass”, which was part of (new) President Franklin D. Roosevelt’s “New Deal”, broke-up the Banking Industry, and created Federal Deposit Insurance. It was made permanent in 1945.
Prior to “Glass”, companies could engage in both commercial and investment banking, which meant that risky securities actions might jeopardize clients’ deposits, and there wasn’t any deposit insurance either. In the mid-1980s, however, many of the banking restrictions were lifted, and mostly larger banks transformed themselves into Financial Services Supermarkets. Also, making “banking” even more precarious: the number of products and financial institutions, has frown considerably since the 1930s.
In October of 2008, President George W. Bush bestowed many billions of dollars on the largest banks, in order to enhance liquidity within the banking system. Unfortunately, that action was interpreted, by many, as conveying an explicit Federal Government Guarantee of what became to be called the “Too Big to Fail” banks. That general assumption merely led to an even higher concentration of financial business, on the few, but same, largest—or Too Big to Fail Banks. Thus, the solution worsened the problem!
Following The Great Recession (4Q07-to-1Q09), President Barack Obama signed the Dodd-Frank Act into Law, in July 2010. Dodd-Frank reined-in the banks, required required high equity capital standards, and was intended to separate the investment risks from consumer deposits. The GOP, however, has sought to repeal Dodd-Frank ever since!
Treasury Secretary Steven Mnuchin, who is Donald Trump’s lead-man on banking laws, has been suggesting that he might propose a “21st century version of Glass-Steagall”. Donald Trump has also been saying the same thing! Today, Senator Elizabeth Warren called Secretary Mnuchin to task, at a Senate Finance Committee Hearing, as linked from CNBC-TV. She noticed that he had been avoiding the question of whether, or not, the Trump Regime would break-up the banks.
Finally, Secretary Mnuchin realized that he had to answer the question, and his response was still quite convoluted: “it’s a complex issue”; “not a good thing”. and finally “NO!” He stammered when she asked him how they could be considering a “21st century version of Glass-Steagall—a law which specifically broke-up the banks—with one that would not.” Mr. Mnuchin suggested that he would bring a team from the Treasury Department to brief the Senator’s Staff.
Secretary Mnuchin seemed to be avoiding answers from most of the Senators on the Committee—especially the Democrats—as he offered to provide briefings, similar to those offered Senator Warren, to a number of other Senators. Surely, the Secretary of the Treasury should be expected to appear before the primary Senate Committee, which regulates his office—and be totally prepared! And it should be obvious to most Americans that, so soon after the 2008 Banking Crisis, that the status of the Banking Laws would be Question Number One, Two and Three!
NOW MIGHT NOT BE THE TIME TO SELL, IN THE STOCK MARKET, UNLESS YOU KNOW SOMETHING THAT WALL STREET DOESN’T!
Today, the Dow Jones Industrial Average dropped by 1.79%; but, it’s still up 4.27% above the 2016 close. Similarly, the S & P 500 closed down 1.82%, and is still up by 5.28% for the year. And NASDAQ, which lost the most, some 2.57% today, is still up by 11.57% on the year.
It’s important to remember that the financial markets never go straight up, or straight down. There appears to have been talk around the markets lately, that some degree of “correction” (a sell-off) was necessary to calm the volatility. So, perhaps the political angst provided just the spark to settle the market! If there is any volatility in the early U. S. market trading on Thursday, it will probably be a combination of Sellers, who weren’t paying attention on Wednesday, and Buyers looking to pick-up a few potential bargains.
Jeremy Siegel, Economics Professor at the University of Pennsylvania, literally wrote the book about “Stocks for the Long Run”, is a perennial stock market Bull. Today, he said, in an interview on CNBC-TV: “If Donald Trump resigned tomorrow I think the Dow would go up 1,000 points,” Professor Siegel’s stated rational is that the market has been rallying on the Republican Agenda, and not the Trump Agenda.
I wouldn’t try to project how the stock or bond market would adjust to such a situation, especially when we don’t know how ugly it might get. Also, if Donald Trump were to be ousted, the degree to which the Trump Republican Party continues to remain comfortable with him at the helm, might reveal whether or not it will continue to maintain it majority—or even its relevance to the average American.
NOTE: Welcome to my readers from Austria and the Netherlands.
Many people assume that there are just two types of national economies, “Developed” or “Developing”. But that is certainly not the case, at all. There are still nations, mostly in Africa, where people subsist on just a few dollars per day. Such economies haven’t even begun to develop!
And other people have observed the rising tides, year-by-year, and realize that their homes, and their towns, will be inundated, within a decade or so. I will try to explain more of this, in future posts—from personal observation and study—about why some nations are evolving, and others are not.
There are three main categories of market development:—Developed, Developing and Frontier. A brief explanation is follows:
Developed Markets: are the easiest to identify, since they are the generally some of the largest economies; have attained a certain level of industrialization; posses reasonably large and efficient stock, and oftentimes bond, markets, and a stable currency.. Relatively high levels of education prevail, thus enabling a more capable labor force. As you can, the top investments in rude many global companies.
Developing Markets display economic advancement in the above-cited categories; however, they might be more advanced in some areas, and less so in others. Because there is more risk in less-advanced economies, home-grown large corporations are scarce, due to the more elementary capital structure, and a shortage of foreign investment. At least here, there are a few names of corporations that you are familiar with.
Categorization is somewhat judgmental, since South Korea is considered “developing” by some indexers; however, it is home to some of the world’s largest corporations, has a per capita income of 79% that of Japan, a highly educated labor force, and its per capita GDP is expected to surpass that of Japan and France perhaps by around 2020.
Frontier Markets are a catch-all category for nations that generally have: poorly-functioning economies; stock and capital markets, if any, are inefficient; most economic functions take place at the village level, often by barter; central governments are usually dysfunctional; and education is minimal. I doubt there are any familiar corporations in this group.
I have linked Fact Sheets of an ETF for each of the three categories. The iShares
ETFs have some of the highest trading volume; which, I believe makes them more liquid. Also, by using the same company’s ETFs, at least for my purposed in this post, the companies, countries and industries represented would be in the same location on the Fact Sheets.
NOTE: There are other ETFs, as well as actively-managed mutual funds, which would provide a range of investments in the same market categories. Please compare the various options in the event that you invest overseas.
Over the five years of this blogs existence, I have often wondered how to treat certain financial terms. When I stop and provide a short description (of the term), that can break the flow of the discussion. So, how do I inform or educate all readers, without annoying those with a greater financial awareness?
For instance, the media may take different approaches in reporting various economic statistic, such as the GDP—Gross Domestic Product: which is the total of all goods and service produced by a country (or other entity). The general print or broadcast media might provide a brief explanation of the particular statistic, when announcing it.
Print media snd cable TV stations, which regularly report on financial topics; however, would not. Rather, they might place the particular item into some form of context, such as: adding the quarterly GDP; its advance or decline for the Year; or perhaps the actual, versus the projected, GDP statistics.
I have decided to create a “Financial Terms” Tab, which may be accessed at the top-left of this blog. For anyone seeking more in-depth information on the term, they might link on Investopedia, or any of a number of other financial-related web sites. Rather than try to include a wide range of terms, all at once, I will build upon the terms to be included, over time.
NOTE: Keep in mind that financial terms and concepts might be included in posts, which discuss other than financial topics.
NOTE: Just a few days after Donald’s Inauguration, I described the basics of what might have been Trump’s expected Tax Plan in a blog post. Three months later, it’s still quite vague!
Although Trump prefers to label it as Tax Reform, yesterday’s big presentation was nothing but a vague suggestion of a Tax Give-Away, mostly to corporations and the top two percent of taxpayers. The stock market displayed its ecstasy by closing down a bit lower, and perhaps wondering if they had seen this movie before. Whatever might come of his Tax Plan, the corporate interests, who truly would benefit from a 57% tax-cut (from 35% to 15%) know that it still must get through Congress, and that is saying something!
Donald Trump will reach Day 100 on Saturday, after which pundits will begIn to slice-and-dice his accomplishments, most of which are quite minimal. That’s why he has been rushing to make big announcements, even if they are still in the early stages, and not thought-out. For instance: his visit to the Treasury Department, a couple of days ago, was nothing but a charade, signing an “Executive Order”, which directed Secretary Steve Mnuchin to do what he is already doing. And then today, Health Care is back in the news, as was an unnecessary briefing on North Korea, for the Senate, at the White House!
Over the past 22 months, Trump has vowed to reform the IRS Tax Code, and he complains that the Corporate Rate is too high. Donald, few companies actually pay the top rate of 35%. In fact, approximately ten percent pay no tax at all! For comparison, the Average “Effective Tax Rate” (after credits and deductions), that U. S. corporations pay is 27.7%, while the average for OECD (industrialized corporations) is 27.1%. So, the actual difference isn’t really much to complain about!
The really big question is how does the Trump Regime expects to pay for these give-aways—tax cuts to corporations; a one-time Tax Holiday for companies to repatriate earnings held overseas; tax cuts for the very wealthy taxpayers; and the elimination of the Estate Tax, which only about 6,000 families pay. And by the way, none of these tax cuts would boost the economy or have much of an effect on job creation!
There is one other give-away, which is not boasted about, perhaps because it tells of a personal special interest group; but, it would certainly appeal to Donald Trump’s billionaire buddies. Many very wealthy people file their taxes as Individuals, which would mean the 35% maximum personal rate. They are, for instance; doctors; lawyers; hedge funds; real estate developers; etc. Donald’s Plan proposes the establishment of some sort of tax vehicle, which would enable such taxpayers to file as corporations—at the 15%.rate!
Parsing the Plan, as presented, I can assume a best-efforts guesstimate, that this Trump Tax Reform Plan might reduce the Treasury Department’s Tax Revenue by, let’ say, $4 Trillion over the next decade, or $400 Billion annually. So, how does the Treasury recoup that huge loss? MAGIC!
Donald Trump and Secretary Mnuchin claim that, by lowering taxes on the wealthy, the economy would grow and that would, in turn, increase tax receipts. Since Ronald Reagan first proposed the “Trickle-Down” Theory, ing 1980, it has never been successfully demonstrated in the real world. The divergence, both in Income and Wealth, however, ,has increased substantially, in America ever since. Why would anyone expect the result be different this rime?
How many times are we going to hear Donald Trump boast about “Gonna-Do’s”, that aren’t on any sort of rational horizon: Health Care; Tax Reform; Infrastructure; Immigration Reform’ Trade Reform; The Wall, etc? At the same time, he acts like Congress and the American People are supposed to kiss his Royal Derriere. No, Donald, you’re no longer a Candidate, you must play by the Constitutional Rules, and we get to keep score!
NOTE #2: Nobel Laureate Paul Krugman described the Trump Tax Plan, in his NY Times column, with the following analogy to a “Twilight Zone” episode, about a six year-old child, with exceptional powers.
As is often the case, during the Global Financial Melt-Down, which began in 2008, excess global cash flowed to the US Dollar. The dollar is widely perceived as the strongest reserve currency, and the US Economy as, by far, the most liquid. Some cash did flow to other reserve currencies—the Euro, Pound Sterling and Yen–as well. But, when it comes to significant market swings, the US is the only economy that can accommodate large currency movements, both on the in-flow and the out-flow.
In the intervening eight years, since the Recovery began, a large portion of that flight money has recently been transferring–both to other currencies, and other markets. In this blog post, I would like to suggest a somewhat simplified process for investors to add one more element of diversification to their investment portfolios—global investing.
Regardless of where you live, most people have their money primarily invested in their home country. They are more familiar with the companies, and to negate any concern for foreign exchange risk. But, it is worth noting that the European and U. S. economies each have only 25% of the world GDP. So, by diversifying the geographical range of securities, the overall investment risk can be reduced.
There has been a huge shift of investment transactions, at least in the U. S., out of actively-managed securities, and into either exchange-traded funds or indexed mutual funds. Some $1 Trillion has been added, mostly to ETFs, over the pst year alone.
Since ETFs are based on indices that rarely change, the expenses are quite minimal. Also, a number of economists have demonstrated that the stock markets are quite irrational. So, why pay to beat the markets when few managers do so, at least not on a consistent basis.
Diversification is one of the most basic concepts of portfolio investing. Distribute the risk among different types of securities: stocks and bonds; large companies versus small; both dynamic “Growth” as well as more stable “Value” companies; and invest in securities in, at least, several different industries. Global investing just adds one more dimension in the overall diversification process.
Although I have readers from a number of different countries, the overwhelming number are from America. Since ETFs are available on the stock markets of many nations, foreign readers may modify these idea, as you wish. My basic approach is still to suggest adding that global dimension to your existing portfolio. Also, even though you might only care to expand your focus, say to your local region, the benefits will still ensue.
I would first consider some type of global developed markets ETF, such as one that replicates the EAFE (Europe, Australia and the Far East) Index (Symbol: EFA). I have also added a Pacific-excluding Japan Index (EPP), since that is the fastest growing region of the world. And then, I have added a Diversified Developing Markets ETF (EEM). You might prefer different ETFs for these ideas, prefer to add more to Europe or Latin America, or individual countries.
To research for yourself, and I hope that you do, I would suggest two web sites as places to start. Obviously, there are many more ETFs and many more web sites. Those two sites are: iShares, by BlackRock, and Stock-Encyclopedia, which provides a wealth of knowledge on exchange-traded funds. Whatever you do, be sure to check the “Fact Sheet”, which provides a good summary, and get used to checking the ones that you do invest in, on a regular basis.
Following the Presidential Election, there has been an on-again, off-again rally in the stock market, which might have been partially attributed to Donald Trump’s victory, last November. Generally, the stock market performs best in the first and fourth calendar quarters, most years; however, some investors might have placed too much faith in Trump’s vague promises, raising the seasonal spurt even higher. Also, some CEO’s seem to have swooned over his proposals: the corporate tax-rate being halved; escalating depreciation on plant and equipment; eliminating most all regulations; and the “Border-Adjustment Tax”.
As of Friday, the Dow Jones Industrial Average rose 9.3% since Trump won, and the S & P 500 was up by 8.3%. There was little in the way of economic activity to have justified such a surge; however, some investors may have just followed the herd instinct. They wanted to believe! But like any other asset, when the price rises for no apparent reason, there might come a time where it cannot sustain that psychological momentum. Did the markets seem to sense that yesterday?
Ever since he announced his candidacy, in June of 2015, Donald Trump has been harping on two primary goals—the worthless Wall, and his vow to “…replace ‘Obamacare’: with something much better, and at less cost. Just trust me!” HA! Donald raised the stakes too high, before his American Health Care Act had to be pulled yesterday—for the second time—due to insufficient support from his own Republican Party!
Always the person to find a scapegoat to blame–rather than blame House Speaker Paul Ryan, or the entire GOP–Donald blamed the Opposition Party. For a self-proclaimed “Negotiator”, how ludicrous was it to have over-sold the “certain” success of his AHCA, as he had often boasted, and then blame the Democrats…but, for what? He was trying to tear-down a perfectly good (first-step) of a comprehensive plan that could provide Affordable Health Care for all!
Many Americans, including investors, are beginning to wonder if Trump can actually govern! He boasted, before the election, about how many things he would do, beginning “Day One!” But so far, he has accomplished very little. On the negative side, however, the list of his idiotic moves is a mile long!
Consider the following problems that he has been entangled in: the failed raid in Yemen, which resulted in the death of one Navy DEAL and 24 Yemeni civilians; attacking the American Judiciary for rebuking his two Anti-Muslim Bans; his apparent desire to control the Media; threatening a pre-emptive attack on a nuclear-armed North Korea—in China’s back yard; Trump’s potential collusion with Russia, and so on!
A number of Americans who voted for Trump have been on TV stating that they are having Voter’s Remorse. It’s times like this when I wish that we had a Parliamentary System. That way, just one “No Confidence!” vote would place M. P. Donald Trump, in a back-bench seat, where he belongs. Oh, if only…!
When Trump stated yesterday that the GOP’s AHCA Plan had to be pulled, distancing himself from bad news as always, he proclaimed that the next item of business would be Tax Reform. But there are two problems with that strategy, which he is overlooking: a number of deep-pocketed conservative organizations, including the Koch Brothers, have come out again Trump’s Tax Plan; and the money that he was supposed to take from ACA customers was necessary to fund his large tax cuts for the Wealthiest two-percent!
Meanwhile, many institutional and individual investors are, no doubt, using this weekend to review Trump’s record—both positive and negative—and to decide what their next financial moves might be. Additionally, many overseas investors are also considering whether the recent Trump Rally is real, or just a market bubble! I sure wouldn’t be surprised it there is a pause, at least, in the rally–or perhaps a reversal.