US Finance World

After a couple of weeks in which everyone was more focused on the VIX and the VSTOXX than anything else, it is interesting to sit back and try predict where the markets are going to move for the rest of the year.

We can be sure about a few things: The European debt crisis is far from over, property (and hence stock) price correction in China still has quite some way to go and the banking sector in the US and Europe has not seen the last of regulatory changes!

Considering the above, any long-term directional strategies are prone to extreme volatility. It’s much safer to sit on cash and watch from the sidelines. But, if you have the appetite and energy to track and play index funds, there is more money to be made than any other time – provided one doesn’t get greedy enough to try and catch the rock bottom or time the peaks.

If there is one sector to avoid jumping into at this point, it is financials. A combination of factors would make good returns on equity extremely difficult to achieve in this sector.

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Despite the rapid rise in the popularity of ETFs, some prominent people in the investment community don’t plan to participate. The chief executive of mutual fund giant Franklin Resources Inc. (BEN) is one of them.

Sam Mamudi of Dow Jones Newswires reports that even though Greg Johnson, CEO of Franklin Resources, “thinks ETFs are likely to continue to grow faster than traditional, actively-managed mutual funds, his firm doesn’t plan on entering the space.”

According to Johnson, his company is not interested in “painting by the numbers.” Instead, they want to focus on producing art by way of active management.

In recent years, assets in ETFs have risen from $300 billion to $847 billion at the end of April, according to the National Stock Exchange.

Although the vast majority of the funds are in index tracking passive funds, companies are beginning to look at ways to introduce actively managed ETFs. But in orde

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Retirement Income

As our population ages, more and more investors are focusing on retirement. With retirement comes a greater emphasis on investing for income and less emphasis on growth. However with the prospects for inflation looming in our futures, growth of income remains a serious and necessary investor consideration.

Investing in common socks for dividends is generally considered a conservative strategy for prudent stock investors. However, not all dividend paying stocks meet the strictest definition of conservative or are considered safe. Also, it’s possible that higher current yield may not represent the best long-term investments. Dividend seeking investors should consider other factors as well. Factors such as quality, consistency, and current valuation are important to evaluate before investments are made.

To illustrate the importance of these points we will look at two sets of five companies with very different characteristics. W

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S&P has put LCH.Clearnet on a credit watch for a potential downgrade. The rating agency did so in response to NYSE Euronext’s decision to set up its own clearing operations, rather than use LCH’s.

This is a very useful reminder that CCPs do not make counterparty risk disappear, as certain people are wont to assert. (You know who they are.)

But there is another important lesson here. Nobody knows exactly how the market is going to evolve after the imposition of clearing mandates. In particular, the structure that will evolve for the clearing business is subject to huge uncertainty. As the NYSE-Euronext decision illustrates, and as the ICE decision to clear for itself before that, and as did the decision of the SWX to clear for itself before that, clearing structure is a strategic choice for exchanges. I wrote about this aspect of clearing ad nauseum before the financial crisis.

At the same time, there are strong scope economies to clearing across multiple instruments. The

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Up Week for Market Ends on Sour Note

The market bounced back at the beginning of last week from the debacle of the week before. Although it gave some of the gains back on Thursday and Friday, it still managed a gain in all the major indices for the week. Most were up over 2%. NASDAQ was up over 3%. The news of more investigations of financial institutions, the news of continuing debates and votes on the FinReg bill making the outcome look increasingly tougher, and the realization that the shock and awe bailout in the eurozone may not be enough—all will likely continue to pressure the market for another few weeks.

There has been a lot of favorable economic news the last few months. Worries of a double dip in the economy have faded. The odds are still very long on that, but some are getting worried again that the debt and fiscal problems in Europe will cause an economic slowdown in Europe that will drag the US economy down. T

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Lars Schall of MMNews Germany has recently interviewed many outspoken critics of the inner workings of our global financial system including former Federal Housing Commissioner and Solari Inc. President Catherine Austin Fitts and Associate Professor of Economics and Law at the University of Missouri, Kansas City [UMKC] William K. Black. Below is my recent interview with Mr. Schall.

“We Don’t Need Central Banks”, by Lars Schall, MMNews

Mr. Kim, in your point of view our current fiat money system does not only belong to the root causes for the financial / economic crisis we’re going through, but also that it is fraudulent per se. Why so?

Well, the reason I believe it’s fraudulent is because our current money system is a system that creates money as debt. If we had no debts in our global monetary system, no money could exist. That’s a fairly ludicrous concept if you think about it. It’s also a

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A foolish decision is haunting both North America and Europe. I refer to the decision by the American and European elites to bailout their big banks without addressing the underlying cause of the financial crisis, the trade deficits. The fact is that trade-deficit countries accumulate debt in return for mercantilist-produced baubles. The result of the bail-outs was an immense transfer of bad debts from banking sectors to governments. The result of the continuing trade deficits is that the underlying debt problem will continue to grow.

In America, the transfer of bad debts from banks to governments was first realized with the $700 billion TARP bill, and was followed up with the Federal Reserve buying $1 trillion of soon-to-be-worthless mortgage-backed securities and the U.S. government subsidizing purchases of used residences.

In Europe, the decision to transfer bad debts from banks to governments is playing out now with the $1 trillion rescue plan known as “Le Tarpe,” for the banks that have loaned money to Europe’s three most heavily indebted trade-deficit governments.

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Economics of Contempt argues that statutes that put a ban on proprietary trading at banks and bank holding companies must leave considerable discretionary power to regulators, attempts to be more specific end up creating more loopholes than they close:

Merkley-Levin Is a Joke, by Economics of Contempt: The Merkley-Levin Amendment (SA 3931) is a version of the Volcker Rule. The Volcker Rule, if you’ll recall, is a ban on proprietary trading at banks and bank holding companies (BHCs). If you ask Merkley and Levin’s offices, they’d no doubt tell you that their amendment significantly strengthens the existing Volcker Rule language in the Dodd bill (Section 619 of S.3712). Don’t be fooled — it does nothing of the sort. I spent the majority of my career as a lawyer for a big investment bank, and my first thought after reading Merkley-Levin was: “Wow, this would be cake to get around.” Wall Street is scared of the Volcker Rule, but believe me, they’re not scared of Merkley-Levin.

This requires a bit of explanation. T

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