Highlights books related to the week's top financial news stories, by Karris Golden, president & COO of Wasendorf & Associates (Traders Press Inc., W&A Publishing and SFO Magazine)
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The SEC/CFTC “swap dealer” tag is expected to come with more oversight and increase the cost of such trades. The designation also will give firms latitude to exempt swaps for hedging.
Reuters notes that the Dodd-Frank financial oversight law, which was first proposed in December 2010 in reaction to the financial crisis, has changed dramatically. While it originally allowed firms to be designated swap dealers if they traded more than $100 million in swaps over a 12-month period. As Reuters reports, energy companies and commodity traders lobbied to alter the provision to bump the threshold to $8 billion for most asset classes as an initial phase-in. In time, the threshold could drop to $3 billion.
Both regulatory agencies face legal challenges over the rules. There also are concerns that the SEC and CFTC have not fully analyzed the economic impact and rule formulation processes.
To learn more about swaps, futures, options and other financial instruments affected by Dodd-Frank, go to TradersPress.com. There, you’ll find everything priced to meet or beat those you’d find on Amazon and you’ll receive free S&H when you spend $25 or more.
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Like baseball, trading requires sound coaching, honest self-knowledge and shrewd understanding of “the game.”
“They both started as relatively informal endeavors in New York and grew into massive institutions,” he writes. “Organized trading started under a tree along a wall that protected a city. The wall gave name to a street, and the street later became home to one of the most venerable institutions on earth. Organized baseball started in fields around the same city. Its popularity grew, and it spread to fields around the country.”
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The S&P 500 has experienced 16 violent declines in the past 18 years. Ouch.
Professional and institutional investors weather those upsets by using hedging techniques, according to authors Jay Pesterichelli and Wayne Ferbert. In Buy and Hold Hedge: The 5 Iron Rules for Investing over the Long Term, the investment experts outline ways to use hedging as part of a long-term plan for growing and preserving portfolio assets.
“The (2008) market crash was precipitous and calamitous,” they write. “Think about the investment decisions you faced with your portfolio.”
Did you “curl into the fetal position and hope it would all go away”? Blame your investment adviser and demand results? Sell everything? Look for tax advantages among your investing losses?
“(O)f these four actions, the only one that was even modestly productive was the last one,” Pestrichelli and Ferbert explain. “At least the investor who looked for tax efficiency from the losses might have saved himself a bit of money. But it’s hard to save on taxes when you don’t have any gains to offset the losses. You can at least admire the person who tried to find tax efficiency for his ’glass half-full’ attitude.
Pestrichelli and Ferbert co-founded ZEGA Financial LLC, where they are the principals. Pestrichelli has 20 years of experience in business management, with 12 years in the online brokerage field. Ferbert has been in financial services for 18 years and 10 years in the online brokerage field.
The book begins by introducing the concept of hedging as it relates to financial markets, explaining risk-and-return decisions, psychology and other considerations. It goes on to cover investing laws, the rules of buy and hedge, the basics of hedging and advanced tactics.
In all, the book is a good, basic primer for anyone who wants to understand how buy and hedge works, simply ways investors can hedge their portfolios and common mistakes individual investors make.
“Maintaining a long-term outlook for your investments is a key success factor in a Buy and Hedge portfolio,” Pesterichelli and Ferbert write. “However, we could easily rewrite this rule as ‘Avoid having a short-term outlook.’ The reality is that the benefits of a long-term outlook are as powerful as the problems resulting from a short-term outlook. Let’s start by examining the destructive powers of a short-term outlook and then return to the advantages of a long-term outlook.”
Buy and Hold Hedgeisn’t strictly for full-time money managers—or those who want to become one. Instead, the bookcan be useful to anyone willing to educate him or herself using its straightforward easy to understand distilling of sophisticated investing techniques.
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When I hear this, I smile politely. I just don’t get it.
This isn’t a case of a writer railing against the imprecise use of language. I profess to “love” many things you might consider implausible. Can I really love bad pop songs from the 1980s and 1990s? Insensible shoes? Peanut butter?!
Doubt all you want. My love is true—especially where peanut butter is concerned. So I respect another’s right to love Cramer. Free country and all that. Plus, he offers some great information. His books, like Getting Back to Even and Mad Money, are good.
And now the “but” you’re waiting for: Cramer’s flaws are glaring and often insurmountable. When someone with a public, worldwide forum regularly flaunts his inconsistencies, irresponsibility and hypocrisy, that’s a fairly big deal.
For example, Cramer’s latest crusade is against crude oil speculators. He wants them indicted for driving up the price of gas. He wants more and better regulation. He made his outraged case on his TV show, Mad Money.
Sometimes, Cramer just can’t help but rat himself out; he seems to be one of those guys who needs you to know he got away with something naughty. Cramer was at the center of a 2007 controversy because he explained how, as a hedge fund manager, he used admittedly illegal practices to manipulate stock prices. He bragged about it—to USA Today.
Influential financial TV personalities will probably always make wildly irresponsible statements, and some individuals will suffer. Your best, safest bet is to develop a solid understanding and learn how you can best to interpret all the available information.
According to the Associated Press, Forbes, and Bloomberg Businessweek, G.E., Bank of America Corp., Citigroup Inc., Caterpillar Inc. and Alcoa Inc. were among those that increased 1% or more on Wednesday, following a rally in European lenders.
Greek, German and French leaders will meet today to discuss ways to contain Greece’s debt crisis. Speculators believe China may be willing to buy the bonds of nations hit by the debt crises, as reported by Businessweek.
Not everyone supports such a plan, according to the English-language Caijing magazine. Some advisers to China’s central bank believe the nation’s willingness to purchase euro bonds is little more than an ill-advised “bleeding heart” response to the global debt crisis.
“What today’s world needs is not a ‘bleeding heart’; instead, it needs investors with a senseo fo reform and cooperation,” Li Daokuu, academic adviser to the central bank, told Caijing. “I believe (China) will perform a role of a real good guy rather than a ‘bleeding heart.’”
In the article, he advises diversification of China’s foreign exchange reserves with solid investments.
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There’s no better fuel for a crisis than more crisis.
According to Bloomberg, James W. Paulsen, chief investment strategist at Wells Capital Management, says “crisis mentality” is so widespread that swings in U.S. stocks can be attributed mainly to the level of investor concern.
Crisis of mentality’s byproduct is volatility. According to CNBC, major averages flounder, affected by heavy market volatility due to fears of another global recession.