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We recently sat down with April Johnson at West Virginia Magazine, to talk about current happenings in the stock market, our thoughts about the next recession, and ideas about how we might create more stable financial markets. We hope you will read the article, Holding Back the Flood, and look forward to your comments.
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According to Barron's, those born a decade before the crash saw first hand the devastating effects on their families. As a result, they are now much more conservative investors than the generations before them. This is born out in financial management classes, where graduate students trade for the semester to get their feet wet in the markets. How has the crash affected your views about investing? Are you anticipating another crash soon?
Representative Chris Collins (R-NY) was indicted today - along with this son and his son's future father-in-law - on 13 counts of securities fraud, wire fraud and making misstatements about the activities (aka lying). At issue are trades in Innate Immunotherapeutics, for which Collins is a board member and its largest stockholder. In efforts to prevent significant losses, they allegedly sold ahead of public disclosure of the findings of clinical trials. Read our article at:
https://theconversation.com/what-is-insider-trading-the-crime-rep-chris-collins-was-charged-with-101297 So the question of the day is: should insider trading be illegal? The Fed met a little more than a week ago to propose a more lenient take on the Volcker Rule. Prompted by the half-dozen or so big investment banks remaining after the 2008 crash, the new rules, if approved, would "... alter how much time the banks have to spend proving they are following the Volcker Rule and give them more leeway to determine which types of trades comply. It would also shift the burden of proof for determining whether a trade qualifies under Volcker away from the bank to the regulators.
Now, banks must prove that each trade serves a clear purpose that goes beyond a speculative bet by showing regulators specifically how each trade either meets customer demands or acts as a hedge against specific risks. That had curtailed trading in a variety of assets like derivatives, corporate bonds and other complex products" (Emily Flitter & Alan Rappaport, May 30th, https://www.nytimes.com/2018/05/30/business/volcker-rule-banks-federal-reserve.html). Do you think this is a smart move? According to Renae Merle at the Washington Post..."The Federal Reserve approved sweeping changes to the “Volcker Rule,” which was established after the global financial crisis to prevent taxpayer-insured banks from making some risky financial bets. Banks, which have complained for years that the rule is too cumbersome and time-consuming, will gain new flexibility in deciding when a trade is too risky if the proposal is finalized." This change makes it easier for banks to trade make proprietary trades and take on substantial positions in securities for their own accounts. It pushes back at Dodd-Frank's attempt to revive Glass-Steagell. Four other banking regulators have to weigh in, but there is no doubt they will follow the Fed's lead. Added to bank consolidations after the 2008 crash and record profits over the last few years, we are reminded of our concern about institutions becoming too big to save.
www.washingtonpost.com/news/business/wp/2018/05/30/wall-street-is-about-to-snag-one-of-its-biggest-victories-of-the-trump-era/?utm_term=.6455d486ca67&wpisrc=al_news__alert-economy--alert-national&wpmk=1 According to a story by Investment News...
"The Public Investors Arbitration Bar Association, a group of lawyers that represents retail investors who sue brokerage firms, in a new report Wednesday morning took aim at perceived conflicts of interests at the board of governors of the Financial Industry Regulatory Authority Inc." Read more at... www.investmentnews.com/article/20171115/FREE/171119965/piaba-accuses-finra-of-conflicts-of-interest?NLID=daily&NL_issueDate=20171115&utm_source=Daily-20171115&utm_medium=email&utm_campaign=investmentnews&utm_visit=164202&itx[email]=fbaa376e51d3837d681fe5eeb4290c50c84d9d09e8154eb2ae1e872f3f3ee105%40investmentnews Some think we are headed for another big crash - and that algorithmic trading will make it worse than anything we've seen yet. What do you think? Are you prepared?
Janet Yellen says the regulations are essential to preventing the next market failure. But to what extent did the address the real reasons for the collapse? Derivatives are still barely regulated - most, like the mortgage products and the related credit default swaps, not at all. Mortgage-based derivatives are not gone, plus we have new derivatives, this time based on auto loans and student loans. Let's hope students find well paying jobs when they graduate! Also, the banks now have to keep higher reserves and pass stress tests to prove that they wouldn't need public funds to keep them afloat in the next crash. But the Supreme Court nixed the AG bailout, calling into question government's ability to bail anyone out in a future crisis. And finally, the run up this year is based in large part on perceptions/expectations that the party in power will be able to pass tax cuts. But how does Dodd-Frank protect us from the fallout when the markets realize that those cuts, and perhaps even spending allocations for the next fiscal year, won't materialize? Chairman Yellen says the regulations are essential. Do you agree?
https://www.nytimes.com/2017/08/25/us/politics/yellen-warns-against-erasing-regulations-made-after-the-financial-crisis.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region®ion=top-news&WT.nav=top-news&_r=1 Would you get investment advice from Amazon? Would you buy stock from them? We're not the first to think of this... I think even Cramer had something to say about this a while back.
From Investment News www.investmentnews.com/article/20170706/FREE/170709984/advisers-envision-a-disrupted-advice-industry-if-amazon-shows-up?issuedate=20170712&sid=PMNEWS&utm_source=AdvisersConsultant-20170712&utm_medium=email&utm_campaign=investmentnews&utm_visit=164202&itx[email]=fbaa376e51d3837d681fe5eeb4290c50c84d9d09e8154eb2ae1e872f3f3ee105%40investmentnews What would it take for you to switch from E*Trade or Ameritrade or Schwab to Amazon? Last month the House passed the CHOICE Act, its effort to repeal much of Dodd-Frank and give the states more individual authority over securities regulation. Karen Kunz talked with Wisconsin Public Radio's Culture Time about its potential impact on Dodd-Frank www.wpr.org/house-republicans-pass-choice-act-repeal-portions-dodd-frank
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