The “great” Debates

In the past I have lamented about people wasting their time watching reality shows such as the Kardashians or Housewives of Wherever. The Networks however, love the genre. The shows cost little to produce and there is no need to hire any real talent.   This is why they love Presidential Debates. They are also cheap to produce, and as with all reality shows, they don’t require a cast of talented people.

Tonight viewers will have the opportunity to watch the next Republican Presidential Debate. In hopes of maximizing the ratings, Fox has been creating as much hype as possible by “marketing” the show as a “smack-down” between Megyn Kelly and Donald Trump. Many of the things Donald Trump says are offensive to me, but I do like it when he goes after the “political establishment.”

As I write this, Trump has decided not to participate in tonight’s debate. I do not know what his motives are but do we really need to hear over and over again how each candidate is going to save America. “When I am President yada, yada, yada.” Perhaps we need to hear it twice, just to make certain there is consistency, but after that they should all go back to their day jobs, especially the governors and senators who are already on the public payroll.

These never ending campaigns are perhaps one of the reasons so many people choose not to vote. It’s not just exhausting for the candidates but for the voters as well. By the time we get to vote, the candidates have so demeaned each other it’s hard to get excited about voting for anyone. So on this occasion, I agree with Mr. Trump, this debate, ten months before election day, is probably a waste of everyone’s time. There are more important things to do.

I, for one, won’t be watching. My valuable time will be spent more constructively, walking my dog Joe.

P.S.   Michael Bloomberg must have read my last post: The Donald Phenomena.

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“The Donald Phenomena”

How could an individual with absolutely no experience as a politician, whose ideas for solving America’s problems are extreme at best and offensive to many, be leading all the professional politicians running for the Republican Party’s nomination?  Every day we read of, or hear, another “expert” attempting to explain what I call “The Donald Phenomena.”  On the surface, it is perplexing, when I think about many of the ideas he has put forth as solutions for our problems.

My “expert” opinion is that he is leading in the polls not because of what he says, but rather, what he represents.  He has “zero” connection to the “political establishment.”  For too long we have been governed by “career politicians,” who are dependent on, and beholden to, the “political establishment.”  Many eligible voters have come to believe that their vote just doesn’t count.  Trump may be using the Republican Party nominating process to reach his goal but it’s clear to me that he is the most successful “Independent” we’ve ever seen.

Those with political power, the Wall Street Banks, Unions, and the Media, define the “political establishment.”  Trump doesn’t need their money, creates his own media and will never court a relationship with most union leaders.  Frankly, he has become a serious threat to those with political power.

I don’t believe he will win and that is not what they fear.  Donald Trump is showing the world that a candidate, with no connection to the “political establishment” can win.  That scenario scares the hell out of them.  His success may very well motivate others, who are not “career politicians,” to serve the people of this country.  God knows the “career politicians” we are offered, by the “political establishment,” are not our “best and brightest.”

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The Spinning “Talking Heads”

Watching the “market” squeeze the “false credibility” out of the “experts” these past few days has been entertaining if nothing else.  After Monday’s drop the message was that “everyone should have seen the correction coming.”  For example, the lead story in the New York Times read “Signs, Long Unheeded, Now Point to Risks in U.S. Economy.”  OOPS!

I never have liked the term “correction” to explain a move in the market indices.  By definition it implies that the market “got it wrong,” being under or over valued.  So looking at the market as I write this, I guess the past few days the market “over corrected” and has now “corrected” the “correction.”  You can see how this starts to become a bit silly, but it also shows how little credibility should be given to the “talking heads” and journalist posing as “experts.”

But alas, they are not the problem.  As Pogo once said, “we have found the enemy and it is us!”  Investors, both large and small, demand an explanation regarding what has happened in the past, but more importantly, a forecast of what to expect in the future.  The first demand, an explanation of what has already happened, that’s not worth much.

The second demand, a forecast of what the market will do in the future, that would be invaluable, if only it was accurate.  Anyone who could make accurate forecasts consistently, would have unlimited wealth and not be spending their time on CNBC or Fox Business News sharing their forecast with us.

For you advisors, about a year ago, four years into a bull market, I suggested you hold a “fire drill” for your clients.  If you did, great, if not perhaps this would be a good time.  For you investors, not speculators, you are in it for the long run, so don’t waste your valuable time stressing about the market.  Enjoy your life knowing with certainty, that you will have a successful investment experience.

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How to Win an Election II

Winning the “money race” has always been a significant determinant in every political race but next in importance is the endorsement of those who control or influence large numbers of voters.  Several years ago, on a flight from Washington D.C. back to L.A. I had the pleasure of sitting next to a woman who was the second in command at a very large Union.  It was one of the most entertaining conversations I have ever had on a long flight, and one thing I will always remember was her stories regarding politicians seeking funds and endorsements from her Union.  “Groveling” is probably a more appropriate term than “begging” but whichever term you choose, she told me that most politicians were spending more than half their time raising money for the next election and/or offering their loyalty for an endorsement.

In my last “post” I expressed my hope that the continuing evolution of Social Media will lessen the impact of money in our elections but there is another change coming, thanks to Social Media, which may not be as positive.  We have developed a culture of “Celebrity Worship” in our country and although celebrity endorsements have been around, there was no Social Media connecting the celebrity with his or her fans.  Social Media creates a much more personal and intimate relationship that may be a lot more powerful.  Katy Perry has over 70 million followers, LeBron James 23 million, Justin Beiber 64 million, etc., etc.  Presidential candidates can only dream of such celebrity status. Hillary Clinton has 1.7 million followers while on the Republican side, much to my surprise; Donald Trump has over 2 million.  (Trump’s numbers probably have nothing to do with his recently announced bid for the White House.)

Oprah Winfrey’s endorsement of Barack Obama in 2008 is widely believed to have made the difference in his victory over Hillary Clinton.  At that time, many believed Oprah was the most powerful woman in America.  Basketball fans saw a simple Justin Bieber “tweet” put Kyle Lowry in the NBA All-Star Game.

Rightly or wrongly, celebrities have enormous marketing power.  Next year they may not be selling just shoes and cologne, they may be selling us politicians.  We may even see those candidates with the most money lose to those with the best Celebrity Endorsements.  The Media and all the political consultants may not like it, but the Social Media changes are coming.

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How to Win an Election

“Raise more money than your opponents.”  Sadly, this strategy more often than not, leads to success in politics.  It also corrupts our political system and leaves us far short of our desire to have “a government of the people, by the people, and for the people.”

Once the money has been raised (and all the promises made), how is that money being spent by those running for office?  I didn’t have to spend a lot of time using Google to confirm my suspicion that the biggest expenditures are for “media buys,” somewhere between 55-75% depending upon the year and the political office being sought.

Political campaigns are a huge source of revenue for the major networks and their local affiliates.  It’s billions of dollars, and the related expenses are negligible.  It has to be the most profitable segment of their business.  Recognizing this, I wouldn’t expect to see much effort from the Media to advocate any changes.

But change is coming for the following reasons:

1.    Social Media is a powerful tool, which can be used to reach voters.  Television ads may still be effective with older voters but the end is near.

2.    The cost of using Social Media is negligible.  Those running for office will not have to sell their soul to the highest bidder to get their name and message “out there.” “Big money” will no longer be writing the script.  That should be appealing to every voter.

Every day we see how technology and Social Media is changing the way we live, how services and products are delivered to consumers, and how we interact with others.  In my next post I will discuss the coming revolutions in our political system that may bring us closer to the democracy our Founding Fathers envisioned.

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It’s About Time II

I have shared with many of you, stories of my brief experience as a stockbroker for a major wire house back in the mid 80’s.  My experience was brief because it was apparent, from day one, that the lack of ethics and the exploitation of investors were ingrained in the firm’s culture.  My favorite “take away” from the many “sales meetings” was:  “if you can’t sell it with a clear conscience, we will find someone who can.”  (By the way, these sales meetings were always held in the basement far from the ears of customers.)  There were other cultural rules to be followed but the message was always clear, I was there to make money for the firm.  I was not there to provide investment advice, even if that was the advertised role of the broker.  It was apparent investors needed an alternative.

Fortunately investors do have a better alternative today, the “fee-only advisor.”  Being a part of the development of this new profession I came to know a great number of this new breed and many of them were “converts” from the “dark side” as I love to call it.  This conversion was easy because they had a conscience and wanted to work with a “clear conscience.”  As the years went by, I would hear stories about their experiences on the “dark side,” and they would always tell me that their experiences were similar to mine even if it was 10, 15, 20 years later.  In other words, nothing has really changed.

Thanks to research conducted by some folks at the University of Notre Dame you don’t have to take my anecdotal evidence that the Wall Street culture has not changed.  I came across this from a New York Times article yesterday summarizing the research.  Over 1400 Wall Street employees participated in the confidential survey.

You can and should read the survey but here are a couple of highlights:

1.    Of those earning more than $500,000 annually, 34% have witnessed, or had first hand knowledge of, wrongdoing in the workplace.

2.    51% of these folks believe their competitors are engaged in unethical or illegal activities to gain an edge in the market.

3.    32% of employees with less than 10 years experience would likely use non-public information to make a guaranteed $10 million if there was no chance of getting arrested for insider trading.  So much for a new breed of stockbroker.

4.    Nearly one third of respondents believe the compensation structure could incentivize employees to compromise ethics or violate the law.

There is more but you get the idea.  But here’s the kicker, the reporter writing the article was trying to make the point that Wall Street has not learned its lesson, even after the last recession.  I disagree; Wall Street learned its lesson decades ago.  Keep politicians, who make the laws, beholden to you while they are in office, and reward them, after they leave office.  Wall Street has no incentive to change the culture.  There is too much money to be made.  No one ever goes to jail and the billions in fines are insignificant relative to their bottom line.

Note:  nytimesdealbookmay182015

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It’s About Time

The death of “conflicted investment advice” may be at hand.  When commissions were banned in both the U.K. and Australia, I applauded their Regulators, who took a stand for investors against the Financial Industries in their respective countries.  It was a long time coming but it is now a reality.

Having witnessed these developments I began to speculate whether or not such a ban could ever be implemented in the U.S.  Being aware of the strong financial ties between Wall Street and politicians of both parties, I have been skeptical that such reforms could ever become law in the U.S.

However the debate has begun.  The arguments against banning commissions are twofold:

1.    “The small investor will be left out of the advice market.”  Excuse me?  That should be one of the main objectives of any legislation.  Small investors are exploited more than others because they are sold the products with the highest commissions.  Otherwise it is not worth the sales person’s time.  Once people realize they are being ripped off, they will be motivated to invest some time learning how to invest their savings.  I used to say, if people would spend as much time making investment decisions as they do when making decisions about which car to buy, they would have a much better investment experience.

2.    “Thousands of jobs will be lost in the Financial Services Industry.”  This brings back memories of when I would write about “conflicted advice” in Investment Advisor Magazine.  I would get emails (maybe it was “hate mail”) accusing me of destroying the sender’s career.  My response would be, “if your career is based on ripping people off, perhaps a new career may be needed.”

Both of these arguments are what I would expect.  They put the Financial Services Industry’s interest ahead of the investors’ interest.  Wall Street is not going to roll over without a fight.  There is too much money at stake.  Rather than simply ban commissions, they will likely settle for a slight tightening of the rules regarding their fiduciary responsibility that requires them to put the investors interest first and no doubt the training syllabus for new brokers will include a course on “how to comply with the law while still maximizing commission income.”  If that is all the reform does, enforcing such a rule will be cumbersome and expensive.

Simply banning commission would be a much more effective way to protect investors and be a lot less expensive to all parties involved.

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