Ed Butowsky

Wealth Manager, Chapwood Investments

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How to avoid committing financial suicide in today's economic climate

Because of the various financial and economic crisis around the world investors have decided to sit on the sidelines and collect 1% or less on their money markets and bonds. What investors fail to understand is by the time you subtract out taxes, economic inflation (which is more than the 1% the government is claiming) and management fees your committing financial suicide. Your loosing significant purchasing power with your money. How much could you be losing year over year? What could you be doing to stay on top of your investments?

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    Jun 13 2012: Ed, I think we live in a world right now where 'not losing too much' counts more than 'not earning'. Take the german bonds for example - investors are flocking to it despite the fact that it means losing a bit.

    Security first. Then when sunshine comes again, those who lost only 1% will quickly make up the loss.

    It is not my strategy by the way - I am young and if I lose my last shirt nothing bad happens - I'm taking a night shift :)
  • Jun 18 2012: Krisztian: Another point occurs to me: you are saying that mature "Investors" ought to know they are dealing in risky ventures. No doubt. But what about the millions of ordinary people who have been encouraged by "experts" to put their retirement money into mutual funds, managed , basically, by the very Wall St. people we are talkiing about. In many cases, the "injvestor" has no control at all over his "investment", and cannot even withdraw it without penalty. I know that armies of expert lawyers have managed to convince everyone who "counts" that this is NOT fraud, and not illegal, but it seems quite unethical to ordinary people.
  • Jun 18 2012: K: I'm sorry I misquoted you. but since the idea that busieness men are just providing for their familiies is such a completely ordinary case, it would be very strange indeed if Goldman Sachs execs. did NOT share this common feeling.. I named them , because they are supposed to be the best, not the worst.
    It also strange that you consider that it is the "government" which is facilitating Bailouts, and other distorting actions on the helpless "Market". Have you not noticed the large, and constant," revolving door" effect, where Wall St. execs, after retiring from GS, immediately "BECOME the government, in some mysterious way? I mean the advisors to the President, the members of the Fed (effectively the "ogvernment"), etc.? The money power has corrupted our government, perhaps beyond repair. This is not an accident, only an accident waiting to happen.
  • Jun 17 2012: Krisztian: A good example of (previously non-existant) financial inventions are "Derivitives", which Warren Buffet referred to as "Toxic Time Bombs" years ago. No doubt you have heard about how they enabled the camouflaging of unsound housing evaluations , leading to the worldwide sale of many billions of dollars worth of "Securities" to mutual funds, etc. The "Meltdown" consisted of the realization that those phoney billions of dollars either have already "evaporated" , or will in the future. Leaving millions of innocent bystanders bereft of their supposed retirement funds. I call that selfish damage to others, unless you want to make the case that the leaders of Wall Slt. are simply dumb. And it is not exactly "investors" who have done this. The repeal of the Glass-Steagal prohibition on Wall St. banks investing on their own, sometimes in knowing opposition to the interests of their clients, is the kind of "speculation" I mean; insider information, leading to the shearing of the "Sheep"., certainly damages ordinary investors, who thought that bands were at least neutral. Since this is only partially about taxes which favor the rich, "Loopholes" are not really the appropriate term. Perhaps "Fraud" would cover it better. The idea that the leaders of Goldman Sachs are "Merely providing for their family" is totallty laughable.
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      Jun 17 2012: you know, after a while it is getting boring to hear the same arguments over and over.

      any investor that could not see through a few layers of embedded securities like a CDO is a joker, does not worth the label of investor. it is not more than common sense. do you buy a paper because others do? do you buy a paper because some company labeled it AAA? if so, i have no sympathy for you. so the actual problem is not the creation of such instruments, and not the lack of regulations. the true problem is the total lack of personal responsibility and accountability, and it is exactly caused by regulations.

      such schemes do hurt ordinary investors. such schemes suck up some money, and since it is scarce, less money is available to normal businesses. but fraudulent schemes pop in a short timespan. it is like a sickness, which is cured by the immune system. but this time, the pyramid scheme was run by the government and with the support of the government. that's why it lasted so long.

      such schemes do hurt ordinary business, so they can't wait for the fraudsters to finally pop, and the truly profitable businesses can get capital again. so does the government help that? does the government facilitate the elimination of bad apples? no, actually the opposite. they bail them out. have they bulldozed freddie and fannie to the scrapheap? do you see a massive wave of bankruptcy on the wall street? nope. they get new money, and now the government is about to extend its intervention to the housing market. these jokers will receive even more money, and they will continue to even more hinder ordinary businesses.

      final note: where did i claim that leaders of goldman merely providing for their family? i don't really like when someone distort my words.
  • Jun 15 2012: We are not living in "normal times". The reason for the low return on capital invested in the old way has several causes , of course. Probably the main one is that the "smartest people in the room" have observed that gaming the system and manipulating the markets (and politics) pays off ever so much better than the boring old way of brokering investments in productive manufactures, etc. Since their philosphy usually involves some version of Ayn Rand Selfishness-as-a-virtue, they are not too concerned about Collateral Damage. And they can afford to hire the very best lawyer (and Judges) to keep them out of jail.
    Another very great factor in the general decline is the Fact of our emulaltion of the British Empire, updated, including its decline due to completely reckless military spending, on many useless wars over a long time period. It was not useless, of course , to those corporations participating, but it did cut the ground out beneath their feet, as an empire. Another whole facet of the economy is the debt based, banker friendly monetary system , warping the whole society since at least the Civil War.
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      Jun 16 2012: here are some logical errors you have committed:

      1. you say that financial operations grant more profit. yet the question was exactly why they do that now, when it does not generate profit at all. why they don't move capital to less productive, but productive enterprises, like actual production?

      2. you seem to imply that selfish people can cause damage to others, but it is not clear how. unless they also commit crimes, i don't see how selfishness would hurt anyone else. and if it is a crime, maybe we just want to fight that?

      3. the very claim that investors abandoned the real economy for speculation, seems to be unjustified. we have lot of products around us, the shopping malls are full, walmart does not fear bankruptcy, and bulk carriers still cruise the oceans. it seems that these speculative institutions sit on top of real business. you can track back each security to its basis, which will be mortgage, stock, real estate or something like that.

      4. the randian selfishness means nothing like exploiting loopholes and such. if a guy only cares about providing for his family, it is the selfishness rand talks about. but i don't see how such a thinking could be considered careless or wrong. it is pretty much common and accepted. equating this with the image of the evil corporate figure is unwarranted.
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    Jun 13 2012: that is what they are doing? i mean, who? majority of investors? that sounds really crazy considering that we have emerging economies all around the globe.
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      Jun 13 2012: The term 'emerging' means simply more volatile. Do not mix it up with 'promising' or 'healthier not to mention 'safer''.

      I don't think investors are seeking more volatility right now, rather the opposite.
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        Jun 13 2012: i recall a story. at a bullfighting in spain, the torero run from the bull, and the audience booed. a guy remarked, okay okay, he messed up, but why boo? he is just tries to survive. and one guy said: i paid 2000 pesetas for this seat. he earns 20000 with this fight. if he is afraid, pay 2000 too, and get up here.

        the very job of an investor is to find investment opportunities. if they don't want to do that, they can quit, and join me up here.

        in particular, risk management is part of their job. hedge, buy cds, etc etc. if an economy can make 10% annually in real terms, there is no excuse for an investor to make any less.
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          Jun 13 2012: financial markets are not really the best place for the corrida logic. If you observe the markets you know that they are pretty much detatched right now from the real economy and investing gives way to temporary financial flows - corrida style we could say.

          I think there are certain institutional problems. If they were fair, transparent and fully efficient markets then you are absolutely right Krisztian, but i am affraid they are not.
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        Jun 13 2012: you can be right, but in this case, we don't need this financial market. originally, the financial market was a place where capital found its best use, where creditors and debtors found each other. i see a lot of potential debtors all around the globe. so if these institutions can't deliver money to them, they have failed, and i have no sympathy for them.
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    Jun 12 2012: From time to time I appear on various cable news networks as a subject matter expert in areas realated to investment and financial management. This topic is very near and dear to my staff and I. Check out this appearance on CNN where we discuss this specific topic: http://bit.ly/fGpYfK