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Money Matters update September 14, 2016 PLEASE READ

 

Marc's notes:

Jambo and hello again from money central!

Well the weeks of complacency in the markets seem to have ended. The Dow is bouncing like a proverbial ball, up one day and down the next. At least the summer doldrums have ended. Whether that is a good thing or not remains to be seen. With renewed volatility the markets will likely reveal their plans for a new direction, whether up or down. As a side note on volatility: for the first time on record, the iPath S&P 500 VIX Short-Term Futures ETN recorded more volume on Tuesday than any company in the S&P 500 Index, with a record 110 million shares changing hands.

This is a measure of volatility and some regard it as the fear index. (Figures from Bloomberg). A new level of activity may be upon us.

We will see. Heavier cash positions will reduce volatility in accounts as cash neither gains nor loses nominal (face) value. We continue to watch the markets and the events that affect them  and will communicate that to you in Money Matters newsletters, shows, newscasts and articles.

 

Money Matters airs tomorrow Thursday Sept 15, 2016 noon PST on KVMR. Listen to it on the web at KVMR.ORG or moneymanagementradio.com.

 

Look for Money Matters articles in Auburn, Rocklin, Lincoln, Roseville and beyond. Gold Country Media has selected yours truly as a financial columnist for one of their seven newspapers in the valley and my articles start next week. The option to appear in more of their papers is open. I look forward to spreading the message even further.

As a result of a trip I took to Southern California in the spring, a Los Angeles station and I have reached a tentative agreement to air Money Matters in that area. Moving along nicely.

Another financial service should be available soon from my office in Auburn. I am in the midst of establishing a new certification. Stay tuned for more on that in the weeks to come. 

Wish to meet and discuss your portfolio? Email me for a no cost- no obligation one on one sit down. mcuniberti@cambridgesecure.com

 

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Its time again for our Turkey Matters food drive for the food banks of our counties.

Help me feed the poor with our annual turkey drive where we buy turkeys for the poor.

I do this every year and now ask for community support. The program is easy.  Just make a check out to the food bank of your choice. Do not make the check out to KVMR or me. Make it out to the food bank of your choice.

Mail:  KVMR FM   120 Bridge Street, Nevada City, Ca 95959.

Attention Turkey Matters.

 

I will match a portion of the funds with my own money to that food bank and KVMR will forward my check and yours to that food bank. That’s all there is too it.

Turkey Matters is now in full gobble gear so ladies and gentlemen, start your envelopes!

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Autonomy: independence or freedom, as of the will or one's actions.

 

All things are autonomous to one degree or another. Markets, events, people and any other thing or event.

Does on event cause another?

Sometimes.

Does one thing affect another? Sometimes.

Do people operate separately or together? They do both.

Not enough autonomy merges one event to another, merges one person to another or in the existence of a tangible object, go hand in hand in that existence. I tore out some grass and failed to replace it. Weeds grew. The blank spot of grass gave the weed opportunity. Did the digging cause the weeds? Did one event cause the other? One could look at it a variety of ways. 

If one asset class falls, does it drag another with it?

If a world event takes place, does it cause something else to happen?

All things operate in some degree of dependence, symbiosis and autonomy.

How much effect one object, person or event has on another is either desired or not, to some degree or another.

The point being made is that one action causing another can be an avoidable event or unavoidable event. It’s the undesirable reactions and outcomes we strive to avoid if possible. We do this by our actions which take rise from our decisions.

No one always makes the right decision and no one person always selects incorrectly but the way to constantly improve is to learn from the incorrect decisions. After all the definition of insanity is trying the same thing over and over again even if the result is always the same.

Sometimes it easy to see a bad decision and sometimes it veils itself in prejudice, timing (takes too long in order to make a correlation) or the inability or unwillingness to change. In any of these cases, the outcome will be a negative one once again. The serenity prayer addresses this human challenge most poignantly:

 

God, grant me the serenity to accept the things I cannot change,

Courage to change the things I can,

And wisdom to know the difference.

 

This jewel of wisdom comes from American theologian Reinhold Niebuhr.

Investors would be well to memorize this prayer and apply it to their strategies, whether it be in your selection of your investment professional or in one’s own selections in the portfolio.

In other words: “If it aint working, try something else and if it aint broke, don’t fix it”

This advice also holds true in life in general.

Do your actions always result in the same outcome whether immediately or eventually?

Do you find yourself feeling the same feeling throughout life and if it is a negative or unfulfilled feeling, have you taken the time to really analyze what those decisions are that you are making that are causing the undesired outcome?

Few people really analyze a reoccurring negative outcome. They just keep doing the same thing, often because it “felt right at the time”.  We called this flying by the seat of your pants in my father’s day but it is still obviously applicable today.

Consider this: Taking heroin might feel good at the time but in the long run, is it the right thing to do?

In the longer run, decisions, whether it be in investing, or in life in general, will let you know whether they were right decisions eventually. Pride, ignorance or just a failure to analyze in retrospect those decisions will cause you to repeat them.

In conclusion, if the results, in whatever area they may be, continually disappoint and disillusion you, it’s time to step back and review your actions. In investing it means analyzing what we did wrong, what information did we miss and realizing what events we thought we could control but could not. In life, it means stopping, looking back and doing the same observation.

Did we have the courage to change the things we could change or did we take the easy path?  

Did we accept the conditions and realities we could not change or fail to recognize that fact?

Did we take the time gain the wisdom or introspective through whatever means available to us to acquire the wisdom to know the difference?

Gaining in years means gaining experience but it is not only that. Gaining in years means also learning, observing, acknowledging our successes and failures and moving forward, constantly altering ones path to reflect past events and outcomes.

Life is a never-ending journey.  If you missed a turn off somewhere, find it, retrace your steps and make the right decision next time around. And above all, don’t go in circles. That only insures that you will go nowhere and end up the same spot you started at. And remember, a journey is an event that is meant to put you in a different place than you are now. Hopefully a better one.

 

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The Mysterious FOMC and the Federal Reserve

 

Many American do not fully comprehend exactly what it is the Federal Reserve actually does (commonly referred to as the Fed).

From their own website, their function can be summed up as:

  • Conducting the nation's monetary policy
  • Supervising and regulating banks and other important financial institutions
  • Maintaining the stability of the financial system
  • Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions

The Fed has three key entities, the 12 Regional Banks (12 districts that cover the U.S. and are the operating arms of the Fed) the Federal Reserve Governors (the governing body of the Fed that reports to Congress) and the Federal Open Market Committee (FOMC) which is responsible for what is called Open Market Operations (OMO).

OMO refers to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. It all sounds a bit technical but think of it as a gas pedal for the economy, or at least one of the gas pedals possessed by the Fed. Press on the gas pedal and away you go, lift off the pedal and things slow down.

So how does OMO act like a throttle on an economy, allowing it to speed up (improve economic conditions) or slow down (cool off an overheating economy from inflation)?

It all has to do with how inflation works. Simply put, increase the amount of money in an economy, conditions generally improve and prices tend to rise. Withdraw (reduce) the amount of money, the economy slows and prices tend to fall. OMO plays to this mechanism.

In one instance, the Feds print up some money and buy debt that large U.S. banks are required to hold which are called “bank reserves”. This debt may include U.S. Treasuries (Government IOU’s) or debt from Fannie Mae or Freddie Mac, which is basically government backed mortgages. Large banks always hold vast amounts of both of these types of IOU’s and agree to let the Feds buy or sell these IOU’s at any time as a part of the OMO program.

When buying, the Feds give the banks money in exchange for their IOU’s. The Feds can also order the banks to do the reverse and buy IOU’s from the Fed.

This back and forth selling or buying between the banks and the Fed either funnels more cash into the banking system (when the Feds buy the debt) or take money out of the system (when the Feds order the bank to buy the IOU’s from the Fed). Incidentally the banks make a profit every time a transaction takes place because the Fed pays them a little bit extra when they are on the buy side of the equation.

A buy and a sell of the same IOU can happen overnight, meaning the Feds sell the IOU one day then buy it back the next. These are called repurchase agreements or “overnight repos” for short. The repurchase agreements can also be much longer in duration.

When the Feds buy IOU’s, more money goes into the banking system and the gas pedal is pressed down. When the Feds order the banks to buy IOU’s from the Fed, money is taken out of the system and the pedal is lifted.

By adding or subtracting money from the banking system, the Feds hope to control how much money is lent out to consumers and businesses thereby stimulating or slowing the economy.

Money is the fuel which drives the economy and by simply adding or subtracting vast amounts of it, the belief is it will act like an accelerator pedal and the economy will respond accordingly. Coupled with a variety of other tools at the Feds disposal, they hope to control the economy in the direction they want it to go and at the instant they want it to go there.

Given the history of market crashes, economic blow ups and the severity of such events since the Feds inception in 1913, I will leave it the reader to decide whether they actually accomplish this task.

 

All for now,

Marc

 

 

 


 

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This website expresses the opinions of Marc Cuniberti. Past performance does not guarantee results. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at MKB Financial Services 164 Maple St #1, Auburn, CA 95603 (530) 823-2792. 

Discussions on any radio show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.

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