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Financial Reform Bill Failure, Gordon Gekko Is Alive and Well

Stock-Markets / Market Regulation May 26, 2010 - 08:06 AM GMT

By: Tony_Sagami

Stock-Markets

Best Financial Markets Analysis ArticleI don’t go to the movies often, but I have a weakness for macho, action films so I went to see the new Robin Hood with Russell Crowe. It was a great movie, but what really caught my attention were the previews before the feature presentation.

What caught my attention was the trailer for Wall Street 2 and the return of Michael Douglas as Gordon Gekko.


You remember Gordon “Greed Is Good” Gekko, don’t you? Gekko was a symbol of Wall Street greed, ruthlessness, and everything that was wrong with Wall Street in the 1980’s.

Ultimately, Gekko went to jail for his financial shenanigans, but he is now out of jail.

The timing of the movie is ironic, isn’t it? The world is struggling to recover from the financial crisis caused by people like Gordon Gekko, who only cared about enriching themselves without any concern over who they might hurt.

At least Gekko went to jail, but the crooks that ran Lehman Brothers, AIG, and Fannie Mae are sipping daiquiris somewhere sunny and living off the MILLIONS they pilfered.

The investment bankers magnified risk by re-securitizing toxic mortgages securities into collateralized debt obligations (CDOs), sold them, and then used credit default swaps (CDS) and index trading to hedge their own risks.

The Wall Street crowd pocketed billions from that financial engineering, while investors and American taxpayers got screwed.

And don’t get me started on Tweedle Dee (Alan Greenspan) and Tweedle Dumb (Ben Bernanke), who made it possible for the new generation of Gordon Gekkos to make billions from what Warren Buffett called “financial weapons of mass destruction.”

Gordon Gekko's motto, 'greed is good,' couldn't be more relevant in today's debt-ridden environment.
Gordon Gekko’s motto, “greed is good,” couldn’t be more relevant in today’s debt-ridden environment.

The geniuses elected to represent us at the U.S. Senate want us to believe that they have fixed the problem with their new (and costly) financial reform package called the Wall Street Financial Reform Act.

The truth is that the reform completely ignores some problems and actually makes some things worse. How so?

This new bill — all 1,500 pages of it — insures that the Federal government will continue to bail out banks, brokers, and insurance companies that are too stupid to handle money.

This bill will create a new Federal agency with a “resolution mechanism” that gives sweeping authority to the Federal Deposit Insurance Corporation to borrow from our Treasury to support failing firms. The FDIC has the authority to operate failed companies for us up to five years.

And two of the biggest problem makers — Fannie Mae and Freddie Mac — aren’t even addressed.

One of the ultimate results of this new legislation is going to be even more government spending. On top of the bailouts, on top of health care, on top of already record budget deficit. Our politicians are spending money at an unprecedented pace and there is only one long-term result of that type of reckless spending: Higher interest rates and a weaker U.S. dollar.

Reckless spending on the part of the Federal government will only lead to higher interest rates and a weaker U.S. dollar.
Reckless spending on the part of the Federal government will only lead to higher interest rates and a weaker U.S. dollar.

How to profit from rising interest rates: INVEST IN INVERSE BOND FUNDS. There are inverse bond funds that make money when interest rates rise, such as Rydex Juno (RYJUX) and ProFunds Rising Rates (RRPIX).

How to profit from a falling dollar #1: INVEST IN NON-DOLLAR CURRENCY FUNDS. Funds like Merk Hard Currency fund (MERKX).

The Merk Hard Currency fund (MERKX) is similar to a money market fund in that it keeps the average maturity of its holdings to less than 90 days and invests primarily in top-quality government debt.

Its similarities to money funds end there, though. Instead of investing in U.S. government debt, MERKX invests in the short-term debt of foreign countries.

Not just any countries — but only those of sound, established countries that follow a sound economic, fiscal, and monetary policy such as Switzerland. The Fund does not invest in any emerging market debt.

The $250-million fund, launched in 2005, is therefore a pure play on “hard” currencies and even includes a small amount of gold in the fund. What you end up with is a liquid portfolio of short duration, high credit quality, non-U.S. government debt of countries that pursue sound monetary policies.

The Fund is managed by Axel Merk, who founded Merk Investments AG in Switzerland in 1994. Merk relocated to the U.S. in 2001, opened Merk Investments LLC, an SEC-registered investment adviser.

Merk holds a B.A. in Economics (magna ***** laude) and MSC in Computer Science from Brown University, which awarded him the Class of 1873 Prize for Excellence in Economics in 1991. Merk is so highly thought of that Presidential candidate Ron Paul, who I admire, invited him to participate in monetary and economic campaign panels.

The folks at Morningstar know a thing or two about mutual funds. So when Morningstar gave the fund its coveted 5-Star rating from a pool of 183 world bond competitors, you know that Axel Merk knows what he is doing.

The fund is no-load, nor does it have any redemption fees or minimum holding periods.

Invest in countries like China and Singapore, which have growing economies and trade surpluses.
Invest in countries like China and Singapore, which have growing economies and trade surpluses.

How to profit from a falling dollar #2: INVEST IN NON-DOLLAR ASSETS such as non-U.S. stocks and non-U.S. bonds.

The stock market is risky enough without having to worry about the dollar getting pulled out from underneath it, so I strongly recommend that you keep a big chunk of your stock market dollars invested in the stock market of countries that have (a) growing economies, (b) budget surpluses, and (c) trade surpluses.

What countries are those? The only countries that are enjoying that type of financial prosperity are either countries in Asia — such as China and Singapore — or rich in natural resources like Brazil and Australia.

As an American, it pains me to say it but I believe that the U.S. stock market is one of the very worst places to invest your money.

Oh, there is one other option … you could do nothing. I believe, however, that is the worst mistake you can make. If you’re like most U.S. investors I know, the vast majority of your portfolio is invested in U.S. stocks and U.S. bonds, both of which will get hammered thanks to the never-stop-spending numbskulls running our nation.

Best wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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