Managing Director, Andy Guzzetti breaks down the numbers of JPMorgan’s $2 billion loss

JPMorgan lost $2 billion dollars on its London trading desk when a derivative hedge blew up. CEO Jamie Dimon had to announce the loss before the trade was unwound, this could cause the loss to go as high as $4 billion. The pro “increase regulations” crowd, has jumped on with both feet. Instead of allowing the markets to punish JPM and its poor handling of risk, the political positioning has begun. Congressional investigation, DOJ probe into possible criminal charges and the public outcry for additional regulations all because a publicly traded U.S. company lost money. We must understand that JPM lost money on this trading desk, approx. $2 billion, the company did not lose money for the 1st quarter and will report approx. $15 billion of profit for the year. $2 billion is a lot of money but JPM is a well run company that can handle that loss and still make money for its shareholders. A very important point to make is that JPMorgan will not need a government bailout. It’s just a loss they do not want to take and one that shows they did not handle risk very well.

POLITICS
The index JPMorgan lost money on was the CDX.NA.IG.9 Index. This index is made up of 125 company’s credit default swaps. This is a very intricate investment vehicle that is used to hedge bank positions. CEO, Jamie Dimon has been an advocate of getting rid of regulations and fighting with the administration about the DODD FRANK LAW and its Volcker Rule. The Volcker Rule is a rule that would prohibit banks from using their own capital to make bets on the direction of the market. This proposed rule states that commercial banks cannot proprietary trade (they can’t trade to make money, they can trade to hedge. In other words, to hedge some of the risk in their other investments).

The 2008 financial crisis began with investment banks and insurance companies, not commercial banks. In 2008 there were hundreds of billions of mortgage related securities which were rated AAA by rating agencies that should have rated them as junk. To equate JPM loss to the 2008 crisis is crazy. Proprietary trading in the banking industry did not lead to the 2008 crisis and has never led to any other financial crisis. Let the markets punish banks for poor risk management. Additional regulation is not needed.

What Are Exchange Traded Funds?

Andy Guzzetti, Managing Director of DLG Wealth Management firm near Saratoga Springs, NY, breaks down what you should know about Exchange Traded Funds.

Exchange Traded Funds began in 1993. They are mutual funds that trade on the NYSE or the NASDAQ. They track a specific index in stocks, bonds, commodities, etc. They can also track a sector. If you want to invest in utilities, instead of buying a group of utilities, you can buy an Exchange Traded Fund that indexes that utility.

Exchange Traded Funds are a nice way to make your bet without buying a lot of stocks. They are low cost and have minimal management fees. For more information on Exchange Traded Funds, Asset Allocation, Portfolio Management or other financial advice, contact DLG Wealth Management. Watch the entire WXXA Fox 23 News Money Monday segment about Exchange Traded Funds below:

Investment Advisors at DLG Wealth Management Discuss the Basics of Investing in Bonds

There is no question that the volatility in the equity markets has many investors worried about the stock market and drawing out money from equity funds and putting the money in bond funds at a record pace. With the state of the market, it is important to discuss the basics of investing in Bonds and the reasons why investors should be careful about being in bonds.

When you invest in bonds you are lending your dollar. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time.  What are some common ways of lending your dollar?

•    The most common way is to lend your money to a bank by opening a savings account. The bank will pay you interest on your money in return, as long as the money stays in the account.
•    Certificates of Deposits or CD’s pay a higher rate of interest because you tie up your dollar for a specific time (typically 1 month to 5yrs).
•    You can lend to the U.S Government (Treasuries). The government will pay you an interest rate depending on the maturity. The longer you go out the higher the rate of interest.
•    Corporate Bonds – let you lend your dollar to a corporation (IBM, APPLE). You will receive a fixed interest payment usually paid every 6 months for a specific amount of time. These corporate bonds usually pay higher interest rates than the bank but do have more risk. The longer the maturity is the higher the rate of interest. The higher the risk (can the corporation make its interest payments and pay the bond back at maturity) the higher the interest rate. All of the above examples of lending are taxable.
•    Municipal Bonds are issued by states, state agencies & local governments. The interest is federal tax free and can be state tax free if you lend within the state you reside.

All these lending vehicles can be done within a mutual fund that can specialize in all or certain areas listed above. By investing in a mutual fund you can diversify your lending which can lessen risk. This lending is known as “fixed income” investing.


It is important to understand that bonds fluctuate in value. When interest rates go up, the value of bonds you hold go down. When interest rates go down, the bonds you hold go up in value. Today interest rates are being kept at very low levels by the Federal Reserve policies. There will come a time when the Fed will not be able to hold interest down. They are sitting on a very tightly coiled spring (interest rates), when the Fed starts to release this coiled spring, rates will rise very fast causing large losses in bond portfolios. Investors should make sure portfolios are not over weighted in bonds. If you have a question about your portfolio, make sure to contact your advisor. For more information, contact us.

Managing Director, Andy Guzzetti, discusses what effects the debt crisis could have on the U.S.

All eyes are overseas again as the looming Eurozone meltdown hits some more bumps. What does this all mean to the economy of the United States and the world for that matter?

The voters in Greece and France have sent the word “we don’t want to give up entitlements and we don’t want to cut spending”. These election results turned things upside down and made all World markets nervous. We have talked about “PIIGS” before. “PIIGS” (Portugal, Italy, Ireland, Greece and Spain) are all countries part of this Eurozone debt crisis. We can add F & C to this acronym.

•    France has been thrown into the mix; France’s President, Nicholas Sarkozy, was voted out and replaced by a Socialist who campaigned against austerity. Sarkozy, in an effort to control France’s debt problem, proposed raising the pension age from 60 to 62. Although this proposal was needed, the French electorate said no.

•    Greece, on May 6th, voted in the anti-austerity candidates as well. The top vote getter, when trying to form a new government, asked all participants to sign a document to rescind the EU bailout plan that contained austerity measures. The threat of new elections loom. Greece will run out of money in July.

•    I have added the “C” for California. We all know that California is not part of the Euro Crisis, but it is part of this debt crisis. California has announced this past weekend that they have a $16 billion debt crisis that they can’t cover and are looking for help from the U.S government to cover them. Of course their plan is to raise taxes and cut funding to education and government programs.

So what does this all mean? If Greece cannot get its political house in order and has to forfeit on its debt payments this will put pressure on the EU to let Greece go. Banks that are holding Greek debt will have to take major hits and a weak world economy gets weaker. Besides the banking industry taking a major hit, corporations will see revenues drop. The markets are anticipating a default as the S&P 500 is down 3.2% this month.

Interest rates – The bond vigilantes, those bond investors who watch these developments, will demand countries like Greece pay a higher interest rate to borrow money. Already the 10 Spanish bonds are yielding close to the 6% level. This 6% level usually means disaster for these countries who are struggling.

Gold / Dollar- During this crisis the dollar has strengthened because it is considered a safe haven. This is surprising as some analysts think gold would be the safe haven. As the dollar strengthens, because gold is dollar denominated, gold prices have plummeted. Most Americans are watching to see the outcome because the United States is not far behind. We have refused to address our debt problem, we have refused to cut spending and we have refused to cut back entitlements. Sounds like Greece and France and the “bond vigilantes” are watching.

For more information on managing your finances, or other financial advice, contact us. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

DLG Wealth Management Discusses 3 Things To Do With A Dollar

Sometimes when things seem to be too much to understand the best thing to do is go back to the basics. In the world of investments things can get quite overwhelming, so let’s slow it down and discuss the 3 things you can do with a dollar. SPEND, LEND, OR OWN. These are the only 3 things you can do with a dollar, although some would say there is a fourth - DESTROY. We will leave that to the Federal Reserve.

SPEND

• If you have a dollar you can buy a hamburger, pay a bill or get a haircut. Pretty simple to understand.

LEND

• The second thing you can do with a dollar is lend it. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time. The common way of lending is to give your dollar to a bank (savings account) and the bank will pay you interest as long as you keep the money in the account. Investors who want a higher rate of return from the bank can look at Certificates of Deposits (CD's). CD’s pay a higher rate of interest because you tie up your dollar for a specific time (1 month to 5 years).

• You can lend your dollar to the U.S Government (Treasuries). The government will pay you an interest rate depending on the maturity. The longer you go out, the higher the rate of interest.

• Another place to lend your money is with Corporate Bonds. By lending your dollar to a corporation (IBM, APPLE, etc) you will receive a fixed interest payment usually paid every 6 months for a specific amount of time. These corporate bonds usually pay higher interest rates than the bank but do have more risk. The longer the maturity is the higher the rate of interest. The higher the risk (can the corporation make its interest payments and pay the bond back at maturity) the higher the interest rate. All of the above examples of lending are taxable.

• You can also lend your dollar and receive a tax free interest payment. Municipal Bonds are issued by states, state agencies & local governments. The interest is federal tax free and can be state tax free if you lend within the state you reside.

All of these lending vehicles can be done within a mutual fund that can specialize in all or certain areas listed above. By investing in a mutual fund you can diversify your lending which can lessen risk. This lending is known as “fixed income” investing.

OWN

• The last thing you can do with your dollar is own your dollar. You can buy a house, buy stock in a corporation, buy a business, buy collectibles or buy many other assets. Buying means you own an asset. That asset may increase or decrease in value but you own it. When you invest in a stock, you own a piece of the corporation (hoping the value goes up). Owning your dollar usually is called equity investing. As with bonds you can invest in a mutual fund to diversify your dollars owned which can lessen risk.

Seems pretty simple, right? There are only “3 things you can do with a dollar”. You can spend it, lend it or own it. It gets a little more complicated when you have to decide where you want to spend, lend or own. For more information on managing your finances or other financial advice, contact the financial advisors at DLG Wealth Management today. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.