Juggling Dynamite

Markets are unfairly rigged and frontrunning has become the dominant business model of most of the players currently churning in and out of public markets. Let’s be clear: these practices have nothing to do with investing– the purpose for which capital markets were invented. The fact that it is presently considered legal and acceptable underlines how far we have moved away from founding principles of fairness, disclosure and business ethics. Yes lifeguards can decide to allow some swimmers to pay fees to pee in the pool, but eventually all of the other reasonable swimmers will leave and you will be left with nothing but a pointless, toxic, pool of pee. Based on the incredibly low public participation and trading volumes in equity markets today, we are there now. Time to rethink pool rules.

Elite traders can receive early access to consumer confidence data for a fee, reports CNBC’s Eamon Javers. CNBC’s Rick Santelli and Jim Cramer, and Jared Bernstein, Center on Budget and Policy Priorities, discuss.Here is a direct video link.

Also see this report on rampant frontrunning in the currency exchange markets. Here is a direct link. You will need to advance the play bar to 2:33.

“Student debt in the U.S. stands at a record high of $1.1 trillion– it now surpasses both auto and credit card debt. According to a study by Fidelity 70% of the class of 2013 is graduating with about $35,000 in college-related debt.

And it could get worse. On July 1, interest rates on federally subsidized student loans are set to double from 3.4% to 6.8%. Nearly 7 million students will be affected by the rate increase, adding around $4.3 billion to the student debt burden next year.”

Here is a video report.

Student loans are recourse…they cannot be expunged in bankruptcy. But if they cannot be repaid for years and years, they will act as a long-term brake on fiscal progress for our youth and for the economy. Loans should not be free, but the borrowing costs have to be manageable–ie., possible to afford along with principle repayments over a reasonable period of time.

In 1991 I graduated from law school with $60,000 in student loans and the interest rate was 11%! Hard to believe today, but mortgage rates were also at a similar level at that point. Even managing to earn a 6 figure income starting in year 2 of my career, it still took me 5 years to pay off my student debt, and during that time the payments certainly restrained my ability to afford other discretionary spending and durable goods: I didn’t take trips, walked and took the bus–rather than buying a car. All of which is good and healthy incentives to work your way out of debt as soon as possible. But few young people are coming out of school today with strong earning power never mind high earning power. If the situation is hopeless, people will have no reason to strive. This is a big issue facing young and old today. Eventually, we are all in this economy together.

I am not a fan of bail outs–bailouts engender a lack of financial discipline– but, rather than bailing out reckless banks and antiquated car manufacturers again (who need to go through a deserved creative destruction in order to clean house and change their culture), the economy would be better served by helping students restructure and refinance their debts into feasible terms. We all have a vested interest in getting young people to a place of financial resilience.

Emerging markets, even the new Asia tigers, have tumbled on expectations of higher US interest rates. James Mackintosh, investment editor, analyses the implications of hot money outflows for currencies and equities.
Here is a direct video link.