The practice of disguising illegally obtained funds so that they seem legal is known as Money Laundering. This practice is a key of underground economy. It is defined under common law as crime. Its definition is different from its jurisdiction.

It is considered as engaging in financial transaction to hide identity or illegally obtained money.

British law defines money laundering as under,

“The act is defined as taking any action with property of any form which is either wholly or in part the proceeds of a crime that will disguise the fact that that property is the proceeds of a crime or obscure the beneficial ownership of said property.”

The money laundering was applied to financial transactions related to organized crime in the past. But now it has more wide meaning.

Read the full story

There are certain misconceptions in the minds of people related to factors that determine mortgage rates. Let us try to explore these in details to find real truth behind these myths.

Mortgage rates moves with Federal Reserve’s  Fund Rate

Many consumers are misguided about the different factors in the economy that affects mortgage rates. There is a common misconception among borrowers and also some members of the media that the Federal Funds Rate set by the Federal Reserve is related to mortgage rates, but when the Fed cuts the Fed Funds Rate and mortgage rates are not affected accordingly then this concept of people proves to be wrong.

The reason behind this is that mortgage rates are determined by Mortgage Backed Securities (MBS) and the current coupons they are trading at.MBS are traded every business day just like stocks and other bonds. As MBS’s demand increases, its price goes up and its yield goes down and thus resulting in lower mortgage rates.

In a more simple way we can say that mortgage rates are anything that increases investor demand to buy mortgages resulting in lower mortgage rates. For example when investor pulls out their money from stocks they usually try to invest in safer fixed income investments and MBS is one option they have. So when stocks decline that also increases the demand for MBS.

Another factor that could increase investor demand for mortgages is deflation.MBS and other bonds are fixed income investments so due to inflation the return on that type of investment diminishes. If there is deflation then the fixed investments remain attractive. On the other hand, if inflation is high then investments like MBS are less attractive and demand decreases which ultimately results into an increase in mortgage interest rates.

The reason that mortgage rates often increase when the Fed lowers rates is because the lower Fed rate Stimulates the economy and become a reason of higher inflation in the future which is a bad sign for mortgage bonds that is why mortgage rates usually increase when the Fed cuts their rate.

Mortgage Rates are based on the 10 year Treasury bonds

Another misconception is there in the minds of some people that mortgage rates are based on the US 10 year Treasury bond. Many times it happens that the MBS market moves within a certain spread compared to the 10year but sometimes there is a large disconnection between the MBS and 10year US treasury bonds.The problem that we are currently facing is to keep mortgage rates higher so that they could be given more traditional spreads. There are days where the yield on the 10yr will drop while the yield for MBS will increase when normally they would move in a similar path.

The Japanese unit of the largest Swiss bank UBS nearly lost 30 trillion yen because of a computer errors.  it was about to spend 3 trillion yen (31 billion dollars) to purchase bonds of Capcom, a manufacturer of video games. (Bloomberg Report).

USB Bank officials then explained that they were going to place an order for the purchase of bonds in the amount of 30 million yen (310 thousand dollars), but due to an error, computer added Five zeros to the order.

According to UBS, the deal was concluded on the OTC market and has not been recorded in the Trading System of  Tokyo Stock Exchange (BBC Report).

According to Capcom, Famous producer of game series Resident Evil and Street Fighter, the Tokyo Stock Exchange canceled the deal and they apologized from the company. Cancellation was requested by UBS, who also asked for forgiveness for the mistake. This event however did not had any major impact on the trading session.

Read the full story

Start as early as you can in your investment game. Time is a great multiplier. If you make sound investments early in your life, you are sure to make some money later on with no exceptions. The rules here are rules of investment that help you make more money and grow your investments hundreds of time multiples.

These golden rules of investment are no secret. they have been around in business families for ages and they hand down to each other generation after generation. Knowing them is first step. real gold lies in following these golden rules.

1. Never Be Afraid of Risk

One of the biggest mistakes investors can make is allocating too much of their investments in cash or bonds. A good rule of thumb is to subtract your age from 100. Allocate that % of your portfolio to stocks.

2. Never Invest All In Your Employer’s Stock

If you can get stock in your company subsidized, by all means invest as much as you can. That is free money. But don’t overweight your portfolio with company stock. What happens if your company goes under? Not only is your job income gone, but your investment portfolio is shredded as well.

Read the full story

I spent last few days learning about mutual funds investments. I can sum up here what I have learned from different sources about the basics of these kind of investments. Mutual Funds are far better than investing in individual stocks. You should chose the later kind of investment only if you have time, energy and required level of understanding of stock markets and the underlying fundamentals.

What is a Mutual Fund?

A mutual fund is a pool of investments used to buy a large portfolio of securities that will be managed by a professional adviser. When you buy a share in a mutual fund, you effectively buy a bit of each security held in the fund’s portfolio. Mutual funds are sometimes referred to as “investment companies.” These investment companies should not be confused with investment banking companies, which raise capital for corporations and municipalities. Mutual funds, on the other hand, are “investment companies” whose shares are sold to the public and which invest the proceeds of these sales in other public companies.

Risk

Mutual funds are not risk free investments. Even investing in mutual funds whose portfolios consist only of guaranteed U.S. government bonds contains an element of risk. Before you invest in a mutual fund, be sure you completely understand the risk. When you invest in a fund, the risk of total loss is lessened due to the diversity in the portfolio, but anyone who tells you that there is no risk involved in this investment is lying.

Read the full story

Moments Ago Fed Funds Rate was cut to down to 1.00% bringing it down 50 basis points. It was expected as 25 basis was too low and 75 basis points were thought as too high.

This new kind of pushed Fed into corner. It is running out of Monetary options. few fiscal tools are left. It is very unlikely that Fed will lower the rates below One Percent. but some sources says that this option is still on tables. we did an article on Zero interest rate a few days back.

We at FLR don’t think that Fed cutting rate will ease the credit market. The current  problem is about stinking balance sheets. Govt Bail outs Or Easy Credit from Fed can not do any thing but to inflate them by putting either equity or credit on these balance sheets. It does not take away the stink from the balance sheet. The problem with liquidity of commercial paper will not be solved unless all those toxic assets like sub prime credit are removed from them.

DOW and S&P 500 took a dip after rate cut. and 10 year bond yields rallied upwards…..  watch Bloomberg for more details.

New economic realities brings its own dictionary. Your Money Mogul listed new meanings of old financial terms. Forget the losses you made and enjoy yourself.

CEO — Chief Embezzlement Officer.

CFO — Corporate Fraud Officer.

BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING — The art of buying low and selling lower.

P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

BROKER — What my broker has made me.

STANDARD & POOR — Your life in a nutshell.

Read the full story