On Financial Futures for Physicians

Posted on January 18, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

What it is – How it works?

By Tim McIntosh MBA CFP CMP® MPH

Courtesy: http://www.CertifiedMedicalPlanner.org

TMA future is a financial derivative that represents the purchase of a particular investment at a predetermined date. Futures are traded on a wide range of investments (e.g., baskets of stocks, interest rates, currencies and commodities) and are useful tools for controlling the risk of cash flow timing for those that wish to lock in a particular price for a security.

Futures versus Options

Likewise, they also provide some insight as to the expected future price in the market of the security.

The key difference between futures and options is that futures obligate both parties to make the agreed upon transaction, whereas options give the option holder the right, but not the requirement, to make the transaction.

Trades

Futures are typically traded on an organized exchange, such as the Chicago Board of Trade (e.g., interest rate and stock index futures) or the Chicago Mercantile Exchange (e.g., foreign exchange and stock futures). The design of the contract traded on an exchange typically includes a pre-defined contract size and delivery month.

Margin Maintenance

Also, futures transactions generally require maintaining a margin deposit (i.e., a fraction of the trade value held in reserve to help ensure the final settlement at the contract settlement date) and the recognition of gains and losses on a daily basis with movements in contract prices.

Japan and world markets tumbling - dollar stronger

Assessment

The pricing of a futures contract is based upon the price of the underlying security (e.g., the S&P 500 Index price), the opportunity cost of cash (e.g., current borrowing rates) and any distributions expected from the security over the period (e.g., dividends).

MORE: Futures

About the Author

Timothy J. McIntosh is Chief Investment Officer and founder of SIPCO.  As chairman of the firm’s investment committee, he oversees all aspects of major client accounts and serves as lead portfolio manager for the firm’s equity and bond portfolios. Mr. McIntosh was a Professor of Finance at Eckerd College from 1998 to 2008. He is the author of The Bear Market Survival Guide and the The Sector Strategist. 

Conclusion

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A Value Investing Metaphor for Doctors

Posted on January 14, 2013 by Dr. David Edward Marcinko MBA MEd CMP™

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Via a Cats and Dogs Allegory

By Rick MS CFP® ChFC CCIM www.KahlerFinancial.com

Rick Kahler CFP“I’d really like a Maine Coon cat, but they cost around $800. I’m not going to pay that much for a cat.”

The man who said this paid $500 for his purebred Lab. Obviously, he’s willing to spend money on things he enjoys, like hunting dogs. Yet when it comes to paying cold hard cash for a cat, he draws the line.

So, apparently, do a lot of other people. I have quite a few clients who are happy to spend hundreds of dollars for a particular breed of dog. I don’t know of a single client who has ever spent that much for a particular breed of cat.

Utility

Except my wife. Marcia has just begun breeding and selling Balinese cats, worth $1,000 each. She asked me why people are so much more willing to write checks for purebred dogs than they are for cats.

She didn’t buy my argument that dogs are inherently more intelligent, friendly, and worthwhile than cats.

If that isn’t the explanation, what is? Maybe it’s because the basic reason people buy purebred dogs or cats is to get specific looks and personality traits. Most dog breeds are quite distinct; anyone can tell a Great Dane from a Bichon Frise. Yet the only cat many people even recognize as a separate breed is probably the Siamese.

Maybe dogs are seen as more useful. I don’t know of any hunting cats, Seeing Eye cats, or watch cats. Still, that doesn’t explain all those Chihuahuas and tiny terriers that sell for hundreds of bucks a pound.

Value?

The point here is that whether a given commodity is seen as valuable depends on a variety of factors. Utility is one. In early Deadwood, Dakota Territory, an enterprising freighter brought in a load of cats and sold them at a premium to pioneers desperate for mouse and rat control. In that case, cats were more valuable than dogs.

Supply and Demand Economics

Supply and demand is another factor. A house that’s worth $150,000 in Box Elder, South Dakota, might be worth $600,000 in San Francisco, where unarguably more people would like to live. When there’s an over-abundance of cheap goods in the form of unwanted kittens flooding the market, people may be less likely to pay real cash for even purebred cats.

Commodity

Another reason people value one commodity over another is that they have been persuaded to see it as worth more. In Biblical times, frankincense and myrrh were highly prized and worth their weight in gold. Today, one pound of frankincense and myrrh goes for $13.95 on Amazon, while one pound of gold sells for around $24,000.

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gold bars

Gold

Fifteen times more gold is mined each year than platinum, the rarest of all precious metals, yet gold sells for more per ounce. Why? Gold has a long history of being perceived as the world’s most precious metal.

Designer Clothes

For much the same reason, people will pay a hundred bucks or more for a pair of designer blue jeans when they could get essentially the same thing for $19.99 at a discount store. The brand name jeans are seen as more valuable.

Marketing and Perceived Value

The simple reason for this is marketing.

When it comes to perceived value, dogs have benefitted from better marketing than cats. Just think of heroic military dogs, hard-working Seeing Eye dogs, and screen stars like Lassie rescuing people from burning buildings. Even the Taco Bell Chihuahua gets to advertise fast food. Cats get to advertise kitty litter and cat food.

Assessment

Cats just need to find a better advertising agency. They have some work to do if they want to come up with a slogan to top “Man’s Best Friend.”

Conclusion

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Does Financial Regulation Kill Jobs?

Posted on September 14, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

Perhaps Not!

By Marian Wang
ProPublica, Sept. 12, 2011, 1:20 pm

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With the presidential campaign in motion, and President Obama urging immediate passage of his new jobs bill, the attention in Washington has shifted almost exclusively to the economy and job creation. And, that means a shift away from regulation, right? Not necessarily.

Growth Spurts?

Some regulators and financial industry experts are predicting the opposite—that new financial regulations will spur some growth.

For example, The New York Times’ DealBook blog cited derivatives regulation [1] as one example. Dodd-Frank requires a substantial chunk of the $600-trillion derivatives market to trade on exchanges or on new electronic trading platforms.

“I have no doubt that these new regulations, instituting new types of clearing, trading and reporting platforms, will foster a landslide of hiring in the financial sector,”

Bart Chilton of the Commodity Futures Trading Commission said in a recent speech cited by the Times. As another New York Times piece noted, previous financial regulation laws have resulted in additional jobs for accountants and lawyers [2], at least.

But, separate from the jobs created to actually handle new regulation, others have pointed out that regulations can have a long-term, positive effect on overall economic growth by preventing the types of crises that put an industry on life-support.

The Studies

Last year, two studies by central bankers and regulators found that the short-term impacts of stricter capital requirements were “significantly smaller” than the estimates published by banking groups, the Times reported.

Rather, the studies said that stricter regulation would lead to more long-term growth [3] by preventing future crises.

Banks see higher capital requirements

  • Which require them to have more financial cushion to balance out risk-taking as a damper on profits.
  • And, they have repeatedly warned that tougher rules will hamper lending, reduce investment and slow economic growth.

Assessment

But, not everyone sees it that way. Swiss regulators, for instance, indicated last year that they would impose even tougher capital standards on their country’s banks on the premise that investors would rather put their trust [4]—and their dollars—in safer banks.

Conclusion

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