August 15, 2012
- Sweetheart deal for breaking Iranian sanctions… more bad news for MF Global customers: New case studies in how the financial services industry plays by different rules
- The harsh reality about where you stand in the pecking order with banks, insurers and brokerages… and your chance to even the score
- Soros and Paulson load up on gold: How Paulson’s move could signal a new epic run-up in the Midas metal
- An emerging market you might want to avoid… Irate readers rise to Paul Ryan’s defense… the most-important issue of the election (in 1932)… and more!
“The financial services industry,” writes Tim Maurer, “is not in the do-good-ing business so much as it is in the profit business.”
Mr. Maurer does not ordinarily traffic in self-evident propositions. He is a financial planner here in Baltimore; he also teaches financial planning at nearby Towson University. Addison had a memorable experience addressing some of his students a while back.
“Let me be clear,” he writes in a blogpost at Forbes. “There is NOTHING at all wrong, evil, immoral or unethical about profit, nor in profiting from doing good. It need not be one-or-the-other.
“What I do take issue with, however, is an industry hellbent on convincing us that its primary motive is something verging on altruism when the primacy of profit in its eyes is so blatantly apparent.”
Case in point: “The appalling number of mutual funds that ‘don’t beat the index.’ Most notorious is the large-cap growth discipline, 79% of which did NOT beat their respective benchmark — the S&P 500 — last year…
“This and scores of other stories beg the question, then, who is benefiting primarily and most from the core activities of the financial industry? Well, the financial industry itself!
“When forced to answer that question under oath, the industry has no choice but to tell us as much.” To wit, the congressional testimony of Goldman’s CFO more than two years ago…
As we noted last Friday, the Justice Department finds nothing wrong with this.
Apart from Mr. Maurer’s examples, we have two more from the last 48 hours.
Standard Chartered — a big British bank — has settled a money-laundering case brought by the State of New York: With a payment of $340 million, the case goes away.
The story first broke a few days ago when the state accused Standard Chartered of hiding transactions in Iran. The bank’s license to operate in New York was in jeopardy.
The evidence was damning, including an email from a London-based director that said, “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
An understandable sentiment, actually. The problem is that if you or I were to “deal with Iranians” — or Cubans, or other folks who have the misfortune of living under a government despised by America’s political masters — we would do hard time.
In contrast, banks pay a fine that amounts to a “cost of doing business” line item on the budget.
Then there’s a court ruling that bodes ill for the MF Global customers hoping for the return of their “missing” $1.6 billion… even as ex-CEO Jon Corzine continues to walk free.
Last week, a federal appeals court issued a ruling in an earlier case of a brokerage going bust — Sentinel Management Group, which failed in 2007. The court allowed Bank of New York Mellon to cut in line in front of Sentinel customers when it comes to who recovers lost funds.
The bank had a “secured position” on a $321 million loan it gave to Sentinel. But it turned out the loan had been secured with customers’ money. Somehow the court found that fact to be irrelevant.
The ruling “could make it more difficult for customers to recoup money lost in the much-larger collapse of MF Global,” says a Reuters dispatch. Yeah, just a little bit…
“It’s important for us to recognize,” says Mr. Maurer, “that each of ‘The Big Three’ —banks, brokerage firms and insurance companies — are in business primarily for the entity (and its shareholders) and secondarily for their representatives. You, as a client, are at best a tertiary concern…
“It is important, because if you recognize the inherent conflicts of interest in the industry for what they are, you’ll be better served by it — the industry. After all, it’s not going anywhere, and yes, we need it…
“When you realize your financial adviser is charging you 1.5% to baby-sit a static portfolio with training wheels, you need not feel gipped… You can calmly recognize this is simply how the industry is structured and incentivized… and tell them you’ll be taking your business elsewhere, with a well-informed smile.”
Perhaps you’ve taken this step already. You might well be reading The 5 because you fired your adviser and sought out the sort of fiercely independent guidance that’s the stock in trade of our many paid publications.
This week, we’d like to extend our thanks.
Our “loyalty rewards” program is open. Through this program, you receive a generous credit toward access to publications in addition to the ones you already subscribe to. At minimum, your “loyalty reward” is worth $1,044. Depending on your current subscriptions, it could be much more.
“The recommendations and research insights have been good and useful,” says a satisfied customer. “The wide spread over different industries and businesses gives my portfolio good risk reduction.”
Let publisher Joe Schriefer explains exactly how the “loyalty program” works right here. There’s no lengthy presentation to watch — only a straightforward description of what’s in it for you.
Another day, another directionless stock market. The major indexes have barely budged. The VIX has eased a bit after yesterday’s spike to 14.6.
Like yesterday, traders are chewing on a set of government numbers that furnish zero clarity on the prospects of more EZ credit from the Federal Reserve…
- Consumer prices: Ruler-flat between June and July. The year-over-year change remains at 1.4%. The “core” rate — for people who don’t consume food or energy — is actually higher, at 2.1%
- New York State manufacturing: In contraction, according to the Fed’s Empire State Survey. It’s the first outright negative reading since last October.
- Industrial production: Up 0.6% from June to July, the increase spurred by auto output and high utility consumption during a record heat wave
- The National Association of Home Builders’ confidence index sits at its highest level since early 2007.
Oy… Only four weeks and one day until the next Fed announcement. Unless Ben Bernanke drops a hint at his annual Jackson Hole speech, as he did two years ago. That’s coming up at the end of this month.
After dipping as low as $1,590 in overnight trading, the spot price of gold is back to $1,603. Silver sits at $27.87.
George Soros and John Paulson both loaded up on gold during the second quarter.
New 13-F filings with the SEC reveal Soros doubled his exposure to the SPDR Gold Trust (GLD). He now holds 884,400 shares. Soros has been tiptoeing back in after unloading nearly all of his 4.67 million shares in the first quarter of last year — when gold was still under $1,400!
Paulson, meanwhile, upped his GLD stake by 26%, to 21.8 million shares. His $21 billion hedge fund now has 44% exposure to GLD and gold stocks, up from 33% in the previous quarter.
“The last time his stock portfolio had a bigger concentration in gold-related equities than last quarter was March 2009, when U.S. equities hit bottom,” Bloomberg reports.
“Paulson is buying like March 2009, eh?” muses Daily Resource Hunter’s Matt Insley. “That sounds familiar. That’s the last time that gold was a screaming buy.”
Skeptical of that claim? Matt presents a compelling chart for your perusal.
So much for the return of multinational corporations to Nepal.
Foreign investment dried up in the Himalayan nation when Maoists waged a bloody civil war against a monarchy from 1996-2006. Frequently, they targeted the presence of companies like Coke, Pepsi and Unilever.
After a peace deal and transition to a secular state, KFC and Pizza Hut ventured in to the country in 2009 — opening four restaurants.
Something has clearly gone haywire: “In order to disrupt our operations, some staff have physically attacked and threatened to kill the senior managers,” according to a letter from Devyani Intl., which operates the chains in Nepal and India.
Thus were the restaurants shuttered yesterday.
Nepalese couldn’t get enough of the Colonel when KFC arrived in 2009…
“These acts have put the life of senior managers at risk,” the letter went on. “To maintain the safety of our restaurants and the staff, we have shut down our services for an indefinite period.”
Exactly what the staff are upset about, no one’s saying. We doubt it has to do with the overhyped introduction of KFC’s “Original Recipe Bites.”
“Your editorials sound a little lefty to me,” writes the first of a couple readers determined to reconcile the rhetoric and reality of Paul Ryan.
“If you are looking for the second coming, you certainly are out of touch. Paul Ryan and no other politicians are saints, but he also has many attributes that make him a winner in my book.
“If you are an Obama supporter, please let me know so that I can cancel my affiliation with your website.”
The 5: If you’d been paying attention, you’d know we had no expectations of a second coming. We’re merely amused by the many people who do have those expectations, some of whom ought to know better.
We also notice you didn’t cite any of those “attributes which make him a winner.” If it’s merely the fact he’s “not Obama,” you’ve set a mighty low bar…
“While you berate Paul Ryan,” writes another critic, “try to remember that our political system is in place and one of these sets of candidates will win in November.
“Would you rather continue your slavery on the Obama plantation or opt for a team that at least thinks about how to modify our fascist police state? Please stop beating up on what might be America’s last best hope. Doing so makes you part of the Obama re-election team.”
The 5: Good grief. This tribal-warfare “if you’re not for the Red Team, you must be for the Blue Team” is getting real old.
And on the subject of “how to modify our fascist police state,” you might want to know a few things pointed out by Marcus Tully of the Republican Liberty Caucus: “Since 2010, Ryan has been on the wrong side of almost every important vote involving basic constitutionally protected rights.
“He voted to extend the Patriot Act, for the Cyber Intelligence Sharing and Protection Act, for the Defense of Marriage Act, for the National Defense Authorization Act (three times), to expand the Department of Homeland Security, to extend troop commitments in Iraq, Afghanistan and Libya and to give the president the power to appoint department heads without senatorial approval.”
“Until a politician says the first step is to freeze spending at last year’s level and start cutting from there, they aren’t serious,” a reader suggests.
“Freeze and then cut 10% per year in real cuts and the budget is balanced at the end of four years without raising taxes and you can make the Bush tax cuts permanent.
“They even had a head start with the ending of the war in Iraq, but they wasted their chance. Plus, once they show they are serious, we would see real economic growth that would raise tax revenues just by people/corporations making more money.”
“As a neighbor of Martha Boneta,” writes a reader revisiting last Friday’s episode, “I have been surprised that one highly pertinent fact is not being mentioned in the coverage of this ‘Pitchfork Protest.’
“Fauquier County leads the nation in conservation easements — permanent deed restrictions on land use which are voluntarily established by landowners and the county. Mrs. Boneta purchased her farm from the Piedmont Environmental Council. Because of the easement, she paid a price far below what the land would have been worth if unrestricted.
“It is my strong suspicion, based on past history, that many, if not all, of the violations Mrs. Boneta has been charged with, are related to the restrictions that she voluntarily accepted when she purchased the farm, rather than arbitrary zoning ordinances imposed by the county.
“As the value of my own property is due in part to the surrounding land, including the farm in question, that has been protected from development and certain commercial activities, I resent the fact that Mrs. Boneta is apparently manipulating the local Tea Party and press in an attempt to escape the penalty for flouting these restrictions after benefiting financially from them.”
“I was born in 1925, and got a kid’s view of the Depression,” writes a reader who caught our musings about booze and hard times Monday.
“We called it the depression. I didn’t hear of the Great Depression until I was in advanced middle age.
“A 7-year-old may not qualify as a political analyst, but I noticed what caused the loudest and longest discussions in 1932: If Roosevelt wins, we can have beer.”
The 5: Hmmm… Imagine this: The fattest, juiciest financial bubble bursting between now and 2016… and the biggest issue on voters’ minds is legalizing pot!
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Five years ago, Australia’s famous Perth Mint rocked the coin collector world with its silver Koala Dollar.
This year, the Perth Mint has outdone itself… and our friends at First Federal have snagged a supply of a brand-new and in-demand issue. If you missed the announcement in your inbox earlier today, you can check out all the details at this link.