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 January 1, 2008
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GOVERNMENT INVESTIGATION
– In the shadow of the mortgage crisis, the Justice Department,
the SEC and the New York attorney general's office are all looking to
see if banks bundled risky loans with good ones without properly
disclosing such risk to investors. However, we like this quote: "Just
because you have a business reversal doesn't mean there's a basis for a
government investigation."
INVESTMENT GRADE “JOKE”
– According to a Bloomberg article, the participation of Wall
Street’s biggest credit rating agencies – Moody’s,
S&P and Fitch – allowed investment banks to sell trillions of
dollars of subprime mortgage-backed securities as “safe
investments.” About 80% of the securities carried AAA
ratings, the same as given to U.S. Treasury bonds. The complete
article can be read by clicking here.
BAILING OUT ON THE BAILOUT
– The big banks that set up a fund to bail out structured
investment vehicles (SIV) have decided to abandon the plan. The SIV
bailout had the support of the U.S. Treasury and involved billions of
dollars, but the banks said they no longer saw a need for the fund.
Sure was a lot of money for minds to be changed so quickly.
SUBPRIME BAILOUT?
- Don’t count on exactly what the government might do regarding
the subprime mess. Congressional proposals are being met with fears
that the initiatives will go too far and concerns that they won’t
go far enough. Most want tighter government controls, but some are
concerned about too much regulatory intervention stifling the lending
business.
CITIGROUP TROUBLES CONTINUE
– Analysts believe Citi will have write-offs of $18.7 billion
related to collateralized debt in the fourth quarter and could cut its
dividend as much as 40% to "preserve its capital position."
DOLLAR’S EFFECT – The Washington Post
reports that, "The dollar was the dominant force in world economics for
100 years -- we had no competition. There was no other economy
close to the size of the United States. But all that is now changing.
That change has caused the U.S. dollar to enter a seven-year decline
and is affecting everything from job markets and U.S. investments in
Europe and Asia to coffee exports from Africa.”
DOLLAR REBOUND?
– The dollar is down nearly 10% this year, but some
“currency strategists” expect the dollar will end its
two-year decline in 2008. According to a Bloomberg survey of 42 of
these “experts,” we can expect a gain of 3.5% to $1.40 per
euro.
EXECUTIVE PAY
– Want to check out executive compensation at some large U.S.
companies? The SEC now has an online, interactive tool available
for this purpose. It’s located at http://www.sec.gov/xbrl.
For example, we learned that Merrill Lynch ex-CEO Stan O’Neal was
the recipient of $91.38 million in compensation last year. By the
way, Merrill Lynch is predicted to face at least $8 billion in
write-downs for mortgage-related securities in the fourth quarter and
is currently seeking cash infusions by selling its stock and units of
the company.
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PUBLIC SECTOR BENEFITS
– We’ve mentioned this concern previously, but now a report
released by the Pew Charitable Trusts has put a dollar figure on the
funded and unfunded liabilities each of the states face in paying for
public employee pensions and health care benefits. The picture
isn’t too bad on the pension side...the states have set aside
about 85% of long-term pension costs. On the health benefits
side, the picture is scary, with the states having saved only 3% of the
funds needed to cover the long-term health care promises made to public
service employees. Click here to access Promises with a Price and see where your state stands.
IOLI THREATENS INSURERS
– S&P reports steady growth for life insurers, but part of
the sales increases came from strong sales of investor-owned (also
known as stranger-owned) life insurance. IOLI-type life insurance
policy ownership could put the future profitability of issuing insurers
at risk, because insurance companies underwrite life policies with the
assumption that a certain percentage of them will lapse. As IOLI
policies are bought as investments by major financial institutions,
they are far less likely to lapse. This means life carriers will pay
out claims on a far higher percentage of policies than they had
assumed.
SETTLEMENT MORTALITY PROBLEMS - According to Bestweek,
institutions with millions of dollars at stake in the life insurance
settlement industry have some grave concerns: Not only is the average
American living longer, but even unhealthy people whose life insurance
policies were purchased on account of their imminent demise are beating
the death clock.
CALIFORNIA UNIVERSAL HEALTH CARE
– Seen as a potential model for a national reform, the California
House has passed a universal health care plan for all of its 36 million
residents. The $14 billion plan must still be approved by the state
Senate and voters. Paying for it may be a problem, since the most
populous U.S. state is already facing a $14 billion gap in its budget.
Under the plan, insurers could not deny coverage regardless of age or
medical history and must spend at least 85 cents of every premium
dollar on patient care.
RECESSION EXPECTED
– A Zogby poll reveals that 43.4% expect a recession within the
next year and that is up from 40% a month earlier. Zogby claims that
the economic mood is worse than in the last recession in 2001 and that “further Federal Reserve interest-rate cuts were unlikely to improve that sentiment.” Beat us how you get that information in italics from a poll.
STAGFLATION
– This is a term we haven’t heard for several decades
– stagflation is a period of slow or no economic growth combined
with rising inflation. According to a Bloomberg article, the
world economy may be facing stagflation next year...click here for the article.
SOVEREIGN-WEALTH FUNDS
– You may never have heard of sovereign-wealth funds (SWFs), but
these SWFs based in the Middle East and Asia are playing an increased
role in the global economy. Saudi Arabia is planning to establish an
SWF that is expected to be the largest in the world. It will exceed the
current largest (Abu Dhabi's $900 billion fund) by a few billion!
CLOUT AND THE FED
– Some believe the Federal Reserve is using up too much of its
“clout” in an attempt free up capital for debt markets.
Reason: “If the Fed continues to lose clout, it will be even
harder than it is now to rescue the world's financial system when the
next disaster strikes the markets."
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RECORD DECLINE
– Home prices in October experienced a record drop, falling 6.7%
compared with a year ago. That’s the largest drop in more
than 16 years and marks the 10th consecutive month of price
depreciation.
RECORD DIVIDENDS
– According to SIFMA, companies in the S&P 500 paid a record
amount in dividends in 2007. The companies, on average, paid $27.73 a
share, and Standard & Poor's predicted that number would rise 9% in
2008.
BUSH SIGNS -
President Bush has signed several bills and a $555 billion spending
package for 2008. The bills include a one-year "patch" for the
alternative minimum tax and an extension of the Terrorism Risk
Insurance Act, which excludes group life insurance. Bush expressed
disappointment in the “earmarked” spending associated with
the fiscal package. It appears to us that the President and all our
elected officials should have been concerned about the pork for a long
time, not just now.
AMT PATCH
– The one-year AMT “patch” increases the AMT
exemption levels for 2007 to $66,250 for joint filers and to $44,350
for single filers. Congress' late fix to the alternative minimum
tax will mean delays in refunds for three million taxpayers. The
Internal Revenue Service said changes needed to address the AMT patch
would mean those taxpayers would have to wait until February for their
tax refunds.
RETIREE HEALTH COVERAGE
– The EEOC has released a final rule that allows employers to
reduce or eliminate retiree heath benefits for Medicare-eligible
retirees, while maintaining coverage for retirees who are too young to
qualify for Medicare, without violating the Age Discrimination in
Employment Act.
MORTGAGE TAX RELIEF
- President Bush signed legislation erasing the tax burden for mortgage
debt forgiven as part of a loan foreclosure or renegotiation. "The
provision will increase the incentive for borrowers and lenders to work
together to refinance loans."
NAIFA AND AMERICAN COLLEGE DEAL
- The American College and NAIFA have entered into a new two-year
agreement featuring cooperative marketing and educational initiatives
to grow the popular LUTCF and FSS designations.
MOST GENEROUS
– A survey indicates that entrepreneurs are among the
most-generous donors, giving 25% more on average to charitable causes
than other wealthy people. Virtually all rich donors said they would
give more money away if they knew that charities spent less on
administrative costs and more on helping their clients. But they are
more likely than other wealthy donors to report that they would give
additional sums if they were better able to determine the impact of
their gifts.
BIGGEST ASSET? –
Here is one take and it may not be wrong. “Disability insurance
insures what's extremely likely to be your biggest asset: your future
income. That's the reason disability insurance is so important. It's
more important than life insurance, health insurance and auto
insurance. If you depend on your income to pay your bills, you need
disability insurance. However, if you happen to be independently
wealthy and don't need to work, you don't need disability
coverage.”
VIRTUAL HOUSE CALLS
– Here is an idea whose time has come. CIGNA is piloting an
online program that allows patients to exchange messages with
physicians in virtual house calls. Members can give information about
their symptoms to a physician, who can respond online, by phone or, if
needed, request the member to visit his or her office.
NUMBER ONE RESOLUTION
- A study by Countrywide reveals that 67% of Americans say becoming
financially fit is their top New Year's resolution in 2008. The report
also finds that fathers are more confident about finances than moms,
and single people feel even more secure than those who are married.
MORTGAGE RATES AT 25-MONTH LOW
– Here is a holiday present for you...30 year fixed interest rate
mortgages are in the 5% plus area and at a two-year low. With real
estate values down, now might be the time to buy that second home.
LIVING LONGER AND BETTER
- A surprising decline in disability rates among older Americans since
the 1980s is enabling millions more to lead longer, richer, more active
lives. The decline in disabilities has averaged about 1.5% a year since
1984.
LL GLOBAL -
Member companies of LIMRA International and LOMA granted their approval
of a merger involving these two insurance trade organizations.
Effective January 1, the two groups will operate under LL Global
Incorporated. Each organization will keep its individual name and
operate at its own headquarters, the companies say.
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