© Copyright 2007
US FlagMarch 15, 2007 Edition
1stLifeSettlements


DÉJÀ VU ALL OVER AGAIN - There are some unsettling similarities between today's subprime mortgage industry problems and the bursting of the tech bubble in 2000.  As explained in a Business Week article: "The subprime lending industry is getting hammered, and hedge funds and investment banks are feeling the pain."    Home-mortgage delinquencies have reached their highest level in 3-1/2 years with foreclosures rising rapidly. Much of the problem is blamed on subprime mortgages...higher-interest loans for those with credit problems. Federal regulators are asking lenders to exercise caution in making subprime loans and closely evaluate borrowers' ability to repay. This may, however, be a bit like closing the barn door after the cow has left.  Subprime lenders are dealing with credit crises of their own, are facing stock exchange delistings and may be looking for bankruptcy protection soon.  It may take awhile for this situation to work itself out.

OPERATION SPAMALOT – In an initiative called "Operation Spamalot," the SEC has finally clamped down on companies hyping penny stocks via spam on the Internet, suspending 35 companies that have been the subject of recent spam e-mail campaigns. "It's a vivid illustration of how run-of-the-mill crooks are taking yesterday's scams and leveraging them forward using e-mail and sophisticated malicious hacking tools" and a throwback to rumor-mongering in Wall Street's early days. The scam involved as may as 20 individuals from as far away as Russia, Latvia, Lithuania and the British Virgin Islands. 

OVERSIGHT ANGST - Anxiety concerning the impact of oversight regulations on the competitiveness of U.S. financial markets continues.  On Monday, a panel commissioned by the U.S. Chamber of Commerce recommended that the SEC forego quarterly earnings guidance and relax oversight restrictions.   On Tuesday, some "titans of industry and finance" met to discuss market regulations.  Panelists included Warren Buffett, GE chairman Jeffrey Immelt, Charles Schwab, former Fed chairman Alan Greenspan, former Treasury secretary Robert Rubin and NY mayor Michael Bloomberg.  The panel discussion was moderated by SEC chairman Christopher Cox and Treasury secretary Henry Paulson. The challenge is to craft regulations that ensure the competitiveness of U.S. financial markets while continuing to protect investors.

"BRAZEN" FRAUD RING - Federal prosecutors have charged employees of Morgan Stanley, UBS and Bear Stearns with operating an insider-trading ring that tipped off hedge fund traders and brokers to new analyst ratings and secret takeover talks.  In addition, several studies show that stocks and derivatives regularly rise ahead of takeover announcements, indicating evidence of insider trading.  More background is available at Bloomberg.com.

BERNANKE ASKS FOR MORE OVERSIGHT – Fed Chairman Ben S. Bernanke cites poor decision making in calling for tougher regulation of Fannie Mae and Freddie Mac. He further believes that government-chartered mortgage-funding companies should be forced to concentrate on affordable housing loans. We thought that was what they were supposed to do.  Speaking of Mr. Bernanke, a Bloomberg poll reveals that he "has earned the respect of U.S. residents," who feel he has guided the markets without causing major disruption to the markets.

EXECUTIVE COMP...NOT A GOOD APPROACH TO THE PROBLEM - John Castellani, president of the Business Roundtable, told the House Financial Services Committee, "Corporations were never designed to be democracies...While shareholders own a corporation, they don't run it." Well, somebody needs to do something to prevent the creation of a "corporate prince class." According to the Corporate Library's 2006 CEO Pay Survey, the disparity between executive pay and the pay received by average workers has grown from 140 times what an average worker made in 1991 to roughly 500 to 1 in 2003. Kudos to Aflac, which just became the first U.S. company to give investors a chance to participate in a non-binding vote on executive compensation.

ADVISER PREDICTIONS - A poll of 1,400 advisors conducted by Schwab Institutional predicts positive results from the Standard & Poor's 500 over the next six months, but a continuing softening of the housing market. About half think inflation will increase. However, the poll was taken before the Dow dropped 416 points on Feb. 27 and 242 points on March 13...that might have changed some minds.

REALTORS PREDICT BRIGHTER 2007 - According to the National Association of Realtors, "It appears we are getting very close to (the housing) bottom."  Reasons for the optimism is that the "real estate bubble" began deflating in mid-2005, has been losing air for the past year and a half and may finally be flat. And while some markets suffered through some deep slumps, forecasters are now predicting the worst may be over. Best hope for the near future, however, is for a "sluggish expansion."

LPL BUYS PAC LIFE'S BROKER-DEALERS - Linsco/Private Ledger has secured its position as the leading independent by acquiring most of Pacific Life's broker-dealers. Terms were not announced, but it involved about 2,200 registered reps and about $350 million in annual revenue. Until recently it was thought that Ameriprise would be the buyer, but it wasn't to be. Linsco now has just under 10,000 registered reps.

BUFFETT ANNUAL LETTER - Warren Buffett has released his annual letter to his Berkshire Hathaway shareholders. He took the occasion to attack hedge-fund fee arrangements and questionable returns from the funds, as well as denouncing rises in senior executive pay and advising institutional investors to demand some accounting.  At age 76, Mr. Buffett also put out a "help wanted" sign...he's looking for a younger person not only with the "potential to manage a very large portfolio," but also "someone genetically programmed to recognize and avoid serious risks, including those never before encountered."

NCOIL SPEAKS, NAIC LISTENS - Early this month, the executive committee of the National Conference of Insurance Legislators (NCOIL) voted to tell insurance regulators to hold off on updating their Viatical Settlements Model Act.  This week, the executive committee of the National Association of Insurance Commissioners (NAIC) voted to wait until at least June to vote on the viatical model designed to address "stranger-owned" life insurance.

PROTECTION FROM DEFAMATION FOR U-5 – What is a U-5, you ask? It is a termination form that brokerage firms use to report why brokers left their firm. A court is being asked to decide whether the information on U-5 forms is immune to defamation lawsuits in a case involving a former MetLife registered rep.  Click here for some more background. 

GIULIANI SELLS BANK – With his eye on the White House and to avoid any conflicts before his expected formal announcement that he will seek the Republican nomination for president, Rudy Giuliani has sold his boutique investment bank, Giuliani Capital, for an undisclosed amount.

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NEW CFP STANDARDS - The Certified Financial Planner Board of Standards has decided to link any and all financial planning services to fiduciary responsibility (certificants "shall at all times place the interest of the client ahead of his or her own," regardless of whether financial planning services are provided to the client). The CFP association represents about 54,000 CFP certificants and the standard changes are designed to further enforce the fiduciary responsibility of CFPs. 

EXPECT NEW 401(k) RULES – As the House begins hearings into the 401(k) industry, you can expect new rules requiring more transparency in the fees charged. Any legislation is likely to force more disclosure.

HANCOCK IS TOP INSURANCE SELLER – According to LIMRA, the number one company in individual insurance sales in 2006 was John Hancock, with $735 million in individual life insurance sales last year.  Hancock jumped from 3rd in 2005 as sales grew almost 20%, while the industry grew just 6.6%. Key drivers were strong universal life and variable life insurance sales.

INDIVIDUAL LIFE SALES UP – LIMRA reports that individual life insurance sales were up 7% in annualized premium in 2006 over 2005. Face amount was up 4% and new policy sales were up 1%. UL and VUL sales both grew 9%, term grew 5% and whole life 2%. Estimated industry premium market share was 40% for UL, 14% for VUL, 1% for variable, 23% for term and 22% for whole life.

BEST AND WORST 529s – Morningstar has ranked state 529 plans. States having the best plans were Maryland, Colorado, Nebraska, Utah and Virginia. States with the worst plans were Alabama, West Virginia and Missouri. Nebraska had the distinction of having plans in the best and the worst category. Competition and economy of scale have pushed fees and costs down across the board. 

MEDICARE PART D - U.S. Comptroller General David Walker appeared on "60 Minutes," calling the Medicare Part D prescription drug program "probably the most fiscally irresponsible piece of legislation since the 1960s."  Mr. Walker said that underfinancing and the aging of baby boomers make Part D a "fiscal cancer."  In the DUH category, we have Sierra Health Services, which offers complete Medicare prescription drug coverage without the donut hole, announcing that their drug coverage "seems to have attracted consumers who make unexpectedly heavy use of prescription benefits."  That's what's known as anti-selection, folks.

STATE REGULATION COSTLY/INEFFICIENT - According to a NAILBA survey, wholesale independent brokerage agencies indicate that they are unable to offer the same products from one state to the next, due to the inefficiencies of the state regulatory environment.  In addition, these small businesses pay, on average, $12,600 just to comply with various state regulations.

THE RICH GET RICHER – Forbes says the world now has 946 billionaires...nearly a 20% increase from a year ago. The "big dog" is still Bill Gates with $56 billion, but closely followed by Warren Buffett with $52 billion. The youngest on the list were Larry Page, 34, and Sergey Brin, 33, founders of Google and worth $16.6 billion each. 

DISABILITY APATHY - A survey by the Council for Disability Awareness finds that more than 80% of workers believe their chances of becoming disabled are far lower than actual statistics report. The report also notes that, according to the Social Security Administration, the number of disabled workers has increased by 35% since 2000.

PAYMENT CARDS FOR INSURANCE – Watch for payment cards to become more popular as payment methods for both health and P&C insurance. It is a natural for health savings accounts with high deductibles. P&C companies see the cards as a way to reduce fraud, cut costs in payment processing and improve customer service.

PAPERLESS CHECKING - In all likelihood, paper checks are marked for extinction, the only question being when.  For a glimpse of things to come, check out ING Direct's online, paperless, high-interest checking account, "Electric Orange." 

FASTEST GROWING JOBS – Aging baby boomers are creating the fastest growing jobs...health care positions designed to take care of them. Between 2004 and 2014, 7 of the 10 fastest-growing jobs and 17 of the top 30 will be health care-related. No doctors and nurses are not on the list, but medical assistants, dental assistants and physical therapists will grow more than 30% by 2014. That's because the health care industry is "shifting responsibilities toward lower-wage, lower-skilled professionals to combat escalating health care costs."

HEALTH CAN DOOM RETIREMENT PLANS – A Fidelity Investment study indicates that while 63% of today's workers plan to work in retirement, they shouldn't count on making up for inadequate savings by doing so, since such plans are often doomed by unexpected health problems. The study found the typical working American is saving at a rate to replace about 58% of income in retirement, but that figure factors in private savings, Social Security benefits and pensions. 

SECONDARY ANNUITY MARKET - The boom in the use of annuities as personal finance tools for retirement is having an unexpected side affect -- the children and grandchildren of many annuity holders may find themselves inheriting an asset that is a) structured to meet the income needs of people in retirement, b) highly illiquid, and c) subject to tricky (and often unpleasant) tax treatment. J.G. Wentworth is betting on this to increase sales in their Annuity Purchase Program.

CRAZY SMART PEOPLE – First we hear about the exploits of a crazy astronaut and now this. The co-founder of Anchor Point Capital, a large East Coast hedge fund, is facing charges that he masqueraded as his former mistress in an Internet ad that solicited someone to rape and kidnap her. The ad asked that any interested party not warn the woman of the attack beforehand because that would ruin the fantasy.