US FlagMay 1, 2009 Edition



SWINE FLU AND YOU – Yes, it is potentially serious and could impact the financial markets.  Governments and health organizations are walking a fine line between informing populations of the dangers and creating panic.  Here is some common-sense information:
  • It appears very unlikely that swine flu is passed from pigs to people...the spread of the virus appears to be from person to person.
  • According to a CDC travel warning, it's best to avoid non-essential travel to Mexico at this time.  
  • Where clusters of the virus have appeared, such as in a Queens, New York school, it isn't spreading rapidly; there has been very little transmission from schoolchildren to family members.
  • Avoid sustained contact with people who are coughing or sneezing...you can acquire the virus if you're in a confined space within the "breathing zone" of a sick person, which is about three to six feet; sustained contact is believed necessary to acquire the infection.
  • The incubation period of the swine flu is one to seven days.
  • If you're flying or using another form of public transportation, bring a bottle of hand sanitizer with you and use it frequently.
  • If you or a family member develop flu symptoms - fever, sneezing/coughing, diarrhea, body aches, vomiting - don't go to your doctor's office without calling first for instructions; your doctor may not want you in his/her waiting room, possibly spreading the virus to others.
  • Be alert, keep up with the information coming out daily, and take control by being attentive to your hygiene; wash your hands very, very frequently and avoid people who are coughing and sneezing
MARKETS STILL VULNERABLE - The U.S. markets are stabilizing as data suggests that the worst of the recession may be over.  Markets, however, remain vulnerable to "unpleasant surprises," such as worsening problems in Pakistan, an international health crisis or new negative issues emerging from U.S. banks.

MORE CAPITAL NECESSARY - The government's stress tests of the nation's 19 largest banks will likely indicate that at least six of them will need additional capital. Many of the banks are expected to convert preferred shares into common stock, but some of the capital may come from the government bailout.  More information is available at Bloomberg.com.  

BACK DOOR NATIONALIZATION - Treasury and White House officials believe the remaining few billions in TARP can be stretched by converting loans to banks into common stock. While the move would turn the rescue money into available capital, it would give the government an ownership stake and, some say, a back door to nationalization.

STRESSFUL STRESS TESTS - Disclosures regarding the stress tests are causing stress on the shares of banks undergoing the tests and left some investors frustrated with the slow stream of information from the government. 

RAISE MONEY - Federal regulators have told executives at Citigroup and Bank of America that the stress tests indicate the banks need to increase their capital. Expect the banks to respond, but to object to the stress test conclusions.


FINANCIAL REGULATION RECAP - Click here for a good summary from Reuters on major financial regulation reform initiatives.  

FEDS KEEP RATES - The Federal Reserve says the recession may be easing, but warns the U.S. economy is likely to remain weak. With that in mind, the Fed held its key lending rate at a record low of between zero and 0.25% and decided against taking any new steps to shore up the economy.

FRANK WANTS MONEY BACK IN A YEAR - House Financial Services Committee Chairman Barney Frank said it would be "good for public confidence" if financial institutions that received taxpayer money through TARP could quickly repay the government. "We're hoping there won't be any government funds in banks a year from now." That would be good.

WHERE IS IT COMING FROM? - The Treasury Department has doubled its estimate for borrowing marketable debt for the second quarter to $361 billion after borrowing $481 billion of marketable debt during the first quarter. Maybe somebody at the Treasury should read The Virtual Assistant's Life Guide, Money Doesn't Grow on Trees.   

FRANK SLOWS FAST TRACK – In a good and surprising move, House Financial Services Committee Chairman Barney Frank has decided not to fast track legislation that would allow government officials to take over large financial firms. Reason: the complexity of the bill requires more consideration. Apparently, the Administration plan to deal with financial companies too big to fail is becoming too big to zoom through Congress. That doesn't mean the bill will go away.

GM, USA, UAW and Pontiac – General Motors has outlined a turnaround plan that would leave the U.S. government controlling the auto maker and is planning a showdown with bondholders that could determine whether the company lands in bankruptcy court. (Reports are that bondholders won't accept the plan...can you imagine that!) Under the plan, GM is asking the government for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received, and the government (taxpayers) will get at least 50% ownership of the company as payment for half of the loans. GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a UAW fund to cover retiree health care and that would leave the union owning about 39% of GM. GM will also cut thousands more jobs than originally planned, shutter more plants, reduce its U.S. dealers by 42% (over 1,000) and kill its Pontiac brand. The new plan was conceived in cooperation with an Obama administration team that rejected an earlier GM revamping plan, saying it didn't go far enough.

CHRYSLER - Chrysler filed for bankruptcy on Thursday, after some of the company's smaller lenders refused to reduce the amount of debt owed to them by Chrysler.  Reportedly, however, a deal has been reached with Fiat that will allow a combined Chrysler/Fiat to stay in business.  Click here for more details.  
 
MR. GEITHNER'S WORLD - "Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation's economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked."  Click here to read the rest of this New York Times story, which describes the role that Treasury Secretary Geithner's "unusually close relationships with executives of Wall Street’s giant financial institutions" may have played in the run-up to the financial crisis, as well as the government's actions to deal with the crisis.  

CFPBS PUSHES TO REGULATE ADVISORS - The Certified Financial Planner Board of Standards would like to be the regulator and rule maker for unregulated planners. The move may be an end run on FINRA, as the current regulatory firm pushes to expand its authority to cover unregulated planners and advisors. See complete article at InvestmentNews.

THE LOST GENERATION - The financial downturn could scare a generation of individual investors away from stock markets. This trend has not been seen since the Great Depression. "They're out, and they want to stay out," said Ed Finder, founder of Star Finder Financial Management. "There's no confidence left." See article at InvestmentNews.

LIFE INSURANCE, A CLASS BY ITSELF – Here is a great article based on life insurance as an asset class. See the complete article here, but some of the advantages include ● being easily divisible among heirs ● having value that is not linked to market performance ● avoiding probate ● having growth that is income tax-free ● having potential to avoid estate taxes ● having growth/leverage potential● being subject to government oversight. 

SPECIAL NEEDS TRUST - Much has changed since advisors first began assisting clients with special needs planning. Today, childhood disabilities are diagnosed earlier and more accurately, infant mortality has decreased, and life expectancies of the disabled have increased. See a great article here and a new Virtual Assistant Life Guide, Planning for Special Needs Children.  

BEST AND WORST - Morningstar has published their review of the best and worst 529 college savings account plans.  Review it at morningstar.com. 

NEW RETIREMENT INCOME IDEAS - A recent LIMRA conference focused on emerging retirement income approaches, included annuity guarantees for non-annuity products.  These are essentially guaranteed living withdrawal benefit (GLWB) products applied to mutual funds and managed accounts.  The products enable fee-based advisors who do not sell variable annuities to offer their clients guaranteed withdrawal plans.

CD ANNUITIES - The National Underwriter reports that CD annuities are experiencing a boom in sales.  Why?  "Risk-averse investors can now secure better rates in multi-year guarantee annuities than they can with traditional fixed income investments—notably bank certificates of deposit, money market funds and treasury notes—for which yields are at historic lows." 

FAST TRACK - Congressional Democrats have agreed to a 2010 budget resolution conference agreement that includes health reform and estate tax measures.  Under the agreement, these measures will be handled through the regular legislative process until October 15.  If legislation is not passed by that date, Congress may consider the health reform and estate tax measures through the budget reconciliation process, meaning only 51 votes are needed for passage in the Senate.  The estate tax provisions would freeze the estate tax at the 2009 level ($3.5 million exemption/45% maximum tax rate), add inflation adjustments to those amounts, reunify estate and gift taxes, and provide for portability of an unused exemption amount.  This would mean that a couple would not have to create a "second-to-die" trust for the full $7 million exemption to be available to the family.

BANKING REGS – The Supreme Court heard arguments on a case filed four years ago by former New York attorney general Eliot Spitzer. Spitzer questioned the disproportionately high number of high-interest mortgages made by national banks to Hispanic and black borrowers and tried to enforce the state's anti-discrimination laws. The Office of the Comptroller of the Currency shut down the investigation. Some feel the Court decision could shift oversight of national banks from federal to state regulators, but we doubt it.

LIFE SETTLEMENT CHANGES? - The outcome of a Senate hearing titled "Betting on Death in the Life Settlement Market: What's at Stake for Seniors?" resulted in a call for federal oversight of the life settlement industry, a review of life settlement tax rules to undercover possible loopholes and improved licensing, education and disclosure rules.

CREDIT RATING AGENCIES – Whatever happened to those guys? Not much. Much has been said about the troubling role the credit-rating agencies played in the current crisis, but not much has been done. Some feel that the policy going forward has to be to "stop our reliance on these credit ratings," but they remain a critical part of most people's financial decision-making process.

CREDIT AGENCIES CLAIM "THE FIRST" - Maybe this is the answer to the question above. Apparently, credit rating agencies being sued for rosy outlooks are saying their opinions are free speech and therefore are protected by the Constitution. Kind of like "taking the First Amendment rather than the Fifth." Further, plaintiffs are required to show that the opinions were made with malice, which is difficult to prove.

BOND DEFAULTS AT RECORD HIGH - S&P predicts the default rate for high-yield bonds will hit 14.3% by March 2010. They also report that defaults historically continue despite indications that the economy is improving, but who knows if they really know...they are a rating company exercising their right of free speech.

LEAST LOVED - A new Harris survey reveals that the financial services and tobacco industries have something in common...they are held in equally low regard by the public, with only 11% of those surveyed giving each industry a favorable rating.  AIG recorded one of the lowest scores in the study's history.  Small consolation, but Enron scored lower in 2005 than AIG did this year.  

BROKERS WON'T VOTE - The SEC plans to issue a ruling ending the practice of brokers voting their clients' shares. The move is seen as a victory for shareholders who claim brokers typically side with management in shareholder votes.

METLIFE BACKS 151A - MetLife has filed a brief supporting the SEC's proposed rule 151A, which would give it the authority to regulate indexed annuities.  While MetLife does not sell indexed annuities, it does sell variable annuities and, in its brief, stated "Inadequate regulation of indexed annuities thus tarnishes the reputation of other annuity issuers, including MetLife and the insurance industry as a whole.