US FlagAugust 15, 2008 Edition
 
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MOST INSURERS FREE OF SUBPRIME MESS – With some notable exceptions such as AIG, most insurance companies seem to be dodging the subprime bullet. The rating companies say the vast majority of insurers have enough capital to withstand problems on their balance sheets. However, ratings are still important when shopping for a new insurance policy or annuity. With so many highly rated companies, there is really very little reason to not opt for A+ and/or AA rated companies.
 
ECONOMIC RECAP – On a nationwide basis, median existing single family home prices dropped 7.6% in the second quarter, compared to the same period in 2007.  Some areas in Arizona, California, Florida and Nevada saw plunges of 15% to 35%.  One of the consequences of this decline in housing values is that financial institutions are freezing home-equity credit lines.  U.S. foreclosure activity rose 55% in July from a year earlier...one in every 464 U.S. households received a foreclosure filing in July, according to RealtyTrac.  Inflation surged by 5.6% in July, the highest level since 1991.  Bloomberg reported that banks’ subprime losses have crossed the $500 billion mark.  Forecasts of eventual losses range from $1 to $2 trillion.  In a bit of good news, a Fidelity Investments study found that U.S. workers are not cutting back on their contributions to retirement plans and retirement plan loan activity is down this year.

POGO WAS RIGHT - “We have met the enemy and he is us.” Most of our economic wounds are self-inflicted, stemming from our inability to live within our means. Household savings rate hovers at “0”, big businesses are borrowing from foreign investors and the biggest spender of them all (Uncle Sam) is borrowing from foreign countries. It's a natural tendency to blame others and to demand of elected officials that they "do something about it." The nation's perennial overconsumption and undersaving are the root of our economic challenges today.  Click here to read the article from Kiplinger Magazine. 

CITIGROUP, ET AL – Serving notice to Wall Street, federal and state regulators are stepping up their efforts to bring justice for product misrepresentations. Citigroup, in a settlement with New York state and the SEC, agreed to pay $100 million to settle allegations it improperly sold auction-rate securities to 40,000 individual, small-business and other investors nationwide and to buy back $7.5 billion worth of the products. Others on the “regulatory hot seat” for similar actions are Morgan Stanley, UBS, Merrill Lynch, Wachovia and Bank of America. Criminal charges against individual brokers at Credit Suisse may also be in the works, though the firm itself is not a target.

AUCTION RATE SECURITIES – Amid these reports of numerous Wall Street firms agreeing to buy back billions of dollars in virtually worthless auction rate securities, Investment News provides us with an editorial, “The ARS Con.”  It’s a good read and again proves “we have met the enemy and he is us.”

ANOTHER FINANCIAL FAILURE? - A Greenwich Associates survey reveals that most institutional investors expect another failure of a major financial services firm in the coming year.  The survey suggests that concerns over the health of credit default swaps have caused most fixed income investors to limit their use of the contracts.

STOCKS: GOING NOWHERE FAST - Despite a wild ride, stocks have gone nowhere in the past six weeks. More than a week into August, the S&P 500 trades almost exactly at the same level as late June.  Check out “Stocks: A Wild Ride to Nowhere” from BusinessWeek.

BLOCK SELLS BROKERAGE TO AMERIPRISE - H&R Block is selling its securities brokerage unit to Ameriprise for $315 million in cash in order to focus on its tax preparation business. The sale comes just five months after Block agreed to sell its mortgage servicing business to WL Ross for $1.1 billion.

IS THIS A GOOD IDEA? – The Bush administration wants Congress to pass legislation enabling Wall Street firms to buy and manage frozen corporate pension plans (those that no longer accept new participants but must continue to cover current ones).  This could be a real boon to big companies, which could dump underfunded pension plans, but what about for workers?  Does anyone actually believe Wall Street firms will have the workers best interests at heart? Check out the BusinessWeek article “Now Wall Street Wants Your Pension, Too.” 


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FEDERAL BAILOUTS – Few people like them, but when federal bailouts help avoid a recession or even a depression, they may be the best (only?) option available.  Here’s a Business Week article, “Why Bailouts Stink – And Why We Need Them?,” you may find interesting.  On the subject of bailouts, Pimco’s Bill Gross, who manages the world’s biggest bond fund, is predicting that the U.S. Treasury “will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital.” 

MORE DOUBLE DIGIT HEALTH COST INCREASES – A survey of insurers conducted by Aon predicts health care costs will rise an average of 10.6% during the next 12-month rating period...a slight decline when compared to last year's forecast of 10.9%.

INSIDER TRADING – FINRA and NYSE Regulation announced an agreement with 10 U.S. exchanges to share centralized authority over detecting insider trading.  If approved by the SEC, the centralized approach would replace a system under which each exchange is individually responsible for detecting insider trading and bringing enforcement action against its members.

SILVER LINING? – With about 100,000 financial sector job losses so far in 2008, smaller financial firms, many of which have avoided Wall Street’s financial troubles, find themselves in the enviable position of “plucking what they see as the gems” from the pool of unemployed financial talent.

YOU THINK?! – A Reuters report, “Wall Street bankers brace for bonus cuts,” seems to us to state the obvious.  

FDIC INSURED – IndyMac and the seven other banks that have failed this year could wipe out as much as 17% of the government insurance fund. Further, the Federal Deposit Insurance Corporation (FDIC) says premiums for deposit insurance will likely rise, but it can tap a $30 billion line of credit at the Treasury Department and borrow up to $40 billion from the Federal Financing Bank if necessary. Of course, then there is you and me...the U.S. taxpayers. 

THOSE WHO SAW AND THOSE WHO DIDN’T – Click here to check out Fortune’s gallery of those who saw financial trouble ahead and those “who just ended up in trouble.”  

HEALTH SYSTEM OVERHAUL – According to a recent Harris survey, more than 80% of Americans think the U.S. health system needs either fundamental change or a complete overhaul. Another poll found that health insurance costs have doubled for Americans since 1996...the average premium for a family insurance plan rose to $11,381 in 2006, from $4,954 in 1996, while the average cost for a single premium rose to $4,118 from $1,992.

POST OFFICE POSTS LOSS - The Postal Service had a net loss of more than a billion dollars in the third quarter of the fiscal year as a result of reduced mail volume in the slowed economy, coupled with high fuel prices. In years past, many would consider this an outrageous use of public funds, but it pales in comparison to the billions the bozo financial executives have cost us.  FYI, USPS has reduced its staff by about 100,000 since 2000 and is offering early retirement to some clerks, mail handlers and supervisors.
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HOUSING AND ECONOMIC RECOVERY ACT – Click here for a summary of the Housing and Economic Recovery Act, signed into law by President Bush on July 30.

BENEFIT BENCHMARKING TOOL – Metlife has a new tool on its Website that allows employers to review survey data to evaluate their own benefits program. Check it out. 

RETIREMENT INCOME OPTIONS – Principal Financial has published a paper that compares four strategies for turning savings into retirement income:  mutual funds with automated income payments, variable annuities with guaranteed minimum withdrawal benefits, income annuities and annuity/mutual fund combinations.  If you provide retirement income services, “Sustaining Income Through Retirement” is well worth a review. 

RETIREMENTS AT RISK – Boston College's National Retirement Risk Index shows that 61% of today's workers will be at risk for not being financially prepared to retire. Worse yet, they are not aware they have a problem.  

POLICY OWNERSHIP DOWN – A National Association of Insurance Commissioners survey reveals that the economy is making it more difficult for consumers to hold on to their life and health insurance policies. Additionally, 22% of the participating consumers said they have reduced the number of times they see the doctor as a result of economic conditions. 

DRUG COSTS ARE HEAVY - Buck Consultant reports that pharmacy benefits account for 16% to 20% of total health care costs in employer plans that offer prescription drug coverage.

HOW LONG WILL BOOMERS NEED TO WORK? - Currently, the typical American retires at age 63.  According to the Bureau of Labor Statistics, however, the number of workers ages 75 and older increased 172% between 1977 and 2007.  If you are fortunate enough to have a traditional pension, retiree health insurance, and a significant 401(k) balance, you too will be able to retire earlier.  However, if you haven't saved enough to fund 30 years of retirement...and few baby boomers have...the obvious solution is working longer. Just how much longer is the question. Experts say boomers will need to work to at least age 66, but more likely to age 70. Here are a few tips on working longer:
  • Tell your boss you want to stay.
  • Avoid retiring on a whim.  "One should wait at least a week if not a month before making the decision to retire after a bad event."
  • Remember that each additional year you work gives your 401(k) and IRA balances more time to accrue, increases Social Security benefits by 7% to 8% and shortens the retirement years you will need to finance.
  • Retool for a new job (or to keep your old one).
  • Networking, even while happily employed, can help you forge valuable connections in case you ever need them.
  • Don't cut back to part time too soon.
  • Prepare for the possibility of an unexpected retirement.
  • Find a job you enjoy.
UPSIDE DOWN - According to a report by Zillow, nearly one-third of U.S. homeowners who purchased a home in the last five years owe more than their property is worth. Further nearly 25% of U.S. homes sold during the past year were at a loss.

LTC AT CONSECO - Conseco will transfer about $2.9 billion in assets supporting the company’s long-term care policies to a trust and will also pump $175 million of extra capital into the business before the transfer. Reasoning behind the move is an attempt to increase the financial-strength rating of the company's main insurance subsidiaries.

INSURERS IMAGE BAD BUT BETTER – The 2008 Harris survey of public opinions of companies ranged from 84, for supermarkets, to -43 for tobacco companies. Managed care companies received a score of -14, up from -20 in 2007, health insurers received a score of -9, up from -21 and life insurers increased their score to 26, from 18. Life insurers appeared in 13th place, but ahead of investment and brokerage firms.

INDEXED ANNUITY REQUEST – The SEC has been asked to extend by 120 days the comment period on the SEC proposal which would reclassify indexed annuities as securities.

FINRA AND ANNUITIES AS A SECURITY - There is a good article by Steven S. Delaney on the legal issues FINRA will face in trying to declare indexed annuities as a security. Review it by clicking here. 

ACCORDING TO THE EXPERTS – Long-term care benefits, paid for by an extra premium, should be built into Medicare, so say researchers at the Commonwealth Fund.  Sounds like a good idea, but with Medicare financing already on shaky ground, we wonder about the feasibility.  The American Academy of Actuaries is recommending that the age at which full Social Security benefits become available be raised, to anywhere from age 67 to age 70...the higher the age, the more of the long-term Social Security deficit that is erased.

SUE OR SETTLE – A study to be released by DecisionSet will advise victims of accidents, medical malpractice, broken contracts, etc.: When you sue, make a deal. “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more.” Defendants made the wrong decision by proceeding to trial far less often, in 24% of cases and plaintiffs were wrong in 61%. Since the vast majority of cases do settle (80% to 92%), there is no way to know whether either side in those cases could have done better at trial. However, these findings on cases that did go to trial raise provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers’ motives.

“PERSONAL” E-MAIL – Your e-mail can get you fired and/or in big trouble. Here are some things to consider before logging on at work:
  • You don't own your e-mail. The law protects the employer because the e-mail is sent using the company's equipment.
  • Working from home. Ask yourself: “If my boss was looking over my shoulder right now, would he or she approve?”
  • Personal e-mail is the opposite of productivity. And being unproductive is often reason enough for firing. 
  • There are no secrets. “Send e-mail with the assumption that the person you really don't want to read it will read it."
  • What attorney-client relationship?  Sending a personal e-mail at work can be compared to "meeting with his lawyer in the company's lunchroom and them overhearing it--and then complaining." The attorney-client communication is private unless you forfeit it.
  • Saved passwords. The convenience of saving a password at work is not worth the risk.