© Copyright 2007
US FlagNovember 1, 2007 Edition


FED RATE CUT – As anticipated, the Federal Reserve cut its benchmark interest rate by a quarter point to 4.5%, but also signaled reluctance to reduce borrowing costs further. “Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,” the Federal Open Market Committee said in a statement after meeting today in Washington. “After this action, the upside risks to inflation roughly balance the downside risks to growth.”

COUNTRYWIDE TO MODIFY MORTGAGES – Countrywide, the nation’s largest mortgage lender, will refinance or modify up to $16 billion in adjustable-rate mortgages to help about 82,000 borrowers who face higher payments to stay in their homes. Countrywide plans to offer new mortgages to 52,000 subprime borrowers, modify 20,000 prime and subprime borrowers who cannot refinance, and provide mortgages for 10,000 subprime borrowers who are already delinquent.

ARE WE ENABLING RISK TAKERS? – Are mortgage companies doing more harm than good by rewarding investors and homeowners who took on excessive risk? While such concessions are largely a win-win situation for the parties involved, since homeowners keep their homes and the lenders reduce losses, the practice may exacerbate a credit crisis. Some experts believe the loan adjustments are little more than a bailout of bond buyers who were paid to take greater risks. The practice of lowering interest rates or forgiving a portion of the principal could even encourage more of the bad lending that helped create the U.S. housing bubble and subsequent credit crunch in the first place.  Speaking of bailouts, click here for some background on the “superfund” created to buy the assets of troubled investment vehicles and some reactions to it. 

MORE PRESSURE ON RATING AGENCIES – Connecticut’s Attorney General is subpoenaing Standard & Poor and Fitch to see if they “may be exploiting their dominant positions to unfairly raise prices or exclude competitors.”  All this in the wake of the sub-prime market collapse and the failure of the rating agencies to predict it.

FREEDOM OF SPEECH AND RATING AGENCIES – Strange bedfellows, but according to many attorneys, credit-rating agencies, like S&P, Moody’s and Fitch, cannot be held accountable for the subprime-mortgage mess and investors cannot sue them for trusting their opinions. Free speech protects the agencies from such lawsuits.

SLUMP NOT OVER BUT ECONOMY STRONG – According to Treasury Secretary Henry Paulson, the housing slump is not over but the overall U.S. economy is strong enough to “grow through” the slump.

CREDIT CRUNCH COST – Not sure how they got these numbers, but experts say the credit crunch will cost Wall Street at least $27 billion. A major hunk will be the $8.4 billion write-downs at Merrill Lynch, which cost CEO Stan O’Neal his job.

TRIA BILL – National Underwriter reports that Rep. Barney Frank, D-Mass., who is chairman of the House Financial Services Committee, may propose extending the current Terrorism Risk Insurance Act (TRIA) until April 30, 2008 in hopes of adding group life insurance to a longer extension of the legislation. 

REGULATORY REFORM – Both NAIFA and NAILBA had an opportunity to testify before Congressional hearings weighing an optional federal charter that would enable insurers and agents to choose between state regulation and regulation by a new federal agency.  While both organizations support the optional federal charter approach, NAIFA was more guarded in its endorsement. 

MORE ON REGULATION - The Treasury Department is asking for comments from the public about U.S. regulation of financial institutions.  For information on how to give them your “two cents worth,” click here. 

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DECISION COULD IMPERIL MUNI BONDS – A U.S. Supreme Court fight over state tax powers could have great ramifications for the municipal-bond industry. At issue is whether Kentucky violates the Constitution by taxing income earned on out-of-state bonds while exempting interest on ones issued by its own cities and school districts.  Barring such preferential treatment would force 42 states to either tax their own bonds or give identical breaks to out-of-state bonds. As a result, investors may be owed billions of dollars, and bond funds holding $155 billion rendered obsolete. 

ARIBTATION VERSUS LITIGATION - SIFMA believes that banning mandatory arbitration for broker disputes would add unnecessary costs when the current system is already fast and cheap for investors. Their study found that investor cases handled with arbitration in 2006 were resolved about 40% faster than cases filed in court. “For over 30 years, securities arbitration has provided investors with a fair and unbiased forum where disputes are resolved more quickly and economically than in courts.”  Click here for the full press release and white paper from SIFMA

BOA TO CUT 3,000 - Poor performance from Bank of America's investment-banking division is prompting the bank to slash about 3,000 positions and begin a strategic review of the unit. Several of the executives responsible for the “poor performance” will be forced to retire at serious 6 digit incomes...plus health insurance, of course. 

MORE DOOM AND GLOOM – According to a Bloomberg study, nearly two-thirds of Americans expect a recession within the next year. Meanwhile, 51% of respondents said the economy was doing poorly, marking the worst economic sentiment since February 2003. It is a good thing that everyone doesn’t believe everything that they read about our economy. If so, we might not even have an economy!

FEDERAL/STATE RAID – More than 200 agents of the FBI, U.S. Department of Health and Human Services and the Florida Medicaid Fraud Control unit searched the Tampa, Florida headquarters of WellCare Health Plans last week.  While information on why the search was performed wasn’t released, participation of the Florida Medicaid Fraud Control unit is probably a strong indication.  Meanwhile, WellCare stock has plummeted and investor lawsuits have begun.

LESSENING CONCERN BY ALL REGARDING INFLATION - The Fed has shown less concern for inflation recently. Despite the fact that inflation is rising, investors also seem to be unconcerned. As one investment expert puts it, “Inflation, despite some sharp increases in food and energy prices, has really been fairly tame on a year-over-year basis.” 

“RAMPANT” INSIDER TRADING - A senior SEC official says insider trading appeared to be “rampant” among Wall Street traders and the agency has formed a working group to focus on it. “I believe we're going to see more insider trading cases. I am disappointed in the number of cases we are seeing by people who make an abundant livelihood in the market that they are sort of abusing by insider trading.” Martha Stewart was such a small deal, you wonder why the regulators even bothered. 

FINANCIAL ENGINEERING – For years there have been conspiracy theorists who believe the Federal Reserve is really a few wealthy families who control the financial destiny of the world. Now some experts believe it is time for Wall Street to take a good look behind what the Federal Reserve, the Treasury and others are up to. “We used to huddle in hushed tones and talk about 'the invisible hand' or the 'plunge protection team’ but now that Treasury Secretary Henry Paulson has admitted that ‘there is indeed a Working Group on Financial Markets in force and at play’ maybe a conspiracy is really at hand.”

WILDFIRES COST - According to analysis by Risk Management Solutions, the wildfires in Southern California are likely to cost insurers between $900 million and $1.6 billion, making them among the most expensive in the region's history. 

CORPORATE CRIME WAVE - According to a survey by PricewaterhouseCoopers, corporate crime remains rampant and a costly problem for businesses worldwide, despite heavy spending, tough new laws and technological countermeasures aimed at stamping it out. In total, 43% of 5,400 companies surveyed in 40 countries reported suffering one or more significant economic crimes since the accounting firm last conducted its survey two years ago.


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SKYROCKETING ASSETS – Investment News reports that assets managed by RIAs (registered investment advisers) have grown by 47% over the past two years, from $950 billion in 2005 to $1.4 trillion today.  The number of RIA firms has grown to 14,451 today, compared to 11,741 in 2005.  Compliance is cited as their greatest concern by 47% of RIAs.

RECRUIT AND RETAIN CRITICAL TO B-Ds – According to National Financial Services, recruiting new brokers and advisers and retaining solid producers are the two leading business strategies for broker-dealers over the next five years. Recruiting reps was the first or second priority of 56% of executives who responded to the survey, while hanging on to top talent was the first or second priority of 45% of the executives. 

CHILLING READ I: TAX EXPENDITURES – The Joint Committee on Taxation has released its Estimates of Federal Tax Expenditures for Fiscal Years 2007-2011 and it is scary reading. Mainly because it clearly lays out exactly where the money is that is not currently taxed...tax expenditure or a revenue loss to the government because of some special provision in the tax law granted by Congress. Click for a list of major tax expenditures that could affect your livelihood.

CHILLING READ II: STATE AND LOCAL RETIREE BENEFITS – The GAO has released a report on the “current status of benefit structures, protections, and fiscal outlook for funding future costs” of providing retiree benefits to state and local workers (some 12% of the nation’s workforce).  In a nutshell, the situation doesn’t look bad in regard to pension benefits, but retiree health benefits are another matter.  A summary of the report is available here.  

$50M FOR FIDELITY ADVISOR PLATFORM – In an attempt to keep up with the “Schwab’s,” Fidelity is pouring $50,000,000 into an advisor platform and will even advertise the fact on billboards. By combining portfolio management, customer relationship management, financial planning and custodial-transaction applications on a single platform, the technology will eliminate the need for advisers to use multiple systems that might be incompatible with one another or difficult to manage in terms of moving data between them. Okay, the VSA may not do all that, but it will help any advisor make money and at about 5 millionths of the price, it is a heck of a deal! Check out what advisors are saying about it at http://vsa.fsonline.com.

IMSA AND ANNUITY DISTRIBUTORS - The Insurance Marketplace Standards Association (IMSA) is setting up a clearinghouse program that will help life insurers keep tabs on outside annuity distributors. IMSA says the new certification program will give life insurers the information they need to make sure third-party annuity distributors meet suitability compliance standards.

COLLEGE COSTS SOAR – The College Board reports that tuition and fees at public and private universities have risen this year at more than double the rate of inflation, with prices increasing faster at public institutions. Tuition and other costs, not including room and board, rose on average to $6,185 at public four-year colleges this year, up 6.6% from last year, while tuition at private colleges hit $23,712, an increase of 6.3%.

ONLINE COMPLIANCE – FINRA has opened an online gateway through which firms can submit regulatory forms, including those required when brokers join or leave a firm.  Check out the FINRA Firm Gateway at www.finra.org.  

QUALIFIED DEFAULT INVESTMENT ALTERNATIVES (QDIA) – The Pension Protection Act of 2006 includes a provision that encourages 401(k) plan fiduciaries to make default investment decisions for plan participants who do not say how they want their contributions invested.  Plan fiduciaries who put assets into an investment on the QDIA list developed by the Labor Department are protected in the event the investments perform poorly.  The Labor Department has decided to include variable annuities on the QDIA list, but to exclude stable-value funds, which are invested in bonds and other highly rated interest-bearing securities.  Reason:  “It is desirable to invest retirement savings in vehicles that provide for the possibility of capital appreciation in addition to capital preservation,” and stable value-funds provide only the latter.

“I DO” DILIGENCE – According to The Heart/Credit Connection 2006 study, a lack of financial responsibility is a greater cause of marital stress than infidelity. The Street has a nice article on the on Five Financial Tip for Newlyweds, but we will do you one better. Click here for Marriage and Money and we will send you the complete Virtual Sales Assistant’s Life Guide on the subject.  

DEDUCTABILITY FOR LTCI - According to American Association for Long-Term Care Insurance (AALTCI), “Millions of small and mid-sized business owners are still unaware that the cost of long-term care insurance protection for themselves and their spouse may be fully tax deductible.” There is still time to take advantage of tax deductions in 2007 and also benefit from increased deductibility levels for long-term care insurance policies purchased in 2008 (ranging from $310 to $3,850).

TALKING TO AGING PARENTS - By having open discussions with aging parents now, you can help to improve their financial health, reduce potential problems and ease burdens in the future. Here are some tips:
  • Pick the right time to talk.
  • Maintain a sensitive stance. Don’t be judgmental.
  • Involve an expert if needed.
  • Make a list of assets and liabilities.
  • Establish arrangements for financial management.
  • Know where important documents are kept.
  • Review estate planning and investments.
  • Understand your parents’ healthcare wishes.
ONE NATION, UNDER HEDGE FUNDS – Ben Stein has a great article in the NYT, where he proposes that we turn the entire country’s income raising over to these hedge fund gurus who are supposedly making 30% to 40% annual returns on a consistent basis. With a modest investment we could pay off the national debt and even eliminate income taxes altogether.

CONSUMER CONFIDENCE LOW - Reuters reports that consumer confidence fell in October to its lowest level in more than a year. Sub-prime mess, credit crunch, Iran, terrorism and oil at nearly a million dollars a barrel...what can you expect.

PREPARING FOR HARD FINANCIAL TIMES – Here are a few quick tips:
  • Pay off or pay down debt.
  • Postpone major purchases.
  • Bulk up your savings and max out your 401(k) contributions.
  • Diversify your portfolio and stay focused on your long-term goals. 
  • Protect your job by finding ways to make yourself more valuable to your employer.
AX THE TAX – Michigan has passed a bill to place 6% tax on investment advice and other services, including astrology readings and escort services. The Coalition to Ax the Tax has formed, proposing to replace the tax with a tax on campaign advertising. The group also proposes converting the state legislature to part-time status. FYI, in 40 states, legislatures are currently part time...if they all were and added term limits we would probably be a lot better off.

ADVISERS DOUBT CHARITABLE ABILITY - While most advisers are willing to offer advice on charitable giving, many admit that they aren't entirely comfortable with their level of expertise in such matters. A Schwab Charitable white paper reveals that 37% said they had doubts about their philanthropic expertise. The survey also showed that just 5% said that they talked about charitable giving with all clients. Here is help for the remaining 95%. First, there is a lot of help available in the charitable arena from banks and the charities themselves...and then there is the Virtual Sales Assistant! The VSA has calculators, resource material and presentations to grab a prospect’s interest before an expert is needed. Check them out with the VSA’s generous 30-day free look by subscribing at http://vsa.fsonline.com.

EIGHT CASH FLOW SECRETS - Eight cash flow secrets of entrepreneurs:
1. Assume that your estimates are wrong — and save for a rainy day.
2. Don't underestimate the value of a good customer.
3. Keep tabs on your expenses.
4. Don't extend credit to just anyone.
5. Be firm but kind with clients.
6. Break even every time.
7. Be honest with the taxman.
8. Keep away from credit cards if possible.

VARIABLE LIFE BROKER DEALER - FINRA has given Invescor Wholesale BD Inc. permission to expand into the secondary life insurance market. Expect more broker dealers to follow suit.

FEMALE ESTATE PLANNERS - When Dan found out he was going to inherit a fortune when his sickly father died, he decided he needed a woman to enjoy it with. So, one evening he went to a singles bar where he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away. “I may look like just an ordinary man,” he said as he walked up to her, “but in just a few months, my father will die, and I'll inherit 20 million dollars.” Impressed, the woman went home with him that evening and, three days later, she became his stepmother. Women are so much better at estate planning than men.