News of the finance

There was a great article in the USA Today recently about cyber criminals attacking small to mid sized banks and using trojans to hack into the system. Once in the system, the hackers were transferring money via wire or ACH to outside bank accounts. One of the most interesting things in the article talks about personal vs. business bank accounts. Personal accounts are insured by the FDIC so if you’re account is hacked, you should be able to get your money back but business accounts are not. The article suggests that any small business owner who has a bank account make sure it is a personal checking account so your deposits will be insured.

To read the entire article, click here.

Good afternoon, and Happy New Year! This last year was certainly a tester, as really was the whole last decade. We will finish the year in the SPY up almost 25% at around 113 or so, after a furious sell off in the first quarter took the SPY down to a low of 67.10 on March 6. The VIX looks like it will close under 20, after starting the year around 40, so as the market has steadily climbed since March the perceived fear in the market place has dropped by half. Interesting! For the decade, the SPY started at roughly 147 as we all worried about Y2K, and is down approximately 23% for the period (I believe worst decade ever). So much for buy and hold, even though you still hear the pundits telling you to not only keep your investments un-hedged, but to pay them a fee to do so.

Make no mistake; it was a horrible decade for most normal investors with the view that earning 5-10% on their hard earned money as they approached retirement was almost a right. Returns on fixed income have dropped to near zero, and somehow banks pay you nothing for deposits even though they have not forgotten how to charge their clients. How many U.S. citizens do you think have $5,000 in a checking account earning nothing while having a credit card balance at the same bank of $10,000 charging them 18-25%? The return on saved money has been awful, not only for individuals, but for pension funds, endowments, you name it. What if you were a legitimate person on a pension Board (I guess that leaves out anyone on any state Boards in Illinois) and you picked, and funded appropriately, a conservative 4% return for the decade, only to have that return be negative? I would think your fund has a serious hole in its ability to pay people. PTI’s Protected Index Program returned a total of approximately 23% for the decade versus a negative 6% for the S&P (including dividends), so we had some positive return (along with lower volatility). For anyone who knows me, however, and I think most clients have a good feel, you know I did not get into this business to return 2.3% a year. Given the horrible cards we were dealt the performance is ok, but it still is not good enough for clients to feel good about their retirement and the money they have put away. No matter what happens in the market going forward I plan to do better than the last decade for our clients, I just hope we get a little help from the market. Maybe there is one year out there where it won’t feel like we are in a prizefight every week, but right now I do not see any relief in sight to needing to be imaginative and vigilant.

Why are returns to money so bad? I had a conversation at Christmas with a large contractor in the Chicago area who is paying 6-7% for working capital at a bank paying 1% for CD’s and virtually nothing for checking. That spread is insane, historically I am thinking good borrowers paid one or so over prime, say 6.5%, and banks returned somewhere between 2.5 and 3.5% to depositors. I will leave the whole credit card issue alone. How can that be, why do we have to pay all these “imbedded” taxes to refloat companies in industries that have caused a lot of the problems. Not all in the banking industry have been the cause of problems, but due to lack of competitiveness in the industry all are jumping on the new oligarchic-like pricing structure. In the America that used to exist, and maybe does not at all any more, someone would jump into the fight, see there are good customers willing to pay 7% for loans, and be willing to pay 2 or more percent for the funds to do it. That is what should happen to fix the now skewed pricing structure. Even a sup-primate should be able to see some opportunity and make some money here. Yet I don’t see it happening! Why hasn’t anyone stepped into the breach on car loans as GMAC has continued to blow itself up? Either we have all changed (totally lost the entrepreneurial drive to video games or something), or the barriers to entry in these businesses, regulation, fees, taxes, insane examiners, have gotten so bad that no one has the courage to try. As a country we better find out what it is and fix it, or we can forget about “Everyone going back to work as the economy improves.” I have news for anyone who looks around them, most of the old jobs are gone, and new ones will require a serious amount of entrepreneurial drive, capital, and the ability to be left alone from every level of government with their hand out. I just don’t see that in the near term.

I almost spilled my Christmas coffee when I read that the Chinese (Chinese?) have taken the lead in high-speed trains. I can’t believe this is happening, maybe I will wake up and it will all be a bad dream. The Chinese? We have a President (in full disclosure I voted for him and still am hopeful, but hope is fading) that talked about high-speed train travel months ago. Has he, or anyone, done anything about it but talk? It is reaching the point where I wonder if the man (President Obama) could possibly play basketball (as alleged), after he is done talking about the upcoming game it must be time to do something else. For those who do not know, the first high-speed train was built here in the 1930’s, a streamliner named the City of Salinas, followed by others like the City of Denver. These were 100+mph relatively fuel efficient trains built 80 years ago by American workers, American engineers, etc. with no help from the government. Now we have a President talking about maybe it being a good idea while the Chinese are actually making it happen. Does this bother anyone else but me? Not only would those be real jobs in the actual design and manufacture, but maybe we could save the homes of some people in those areas losing jobs if we could have a high speed commute for them to where new jobs might grow. No, let’s just talk about it, regulate it, and tax it, to the point where we never do it.

Is the cup really half empty, have I lost the ability to be optimistic? I really hope not, but I do think the powers that be (Republicans for a while, now Democrats) have seriously underestimated both the nature and intensity of the growing economic problems for a long time. We have seen income depletion for a lot of the population for well over a decade. It is not just the current crisis. We see education as a way out, yet somehow we have allowed the price of education to almost triple the consumer price index. I believe we can fix the problems if we look them square in the eye and admit what they are, but politically that somehow is not possible. For some reason, in the words of Jack Nicholson, maybe “We can’t handle the truth!” I think we have the economic equivalent of a broken leg, which we have the skill and manpower to fix over time, but we can’t if we keep treating the bone sticking out as a surface abrasion. There is much real work to do here, and there is profit in doing it, if the government will just let it happen. Instead of saving old banks, or maybe in addition to saving old banks, let’s let a few new ones in, maybe that was the problem in the first place. Let’s not get on the podium and talk about too much about excessive concentration in the banking industry, Mr. President, while every person in the Treasury and FDIC (your employees) are working tirelessly towards increased concentration.

What about the market? It is bumping along higher, but in a narrower and narrower range. The Nasdaq continues to lead, but the drivers (AMZN, GOOG, AAPL, PCLN) seem awful pricey with AMZN approaching 80 P/E for a retailer. As our technical analyst on Stocks and Jocks, Kevin Riordan, says, “2009 was a good year for the technical guys, as there are a lot of good looking graphs, like AMZN, that have performed very well. If you would have looked at the fundamentals you probably would not have gone near them.” There does appear to be some promising opportunity in the decreased volatility levels. If the VIX stays at these levels we will certainly look to profit from some long premium positions, in fact some of you may have noticed that we initiated one in IBM this week. The lower premium levels will also allow us to keep our protection in the PIP Program at much lower cost than in 2009. It is one of the great unknowns in the investment business as to why the price of put insurance drops (generally) as the market rises and there is more to insure. Last March, when the SPY was slightly under $70, the price of the $70 puts for December 2011 was almost $20. Now, with the SPY over 112, the $110 puts for the same month are roughly $14. You would think the chances of the SPY going to $96 over the next two years (a 14% move) would be a lot greater than the 28% move needed to break even when paying $20 for the puts with the SPY at $70, but that is not how the market thinks. It also is what creates opportunity.

We certainly appreciate your business, and we are always trying to be vigilant and gain whatever advantage we can in trying to protect your investments and provide a solid return. I think we have not been beaten up in the last two years like the average investor and have the capital, skill, and determination to deal with whatever the market may deal us in 2010.

It looks like Jon and I may be getting back on the air in the morning starting Feb. 1. It will be a lower power station but from 5:30 to 7, so a better time. Will keep you posted. We also may be holding a seminar sometime in February for those clients looking to have us trade a small percentage of their money in a different risk profile. For those who have been in that program the returns have been very good, but it involves some different risks and I think everyone should come in and understand what we are doing before going down that road. Again, we will keep you posted. Also, we are having a PIP seminar on Saturday, January 9^th at 9 AM. View details and register here.  Happy New Year!

Each quarter, Financial Services Briefing publishes a report with analysis and forecasts for the world financial services industry.

The latest report has been published, with analysis of key financial subsectors (banks, insurers, asset managers and exchanges) and five-year forecasts for important industry metrics.

The full text and forecasts, available by subscription, can be found at a special section on the main Financial Services Briefing site.

What is Democracy?

What is democracy?  In the narrowest definition it is popular self-government.  It is political, it involves many people, and it requires tallying judgments to record popular decisions.  Elections are the crucial element, with the rule that majorities can never eliminate minorities from the electoral process.  However, voting is not enough.  To make political participation effective citizens need information and public associations to give them access to the system, and they need elected officials to respond.

Democracy is not everything all the time anywhere.  It doesn’t favor capitalism, socialism, or any other -ism.  It does not mean two-party politics, constitutions, a vigorous press, or voluntary associations.  Democracy does not contain cures for cruelty or oppression.  It has no exclusive claim to compassion or social responsiveness.  It has affinity with liberty, equality and fairness, but it doesn’t give reliable support for any of these.  Democracy, as Robert Wiebe writes, “reveals our humanity not our salvation.  We may not like it.”

The risks of the modern world make us realize that a collective life defines democratic citizens. Democracy can’t rely on private interests and private rights.  It is about shared purpose, community and public lives and duties.  As we realize limits to growth, we begin to understand that IT must go in SOMEONE’S backyard. “Democracy,” Robert Hiskes writes, “presumes a set of ideas about what it takes to accomplish things together and voluntarily as a matter of faithfulness and engagement – not out of force.”

The way we understand ourselves as a public is our most critical issue today.  There is widespread frustration that money rules, not citizens.  Has our American public become a myth? Our democracy was formed during colonial days when people decided what to do about common problems and acted together to implement their solutions. Citizens are powerful when they act collectively.  While we may despair of the national picture, we still act locally.  When citizens do, they are willing to act at a higher level.

Of course, local interests can be unrelentingly selfish.  Well-intentioned leaders, self-styled as “the public’s agents,” can be very contemptuous of people.  It may be because they see the “big picture” and the public through a lens of idealism, which blinds them to community interests. Yet, no argument for self-rule is as compelling as what people experience and how they cooperate with those who hold different values within local communities.  If we want democracy to flourish, we need to encourage people to grow where they were planted.

“Society in every state is a blessing,” Tom Paine wrote in Common Sense, “but government even in its best state is but a necessary evil; in its worst state an intolerable one; for when we suffer…our calamity is heightened by reflecting that we furnish the means by which we suffer.”   Functioning as private consumers and private property owners, rather than as public citizens with common or community interests would seem to make his point.  The state or a few of its leaders do not exercise public reason.  It can only occur through deliberative action, and deliberation is a joint social activity.  Thus, in the fullness of its meaning, democracy is we the people, acting together to reform or improve our shared public sphere.  Increasing participation is its indispensable goal.  As Langston Hughes wrote:

“O’ yes,

 I say it plain,

 America never was America to me,

 And yet I swear this oath -

 America will be!”

John Legry, December 28, 2001

Executive Director, (ret.)

Citizen Involvement Committee

Multnomah County, Oregon

Take Your Money Out of the Hands of the Banking Oligarchs Arianna Huffington, Rob Johnson, Move Your Money

Take Action: How? For starters, you could move your money to a small bank.

Monopoly Capitalism Is the Root of All of America’s Problems Daniela Perdomo, AlterNet

Politics: Monopoly capitalism exemplifies everything that’s gone wrong with American politics, and we need to do something about it — soon.

Burt’s Bees, Tom’s of Maine, Naked Juice: Your Favorite Brands? Take Another Look — They May Not Be What They Seem Andrea Whitfill, AlterNet

Health and Wellness: One of AlterNet’s most popular articles: Confident that you are buying good, socially conscious brands? Find out the real story.

Tom Paine, author-patriot, 1737-1809

As we approach the New Year, pundits have begun to reflect on 2009 and, more broadly, the decade known as the Aughts or Naughts. All, it appears, is not well with the United States. According to Robert Reich, if 2009 has proved anything, it’s that the escalating profits on Wall Street have little effect on Main Street, where mortgage delinquencies “continue to rise,” small businesses “can’t get credit,” and people everywhere are “worried about losing their jobs.” E.J. Dionne Jr. describes the past decade as a time when the United States “badly lost its way by using our military power carelessly” and by pursuing domestic policies that “constrained our options for the future while needlessly threatening our prosperity.”

And then, of course, there is Paul Krugman, who prefers to simply call the decade The Big Zero. Zero: as in, zero job creation; zero economic gains for the average family; zero gains for homeowners; and zero overall gains on the stock market. Even more impressive, writes Krugman, was the nation’s inability to learn from its mistakes. Thus, if the decade began with a deflating dotcom bubble, it has concluded with a deflating housing bubble: boom-and-bust, boom-and-bust. Nor did the Enron scandal cause investors to more carefully scrutinize the financial strength of banks. Even worse, if Republican politicians have been dead set again financial reform, Democrats have not yet offered what Krugman calls a “full-throated critique” of excessive leveraging and CEO pay.

But what can I do?

That is the question. Indeed, it is a very big question asked by a very big number of people these days. Certainly, it is easy to become discouraged, or even apathetic about America’s woes. But that would be a mistake. To be sure, political reform will not come from the top-down, even with Obama as commander-in-chief. (Stay tuned to the ISJ for a review of Heads in the Sand, Matthew Yglesias’ incisive book on the failure of Democrats to offer an coherent alternative to Bush’s foreign policy.)

That’s why we need a social movement. Sounds daunting, and it is – but the longest journey begins with…a wonderful suggestion by Arianna Huffington. Here is her simple idea, which I believe has enormous potential:

If enough people who have money in one of the big four banks [JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo] move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it becomes again the productive, stable engine for growth it’s meant to be. It’s neither Left nor Right — it’s populism at its best. Consider it a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest.

So this New Year’s Day, as you lie on the couch nursing a hangover, do yourself a favor: read Huffington’s post (pardon the expression), and/or simply scroll down to the bottom and watch the It’s a Wonderful Life-inspired video she has created urging readers to Move Your Money (see also http://moveyourmoney.info for more details, including information on finding a community bank in your area).

Oh, and please do pass it on.

I imagine myself in a chair with duck tape across my mouth as the single light swings from side to side you see these self appointed Godfather’s yelling, “the deal is off the table lady!” as he tells the others the others to complete hit after hit on people who have had some bad luck, made some poor decisions or was just at the wrong place at the wrong time.

They welcome you into the “family”, you feel secure and safe knowing you are in THE families good graces. When your on top and paying your monetary dues it’s understood that they won’t take any hits out on you but when life intervenes and you fall behind they show no mercy before kissing your forehead and pulling the trigger.

Sad thing is the new Mob is the banks. The self appointed Godfather’s are the customer service reps who are themselves living paycheck to paycheck, erasing the collectors phone calls on their lunch break from harassing and lecturing others on financial responsibility with not much more than a high school diploma under their belt to award them with so much power.

We tell the Godfathers we want to pay them but they continue with the hits, credit hits, one after another each month. They call us several times in a row harrassing and yelling over our debt as if it’s their own but when we reach out to make things right they will make no deals, just hits.

Have you noticed what the banks are paying (or not) these days?  My friendly bankers are offering anywhere from .5% to .75% on CDs.  Money market funds and savings accounts are even more anemic at around .1%.  Pretty soon they will have to rename the latter “non savings account.”  The basic premise is, if you have money, they want to use it for free.

 This leads to the small world of savings bonds.  I’ve actually purchased the annual maximum amount of the I bond in December and I will do it again in January.  The annual limit is $5,000 in paper I bonds per person.  Here is why.  The current I bond pays 3.36% for the first six months.  I have to hold it for one year.  If cashed at the end of the year I forfeit three months of interest.  Since it will get 3.36% for the first six months, even it the rate is 0% for the second six months, the worst I can do is an annual return of 1.68%, guaranteed, tax deferred, exempt from state and local taxes.  If inflation is somewhat normal (around 3%) for the second six months my bonds are held I will  net more than 2.52% after one year.  This is not going to make me rich, but it feels better than loaning my bank money at a near zero percent return. 

 For more informtion about the I bond please consult my annual newsletter.

It is traditional at this time of the year to reflect upon the past and consider what the future holds. After 8 years of darkness, the beginning of 2009 featured hope and expectations of better times ahead. While this is still possible, one must admit there are few signs that better times are just around the corner.

Islamic extremists present what appears to be an interminable threat internationally. Failed States, like Somalia, provide sanctuary for pirates who are highjacking ships as if there were no force to stop them. Domestically, we have a political system totally corrupted by the cost of campaign financing. To add to this ethically devoid political process, special interests such as the NRA, Catholic Church, Trial Lawyers, Unions, and the wide swath of for profit evangelical/fundamentalist Christian churches have decided to place their personal interests above the needs of the Country.

It is conventional wisdom that free enterprise and marketplace economics have been the backbone of American growth and wealth. But one must ask whether the near implosion of Banks and Investment firms through the use of CDOs and CDSs (and the subsequent drop in stock prices and 401K values) were the desired result of free enterprise and marketplace economics. When the day of reckoning arrived and these banks were about to fail, Government had to step in and “bail” them out. No sooner had these firms regained their footing, did they insist upon paying hugh, over the top, salaries and bonuses to executives who had faced no accountability for their past (or future) decisions. What is behind this?

Through most of 2009, unemployment rolls increased monthly. For months pundits blamed the housing bubble. Unfortunately housing is only a small piece of the US economy, but here lies a clue. Housing cannot be outsourced to China or anyplace else. In 2009, the US woke up to the fact that its backbone, manufacturing, had evaporated over the past 20 years. Combining the loss of manufacturing with the loss of ethics, as seen in banking, investment, and Congress, the current US position is engulfed with fog and a course to a brighter future is difficult to see.

I would have described the future as bleak were it just the US that counted. The insular world that American media projects where the white hats are worn by only the US and what is good only can be found here is totally misguided. The good news is that the US is still a wealthy land and global competition is just that. There is an opportunity to wisely invest and compete globally bringing some of the jobs back to the US. Manufacturing jobs need not require a PhD and are far better than paying unemployment benefits. Employed workers pay taxes and do not require government payments thereby helping balance the budget. Investing in education (math, science, engineering, as well as basic manufacturing skills) will pay even greater dividends over the years to come.

The “fuzzy” future comes from the question of whether we have the necessary ethics to help ourselves. Can Congress work for the benefit of Americans or will it stayed tied just to special interests? Will sensible regulations harness the greed of Wall Street? Will religious groups stick to preaching to their flocks and resist trying to influence those who do not belong? Will Americans return to images that manufacturing jobs are good jobs and that the television bunk of fast cars and slick clothes are both not typical or all that they are made out to be? Will Americans remember that most all this can be done on their own without the need for big brother?