Kathleen Furey, SEC Attorney, Turns Whistleblower

Your Money: A cautionary tale for whistle-blowers

Erin E. Arvedlund Published Tuesday, May 21, 2013, Philadelphia Inquirer

If you have the guts to blow the whistle on a Wall Street investment fraud and approach U.S. regulators with your allegations, beware the case of Kathleen Furey.

The SEC officially seeks whistle-blowers, but a senior counsel says she learned otherwise.

Imagine being a whistle-blower, but with the added weight of actually working at the primary Wall Street watchdog.

Not only did Furey, a senior counsel for the SEC for nearly nine years now, work for the U.S. market regulator, but she was punished for bringing attention to the fact that fraud cases against money managers were going nowhere at the agency.

A copy of her amended complaint, filed this month with the U.S. Office of the Special Counsel, an agency that is a watchdog on behalf of federal employees, including those who are whistle-blowers, provides the hair-raising account of how, in 2007, Furey sought out her New York office supervisor and complained that her managers were refusing to advance investigations or file cases under two statutes most directly related to investment managers.

One year later, she alleges, her bosses’ indifference would help produce the worst failure in the SEC’s history: Bernard Madoff’s $65 billion investment scam. In 2008, Madoff confessed to bilking investors out of their savings through a decades-long pyramid scheme.

Search Furey’s complaint to the special counsel and you will find Madoff’s name appears more than 30 times in the 25-page document.

Kathleen Furey stated in e-mails to the head of the New York office that her entire group (20 lawyers plus staff) was not allowed to bring cases under the Investment Advisors Act of 1940 and the Investment Company Act of 1940, two of the four primary statutes the SEC enforces and uses to indict fraudulent money managers. If you read the SEC’s complaint against Madoff (http://www.sec.gov/litigation/complaints/2008/comp-madoff121108.pdf), the primary charge against him is for violating Section 206 of the Investment Advisers Act of 1940.

This is exactly the statute that Furey said was not being enforced by her supervisors, one of whom told her “we don’t do IM [investment management] cases.” When she took her complaint to a higher-ranking SEC officer, she was told to recant what her direct supervisors had told her.

Furey eventually went directly to the head of the SEC’s New York regional office, Mark Schonfeld, who at the time was the head of the agency’s New York regional office – the one with jurisdiction over Wall Street. Schonfeld did nothing to fix the problem, and his office decided not to pursue the cases, Furey alleges.

Consequently, the lax enforcement continued until the Madoff case broke in December 2008. After the public flogging of the SEC by Congress, Furey’s bosses began to bring these cases to make up for lost time, the next nine being between the end of January 2009 and July 2009, her suit says.

Revolving door

Why was the SEC’s supervision of Wall Street cases so lax? Some would say it is because of the revolving door between the agency and Wall Street law firms. Schonfeld left his government job to join the New York office of Gibson, Dunn & Crutcher L.L.P. and direct its securities-enforcement practice group. Three other key officials in Furey’s group have also left the agency.

“It is typically those who pass through the revolving door that make decisions beneficial to Wall Street,” says Furey’s attorney, Gary Aguirre, himself a former SEC attorney and whistle-blower against the agency. He argues that it was her bosses’ decisions not to enforce two of the four securities acts entrusted to the SEC by Congress, and not hers.

Aguirre contends that Furey paid the price for her diligence: efforts to demote her and alter her past excellent evaluations.

She asked for an internal audit of her work and in 2011 received a perfect score. The auditor unequivocally recommended “if Ms. Furey continues to perform the advisory duties identified in the audit, that she be promoted.” She remains in her current job.

There has been much scrutiny of Mary Jo White, the present head of the SEC, as a Wall Street-friendly lawyer who again passes through the revolving door from a well-regarded law firm.

The added drama of the Furey case could be a litmus test for the new SEC commissioner.

“Will Mary Jo White embrace the message and protect the messenger,” Furey’s attorney asks, “or protect her colleagues who revolved through the door a little earlier than she did?”

Fed Watcher Says Fed Has Easy QE Exit: Don’t Sell

Your Money: Fed watcher sees way to exit ‘quantitative easing’

Erin E. Arvedlund Published on the Philadelphia Inquirer, May 14, 2013, 3:01 AM

Meet an expert Fed watcher who not only worked at the U.S. Federal Reserve but who also has suggested to the all-powerful central bank that there might be a way to exit the financial maneuvering known as quantitative easing.

Raymond Stone, co-founder of Stone & McCarthy Research Associates in Princeton, has an idea that the Fed may take seriously.

As most investors who pay close attention to stock and bond markets know, the Federal Reserve in 2008 embarked on a rescue mission to save our financial system from collapse. The Fed lent money at rock-bottom rates to pretty much any financial institution that asked, in the hopes of preventing bank closures, a run on brokerage houses, and even disaster for private insurers such as AIG.

For five years, the Fed has used a few tools: aggressively cutting interest rates, printing more dollars, and purchasing toxic assets from banks and quasi-governmental agencies, such as mortgages underwritten by Fannie Mae and Freddie Mac.

By 2012, the Fed had embarked on at least three rounds of quantitative easing (QE), in response to other pressures, such as the Eurozone crisis, while at the same time forcing investors out of low-yielding fixed income and into stocks and other riskier assets.

The Fed became a major investor in the U.S. bond market, and recently began buying an unprecedented $85 billion a month in bonds – meant to spur the economy to “preserve flexibility and manage highly unpredictable market expectations,” the Wall Street Journal explained Friday. Currently, the Fed’s balance sheet is roughly $3 trillion, compared with under $1 trillion as of January 2007.

The question now is, how will the Fed ease back on the QE measures without hurting the markets? Stone says there is another way besides “tapering off” and “managing expectations.”

Stone explains: Fed officials plan to reduce the number of bonds they buy, varying their purchases depending on their confidence in the job market and inflation. The timing is hazy.

Stone’s advice to the Fed: Don’t sell.

“The fear [in the bond market] is that the Fed will taper off their buying program and then sell, and under that scenario interest rates will start going higher.”

Without one of the biggest buyers – the Fed – in the Treasury and mortgage bond market, prices will start going down, and the government will have to start paying more interest to attract buyers.

Even worse, the Fed could then be selling into a falling bond market and suffer other losses.

Stone’s idea is that the Fed holds the bonds it has bought until maturity. That could provide some stability to the system and wouldn’t rock the markets. The average maturity of the Treasury bonds the Fed holds is 10.5 years, Stone estimates.

It sounds simple, and it might also buy the Fed time as the central bank faces a leadership change. Fed watchers’ best guess for chairman Ben Bernanke’s replacement is current Fed vice chair Janet Yellen.

While Yellen seems an obvious choice – she is a Democrat and an inflation “dove” – there are dark-horse candidates like Alan Blinder, who was vice chairman of the Fed in 1990s.

“My guess is Janet Yellen will become chair,” Stone said. “She was president of the San Francisco Fed and would be the first woman chair of the Fed.” Stone guesses President Obama might enjoy making a legacy pick.

“Yellen is the path of least resistance,” agrees Guy LeBas, fixed-income strategist at Janney Montgomery Scott in Philadelphia.

What does it all mean for bond investors? Stone advises that while investors think bonds are safe, they need to be aware that rates rise and bond prices fall at the same time. And the Fed’s moves could influence that.

For those unfamiliar with Stone, he was the director of global fixed-income and economic research at Merrill Lynch and an economist with Fidelity Bank in Philadelphia. He started his career in research at the Federal Reserve Bank of New York and was involved in analysis of international capital and trade flows and preparing briefings before Federal Open Market Committee meetings.

For every 1% increase in interest rates, expect the 10-year U.S. Treasury bond to lose 8.96% in price.

 

Shredded currency surrounds the seal of the U.S. Federal Reserve in Washington. (Andrew Harrer / Bloomberg News)

Posted: Tuesday, April 30, 2013, 3:01 AM

Ahead of the key Federal Reserve meetings Tuesday and Wednesday, bond investors are asking themselves a hard question: What will happen when inflation and interest rates inevitably rise and bond prices fall?

The Fed, to a large extent, has kept interest rates at rock-bottom levels, so bond investors are holding their collective breath to see what the agency decides next.

If rates rise, the market value of government bonds in particular – and all bonds in general – could be hurt significantly. For example, if the federal funds rate rises to 3 percent, a longer-term Treasury bond might lose as much as a third of its market value.

For every 1 percent increase in interest rates, expect the 10-year U.S. Treasury bond to lose 8.96 percent in price.

Historically, the 10-year Treasury bond returned a long-term average real rate of return and yield of 4.4 percent, according to Don Riley, chief investment officer of the Wiley Group. If the 10-year yield rose from 1.66 percent today to 4.4 percent, the price of that bond would fall 21 percent.

If and when interest rates rise again, are bond owners going to keep 10-year or 30-year Treasury bonds in their portfolios until those bonds mature? Very likely not. Who would want a 1.5 percent or 2.5 percent return for a decade?

In the meantime, there are few places to hide. In comparison to government bonds, even longer-term corporate bonds have, in recent months, offered only a 3.5 percent to 4.0 percent return.

What if you want a fixed-income stream and need to stay in bonds? Some money managers, like Ed Kohlhepp of Kohlhepp Advisors in Doylestown, believe now is the time to rotate out of long-term and into short-term bonds to avoid a massacre.

What’s the trade-off in that move? We investors are paid lower interest rates in exchange for a potentially smaller drop in the market value of these securities, if rates should rise.

If you are after higher rates of return from short-duration bonds, Kohlhepp says to look to bonds that are investment-grade but slightly lower credit ratings, below AAA or AA ratings. Investment-grade corporate bonds, for instance, return roughly 2.5 percent.

Other advisers believe it’s unlikely the Fed is going to raise rates this week or announce it is tapering off bond purchases, which have buoyed the market, says Joe DiGiammo of Mischler Financial Group of Boston.

The mantra of bond investors since the 2008 financial crisis has been “Don’t fight the Fed,” and so far the Fed has been keeping a floor under bond prices by acting as the largest buyer. DiGiammo thinks the Fed “may not increase bond purchases, but I think most of us can agree that current purchases in place are not ending in the near future.”

More likely, he says, the Fed may decide to simply hold to maturity the Treasury and mortgage bonds it has bought, creating a floor under the market.

DiGiammo believes investors looking for income should instead turn to the real estate sector. “We’re not yet at the top here, whether we’re talking commercial mortgage-backed securities and real estate investment trusts,” he said. A good proxy “for dummies like me,” he adds, is a diversified index like iShares Dow Jones U.S. Real Estate Index Fund (IYR).

 

‘Retirement Gamble’

Normally, I don’t plug television shows, but this one I can’t recommend enough: The Retirement Gamble premiered last week and can be seen on PBS Frontline. The program examines how one out of three Americans has next-to-no retirement savings, and includes interviews with our homegrown mutual-fund guru, John Bogle, founder of Vanguard. The program explores how hidden fees, self-dealing, and conflicts of interest are endangering a stable retirement for millions. If you can’t see a repeat, watch it online at PBS’s website (www.pbs.org/wgbh/pages/frontline/retirement-gamble).

Madoff’s Secretary Investigates His Crimes: Tribeca Film Festival

Eleanor Squillari was Bernie Madoff’s personal secretary for roughly 25 years, and in a new Tribeca Film Festival documentary, she describes how she came to work for the $65 billion Ponzi schemer, and how she helped the FBI investigate his cunning and excrutiating crimes. The title of the film is “In God We Trust” and although I couldn’t attend the April 19th Tribeca festival screening, I make a short cameo in the movie.

Deduct Your Charitable Donations… and Don’t Get Duped at Tax Time!

Panic-stricken during tax time, many Americans dig out receipts for last  year’s charitable donations before filing by April 15 – only to discover the  charity they gave serious money to either was a scam or wasn’t eligible for a  tax-deductible gift.

If you’re like me – meaning you routinely file your tax returns at the last  minute – you can save yourself from being duped by a charitable donation gone  awry.

The American Red Cross and Goodwill are just two examples of well-known  tax-exempt charities approved by the Internal Revenue Service. To claim federal  income tax deductions for contributions to such organizations, you generally  need written receipts for cash contributions of $250 or more. For contributions  of less than $250 made by check or credit card, keep the canceled check or  credit card statement to satisfy the IRS.

But what about verifying tax deductions for contributions to less well-known  charities? Good question, says Martin Abo, a certified public accountant with  offices in Mount Laurel and Morrisville.

He suggests we head to the IRS website (www.irs.gov) and search for “Publication 78.”

Abo says he is advising clients to do the following to be sure the charity or  organization is legitimate: Once you have found Publication 78, click on “Exempt  Organizations Select Check.” Then click on the blue “Exempt Organizations Select  Check Toolbox.”

Under “Limit Search to Organizations That (select only one),” call up “Are  Eligible to Receive Tax-Deductible Contributions.”

To the extent you have information, fill in the blanks for the charity, such  as name, and city and state where it is located. Hit the search key.

Once you find the charity you are searching for, click on the “Deductibility  Status” link on the far right.

For example if that status says “PC,” the organization is a public charity  (the most common kind). You can make deductible donations of up to 50 percent of  your adjusted gross income (AGI) to one or more public charity.

If the status is “PF,” the organization is a private foundation. You can make  deductible contributions of up to 30 percent of your AGI to one or more private  foundations. If the organization’s status is “SOUNK,” the outfit is a supporting  organization of an unknown type. You can make deductible contributions of up to  50 percent of AGI to such organizations.

For instance, I did a search for an organization that promotes education of  women in finance, called 100 Women in Hedge Funds. I searched for its foundation  by name, and came up with its identification number and listing on the IRS  website as a public charity (donation is 50 percent deductible).

What if your charity is not on the IRS-approved list?

That is not necessarily a deal-breaker. Sometimes religious groups, such as  churches, synagogues or mosques, aren’t required to apply as tax-exempt  organizations with the IRS.

But you want to be certain. One way is to find out if your charity has had  its tax-exempt status revoked.

On the IRS website, go back to the blue “Exempt Organizations Select Check  Tool” page and select “Were Automatically Revoked.”

Fill in the blanks to the extent you know the requested information for the  organization and hit the search key. For instance, we did a search under  Philadelphia between Jan. 1 and April 9, 2013, and found that Sigma Alpha  Epsilon Fraternity at 3210 Chestnut had its 501(c)(7) status revoked in March  for failing to file the required paperwork for the last three years.

A tax write-off can make you feel good about supporting charities. But don’t  be naive in the process.

 

Sequestration Hurting Stock, Bond Markets? Not At All…

JACQUELYN MARTIN / AP photo

Will sequestration hurt the stock and bond markets? Not this month, when the budget cuts are scheduled to take effect. What about the economy? Probably not that much either, according to prognosticators.

The sequestration cuts themselves are actually quite tiny. Total federal spending in 2012 was $3.53 trillion. President Obama’s budget request for 2013 was $3.59 trillion. Under sequestration, total federal spending in 2013 would be $3.55 trillion, an increase of only $25 billion, a little less than 1 percent, according to the Congressional Budget Office (CBO).

Did you catch that?

“Under sequestration, total federal spending goes up, just by less than it would have gone up without sequestration,” says Peter Klein, a University of Missouri economics professor, who also co-writes a blog called Organizations and Markets (www.OrganizationsAndMarkets.com).

The White House and Congress have worried everyone that the sequester will have a terrible effect on the economy, when in fact the economy is humming along just fine.

So far, the stock market has continued to hit record levels in the face of sequestration. And bond-market investors also seem to like the headlines about “debt reduction,” even though with sequestration, there is no real debt reduction.

Instead, there will be a reduction in the rate at which U.S. government debt increases. Even with sequestration, there is a projected budget deficit – the government will spend more than it takes in – every year until 2023.

And the American public likes sequestration, given the feeling the government needs to stop spending as much, just as citizens are spending less.

“Some actually believe this small measure of austerity, and the world not falling apart, is a good thing,” says Michael Galantino, managing director at Boenning & Scattergood Inc., in West Conshohocken.

The CBO estimates that a fully implemented sequester would result in GDP growth of 1.5 percent – below the pace that would otherwise be expected, adds Brad Sorensen, director of market and sector analysis at the Schwab Center for Financial Research.

Given many analysts’ estimates of 2 percent annual growth, that doesn’t leave a lot of cushion. However, the CBO forecasts don’t take into account potential changes that could result from a given action.

“It’s possible that reduced federal spending and fewer debt concerns could increase business confidence and stimulate hiring, which could help to offset at least some of the [GDP] losses [in the longer term],” Sorensen says.

“The economic impact of the sequester will probably be smaller than the CBO’s forecast, and U.S. growth will remain modestly positive,” Sorensen predicts. “The cuts will be implemented gradually, rather than all at once, which should give the economy time to adjust.”

The U.S. bull market in stocks has vaulted over some impressive hurdles, including last week’s fears of a banking run in Cyprus. And Galantino says the main focus for his clients remains “trying to find yield in a low-yield environment.”

Interestingly, many of his retail clients “are slowly putting more money to work as the confidence returns, and they just can’t take the pain of being out of the market any longer,” Galantino said.

And that typically is not a good sign – more a signal of a short-term plateau in the market.

Read more: http://www.philly.com/philly/business/20130326_Your_Money__Sequestration_likely_will_not_hurt_much.html#ixzz2OeSFatPu

Is Inflation Only 2%? No It’s A Lot Higher

My latest for the Philly Inquirer:

The real inflation rate can guide investments

©iStockphoto.com / NICK BAKER

POSTED: Tuesday, March 19, 2013, 6:47 AM

We all shop for food, put gas in our cars, pay for medication and doctor’s visits, day care and college – and, based on those prices, inflation has got to be higher than what the government says. The Consumer Price Indicator registered a puny 1.7 percent in 2012, according to official figures.

Real inflation is in fact higher than that, according to the American Institute for Economic Research’s (AIER) Everyday Price Index, which in 2012 revealed almost 8 percent inflation (www.aier.org/epi), much higher than the official CPI. In January 2013, the EPI’s increase came in at 6 percent annualized. A closer look at the EPI suggests that underlying inflationary pressures may be building.

Investors such as Luke Rahbari, chief investment officer of Stutland Volatility Group, are trying to ride inflation in their portfolios.

“We tell our clients to invest in things we use every day and capture that price inflation,” Rahbari said. He mentions companies selling or trading in gasoline and heating oil, electricity, or education.

For instance, Rahbari buys and sells in and out of United States Gasoline Fund L.P. (symbol: UGA) depending on the direction of gasoline prices. He does much the same with consumer goods companies such as Procter & Gamble (PG) and Johnson & Johnson (JNJ), and Google (GOOG), with the search engine profiting from rising advertising prices. (Warning on UGA, however: The fund is volatile and expensive for retail investors to trade.)

AIER’s Everyday Price Index (EPI) methodology measures the changing prices of frequently purchased items like food and utilities. AIER calculates the EPI by selecting the prices of goods and services from the thousands collected monthly by the Bureau of Labor Statistics in computing the Consumer Price Index. The EPI basket contains only prices of goods and services that Americans typically buy at least once a month, excluding contractually fixed purchases such as mortgages. Staff economists weigh each EPI category in proportion to its share of Americans’ average monthly expenditures.

Fixed-income warning

Guy LeBas at Janney Montgomery Scott in Philadelphia pointed out useful research reports to us that are available on the firm’s website. They advise clients how their bond portfolios could be affected by rising interest rates. The reports can be found at www.janney.com.

“Most investors understand that bonds are sensitive to interest rates, and that this relationship is inverse,” LeBas said, “but they don’t often know why or how.” Janney’s reports explain the math behind a turn in interest rates, which could hit prices of bonds.

Emerging markets

Did you know that what we think of as emerging markets now produce more than 50 percent of the world’s stuff, or what we call GDP in America? Developed nations like those in the European Union and the United States now produce just under 50 percent of global GDP. China, for instance, is now the world’s largest car market.

Chris Millard, investment specialist at JPMorgan Private Bank in Philadelphia, is encouraging clients to consider shifting asset allocations toward emerging markets, especially Chinese equities, and local currency debt in Latin America and Asia (except Japan). The price-to-earnings ratio of these markets is 12.5 times this year’s forward earnings. Corporate earnings growth in the United States likely will come in around 8 percent this year, vs. 15 percent corporate earnings in emerging markets, Millard says.

 

Higher dividend payout ratio could help propel market further

RICHARD DREW / Associated Press

POSTED: Tuesday, March 12, 2013

The Dow Jones industrial average reached a new high last week, 14,397.07, and closed even higher Monday at 14,447.29.

What could propel it further?

Binney Wietlisbach, president of Haverford Trust Co., which manages nearly $7 billion of assets for individuals and institutions, wishes the dividend payout ratio would improve, from 32 percent to closer to the 50-year average of 49.4 percent.

Companies with stocks paying out higher dividends could attract even more investors, Wietlisbach says. (The dividend payout ratio is defined as the yearly dividend divided by earnings, and can be an indicator of financial health.)

“I foresee a new trend, with companies like Apple paying out a higher portion of its $137 billion in cash, just as an example,” she says. “Their dividend payout ratio could easily double, and they could cover it.”

Wietlisbach says her firm is avoiding junk bonds, which are “very expensive,” and has been out of Treasuries for some time, instead preferring municipal bonds for clients. 

New Treasury options. Are you fearful your Treasury notes and bonds might fall in price? Investors who want to hedge, or buy insurance against, price risk in Treasury bonds can now use puts and calls on Treasuries the same way they are used for stocks.

Trading in options on underlying U.S. Treasuries launched last month on the NASDAQ OMX PHLX exchange on Market Street, and may help retirees seeking additional income or investors looking to lock in gains on Treasuries they already hold, or those holding large single Treasury positions.

For more information, go to the Options Industry Council’s website (www.optionseducation.org) or the Nasdaq OMX trader site (http://bit.ly/W8DKQl).

IRA tax traps to avoid. Americans hold a combined $5.2 trillion in assets in individual retirement accounts. These IRAs provide tax benefits, but can also present tax traps. If you run afoul of IRS rules, even by accident, penalties can be severe.

Rande Spiegelman, vice president of financial planning at Charles Schwab & Co., highlights common mistakes:

Contributing too much. If you contribute more than the law allows in any year, the IRS will penalize you 6 percent of the excess amount for each year in which you fail to take corrective action. For tax year 2013, the contribution limits for both 401(k) and IRAs have increased $500, to $17,500 and $5,500, respectively. For investors 50 years or older, the contribution limit increases for both 401(k) and IRAs to $23,000 and $6,500.

Prohibited investments. Self-directed IRA investors should be aware that prohibited investments include collectibles such as artwork, antiques, metals, gems, stamps, and coins. You can, however, invest in hedge funds and exchange-traded funds. “Check and see if the ETFs use debt or leverage, and if there’s a pass-through type of entity. Ask your broker or CPA before investing,” Spiegelman warns.

Restricted rollovers. You can transfer your IRA funds from one firm to another once every 12-month period. It’s when you take receipt of the money that you face a number of restrictions. You have 60 days to redeposit it into the same or another IRA before it counts as a taxable distribution, plus a penalty if you’re under 59½.

Premature withdrawals. If you take an unqualified withdrawal from your IRA before age 59½, you incur a 10 percent federal early-withdrawal penalty, plus ordinary income tax on any of the amount considered deductible contributions or earnings. And even if you avoid the federal penalty by taking a qualified distribution, you’ll still pay income tax. “Exhaust all other options,” Spiegelman says.

Missing your RMDs. If you’re 70½ or older or if you’ve inherited an IRA from someone other than your spouse, you must take required minimum distributions from the IRA each year. Original owners of Roth IRAs are exempt from RMD rules. The penalty for failing to take your RMD is a 50 percent excise tax on the required distribution amount, plus applicable ordinary income tax. Ouch!

 

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Erin Arvedlund is a finance reporter in Philadelphia. Contact her at 646-797-0759 or erinarvedlund@yahoo.com.

 

Thank You Service Men and Women… With Some Financial Tips

Still time for service members to start savings plan

POSTED: Tuesday, March 5 on Philly.com

The week ending Sunday was Military Saves Week, so I wanted to express my gratitude to the American men and women serving, and to those who have served, in the armed forces: Thank you for your sacrifice. As the daughter of a Naval Academy graduate and the spouse of a Marine Corps reservist, I appreciate your service.

In your honor, we share some financial tips for servicemen and women.

Military Saves Week is over, but you can still sign a pledge and start a savings plan. Barbara Thompson, director of the Pentagon’s Office of Family Policy, Children and Youth, reminds service members and their families that saving money should be a year-long practice. On the Military Saves website (www.militarysaves.org), you can find out how to start small – even with the spare change in your pocket – and begin saving.

The Consumer Financial Protection Bureau has tips for service members, veterans, and their families. It includes: “[You] are easy to find, so lenders are confident they can collect debts you owe. Your military pay represents a steady income that could be garnished. Military families often start young, leading to big money-management decisions by first-time decisionmakers.” The CFPB’s guidance for people in the military can be found at www.consumerfinance.gov/servicemembers.

Lenders tend to prey on those in the armed forces, according to Steve Repak, author of Dollars & Uncommon Sense: Basic Training for Your Money. An Army veteran and financial planner, Repak racked up more than $32,000 of credit card debt while serving 12 years in the military, and says auto and home lenders, in particular, can demand payment by threatening to inform a recruit’s commanding officer.

Fixed-rate mortgages

Mortgage rates in 2013 are even lower than they were a year ago, and it’s possible they won’t get any lower.

So, it’s an unusually good time to lock in a very low interest rate for a very long time, which can give you more financial flexibility.

In the event interest rates rise dramatically, which we’ve warned about, it’s a great time to lock in a fixed-rate mortgage – rather than an adjustable rate. From a borrower’s point of view, this could be a once-in-a-generation opportunity.

In January, interest rates on a 30-year fixed-rate mortgage dropped to 3.38 percent, down 0.50 percent from the same time a year ago. According to Freddie Mac, the country’s largest lender, 15-year fixed-rate mortgages have dropped to 2.66 percent, down from 3.17 percent a year ago.

If you have an adjustable-rate mortgage, that probably paid off for the last few years. But now would be a good time to refinance to a fixed-rate mortgage, especially if you have good credit.

LGBT planning

Accounting and advisory firm Marcum L.L.P. introduced an interactive online map last month that tracks the status of same-sex marriages in each of the 50 states and how such unions are treated for tax purposes.

The firm created the tool for clients of Marcum’s national lesbian, gay, bisexual, transgender and non-traditional family practice group. You can view the status of same-sex marriages state by state. A pop-up chart with a highlighted state reveals whether same-sex marriage or rights similar to marriage are recognized there, and the effective date of the applicable law. The map also notes whether it is a community property state and whether protective tax-refund claims or amended allocated tax returns should be filed. The map can be accessed at www.marcumllp.com/LGBT-Unions.

 

Gold’s Glimmer In Shadow, But No Cause for Panic

My latest from Philly.com: Gold loses a little of its glimmer, but no cause for panic

KEITH SRAKOCIC / Associated Press

Gold’s glimmer took a dusting Friday after the yellow metal’s price dropped $26, to just over $1,609 an ounce.

Before you sell what’s in your portfolio, consider data just released from industry trade group World Gold Council: Last year, China accounted for about 25 percent of consumer gold demand and narrowed the gap with its rival, top gold buyer India.

The London-based council said consumption from both countries could rise an additional 11 percent in 2013.

Granted, the World Gold Council has a bias. But there’s no denying that, price fluctuations aside, central banks from Brazil to Portugal to Russia continued buying more gold last year to diversify their currency holdings. In fact, the council says, central banks globally bought more gold in 2012 than they have in the last 48 years (see the report at www.gold.org).

Central banks added 534.6 tons to their reserves last year, 17 percent more than in 2011. That helped make up for the first annual drop in total demand in three years, as investment demand slid 9.8 percent and jewelry demand fell 3.2 percent.

In the short term, the price drop has been painful.

“It’s been in a straight decline since the start of the year, no doubt about it,” says Matt Gohd, senior managing director and strategist at the brokerage firm WallachBeth Capital.

The most liquid of the gold exchange-traded funds, SPDR Gold Trust (GLD), closed at $155.76 Friday, down from its all-time high in August 2011 of $184.59, but still up sharply from $95.77, where it was exactly four years ago.

“But after a decline is when it starts getting interesting again, especially from a trading standpoint,” Gohd adds. “It could bounce.”

He tells investors to stay away from leveraged gold ETFs such as Market Vectors’ Gold Miners (GDX), “which has been a disaster,” and stick with the most liquid vehicles when investing in gold. GDX is just one of many exchange-traded funds that use leverage to boost the price move – both up and down – and they can wreak havoc on a portfolio.

“The leveraged ETFs make money for Wall Street, but not for investors,” Gohd says.

Heavy buying in put options. Speaking of declines, investors have been buying put options by the boatload – in particular, puts that would make money betting on a sharp market decline in March.

Joe DiGiammo, of Mischler Financial, said he’s seen “heaps of investors buying protection” for their portfolios in the form of put options on the iShares Russell 2000 Index Fund (IWM) and the SPDR S&P 500 exchange-traded fund (SPY). In particular, he has seen heavy buying of March-dated quarterly puts on these indexes, meaning they expire after the contentious “sequestration” budget-cuts deadline.

Put options can serve as a hedge, or a type of insurance, making money when the markets or a particular stock fall in price.

Heavy buying in index put options may also signal some pessimism about the direction of stocks amid Congress’ dithering over budget cuts. You have been warned.

Why Heinz? Safety. DiGiammo was kind enough to share David P. Goldman’s latest Macrostrategy, and the former Bank of America strategist had an interesting take on Warren Buffett’s decision to buy H.J. Heinz last week.

Buffett and Brazilian financier Jorge Paulo Lemann teamed up to buy the ketchup maker for $23.2 billion.

“The attractiveness of Heinz was not valuation (Buffett and the Brazilians bought at a forward price-to-earnings [multiple] of 18, at double the January 2006 price for the stock). It was stability.

If the best a Brazilian billionaire can do is buy into an American ketchup company, it’s hard to get excited about the growth prospects of Brazil. In fact, it’s hard to get excited about Heinz at a pre-acquisition P/E of 18. What is the upside of a stodgy food processor whose equity price had already run from $35 to $60 between January 2002 and the present? The acquirers are not looking for a capital gain, but for the capacity to apply cheap leverage to bond-like cash flows.”

 

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Contact Erin Arvedlund at 646-797-0759 or erinarvedlund@yahoo.com. Previous columns are at philly.com/arvedlund.