Haverford Trust executive bullish on stocks
With continued mixed economic data dribbling into the market, Hank Smith, Haverford Trust’s chief investment officer, said we should expect more volatility than in the last few years. But, overall, he is extremely bullish on the stock market.
Overseeing $7 billion in client assets, Smith is a classic equities bull. Stocks still remain the best asset class, he said:
“Tailwinds are in U.S. stocks’ favor with reasonable valuations, great balance sheets, decent earnings growth, dividend increases and share buybacks, an accommodative [Federal Reserve], and very little risk of a recession.”
Where to buy? Smith likes so-called old technology companies and industrial sectors balanced with defensive sectors like health care.
“Any pullbacks should be short-lived, because there are a lot of investors who missed the bull market” that started after the crisis of 2008, Smith claimed. “We are five years from that bear market. There is healing taking place.”Haverford has traditionally favored equities over fixed income for its clients, and Smith said that was because the investment shop owns bonds mostly to “reduce volatility in a portfolio.”
Moreover, he said, some stocks today are yielding just as much – if not more – than their company’s corporate bonds. You would have to reach back to the mid-1950s for a similar period, when many stocks yielded more than bonds as a trade-off for the risk of investing in equities, he added.
Take McDonald’s Corp. (symbol: MCD), shares of which have a dividend yield of 3.4 percent, whereas a corporate bond issued by McDonald’s and maturing in, say, 2022, carries a 2.9 percent coupon.
“You get more yield owning the stock than the bond. If you buy the bond, you get the coupon for years. You’re not taking much risk,” Smith said.
“But McDonald’s dividend yield has increased every year, and that will likely continue,” perhaps as much as 8 percent to 10 percent annually, Smith said.
Through annual dividend increases and compounding, the total return on McDonald’s stock would be higher than the bond over the same period.
“So, if you own the stock for just as many years as the bond, you get 7 percent, even if the stock does nothing,” Smith said.
The trade-off? You, as an investor, experience more volatility for that period.
Haverford highlights other holdings for which the shares yield more in dividends than do the corporate 10-year bonds: Microsoft, Philip Morris, Mattel, Intel, Procter & Gamble, and Coca-Cola.
In fixed income, Haverford owns very few Treasury bonds for clients.
“It is the most overvalued asset class,” Smith said, adding that the firm was willing to miss any short-term rallies in Treasuries.
Why is gold rising?
Charles Gave may help explain this conundrum. Gave, who founded the GaveKal research firm after managing money for many years, is trying to puzzle out the price rally in gold, which this week shot back up over $1,300 an ounce after a steep correction from $1,600 last year.
Gold is rallying for reasons that make little sense: on news that the Federal Reserve is cutting back on its long, huge bond-buying binge, and despite low consumer prices and flagging money supply. “This is particularly hard to understand for investors, who think of gold as an inflation hedge,” Gave notes.
But two things could explain it: emerging market currency turmoil, and the Federal Reserve’s low interest rate policy.
First, divide the world into two categories: those countries that keep a tight lid on foreign-currency exchanges; and those that don’t. The first includes mostly emerging economies, the second mostly those of developed countries. “If you are a rich person in one of the countries with capital-account restrictions, it can be difficult to diversify your assets abroad. In quite a few of these countries, one can buy gold. So gold becomes the substitute for international assets in a diversified portfolio.”
Since such emerging markets as Brazil, Russia, and India have experienced hyperinflation, defaults, taxes on capital flows, and devaluations, “gold becomes the best available hedge against bad policy, as well as against a bear market in the local stock market,” Gave says.
Second, Fed monetary policy has added to the volatility of exchange rates, and so, Gave concludes, “this is how we get the bizarre situation where holding gold protects against devaluation and growth/deflationary pressures in the emerging markets. Gold will keep rising as long as U.S. policy is exporting volatility – we see no imminent change in this situation under Janet Yellen’s Federal Reserve.”
We may have missed the significance to gold of wildly moving exchange rates in countries that now make up a significant portion of the world’s growth: Brazil, Indonesia, India, China. And Gave thinks if the volatility continues, then gold may keep rallying as a hedge against uncertainty.
Inquirer.com Wednesday, February 12, 2014, 1:08 AM
Let’s compare performance. The iShares MSCI Frontier 100 fund (symbol: FM) holds companies such as Qatari banks and a Nigerian brewery. That frontier market index has performed very well over the last three months, up roughly 6 percent, compared with iShares MSCI Emerging Markets (EEM), down 5 percent over the same period.
Other emerging markets’ funds have sold off similarly, such as Vanguard FTSE Emerging Markets (VWO), Schwab Emerging Markets Equity ETF (SCHE), and the closed-end funds Aberdeen Emerging Markets Smaller Company Opportunities Fund (ETF) and Morgan Stanley Emerging Markets Fund (MSF).
Why the interest? Because every other market feels wobbly. Make no mistake, “frontier” markets are highly risky, and are probably not suitable for retail investors.
Yet there is immense interest in them. Just last month, Larry Speidell, founder and chief investment officer of Frontier Market Asset Management, an independent investment management firm in La Jolla, Calif., gave a presentation here to the CFA Institute of Philadelphia. His fund includes equity investments in frontier markets such as Bangladesh, Botswana, Ghana, Ivory Coast, Kazakhstan, Kenya, and Qatar.
“Put Myanmar on your 2014 watch list of investment-worthy frontier markets,” notes Peter Kohli, CEO and founder of DMS Funds, based in Leesport, Pa. Coca-Cola and Caterpillar already operate in Myanmar, and Ford will be opening a dealership to sell trucks there. Numerous websites have sprung up with information on investing in Myanmar. (Kohli’s favorite is www.investinmyanmar.com).
Still, U.S. regulators are wary. FINRA, the American brokerage watchdog, this year issued a letter sounding warnings about mutual funds that invest in frontier markets, which were among the best-performing assets in 2013.
“Heightened risks associated with investing in foreign or emerging markets generally are magnified in frontier markets,” FINRA said in its letter. For instance, there could be no way to sell if the market is illiquid.
Remember, getting into frontier markets is easy. Finding the exit quickly could be painful to your portfolio.
Picking hedge funds, mutual funds not about winners, but avoiding losers, says author
ERIN E. ARVEDLUND
Published Thursday, February 13, 2014, Philadelphia Inquirer
What is the main difference between a mutual fund and a hedge fund? These days, the goodies inside the portfolios are strikingly similar. The only difference might be the wrapping paper.For instance, which is riskier? A hedge fund holding hundreds of diversified stocks, or a mutual fund such as the popular Fairholme Fund (symbol: FAIRX), which has about 40 percent in one stock – the recovering insurer AIG? An investor’s aptitude for risk should be the result of analysis.
To navigate the increasingly blurred lines between mutual funds and hedge funds, we checked in with Brian Portnoy, whom I first interviewed a decade ago when he was a mutual fund analyst for the Morningstar Inc. database.
Since then, he has worked as a hedge-fund allocator, someone who funnels money to hedge-fund managers on behalf of investor clients, and now helps create alternative investment products for his current firm, Chicago Equity Partners.
“Between 2000 and 2002, you could have lost half your money in an index fund and paid very low fees, or you could have made money in hedge funds,” Portnoy said.
And yet, during this latest rally from 2009 to 2014, the markets are up strongly, and hedge funds have lagged.
“There’s no way when the market goes up like this that ‘hedgers’ can keep up,” Portnoy explained.
Instead, for investors in either a mutual fund or a hedge fund, “the goal over time is to capture a significant part of the upside and avoid the big downside losses,” Portnoy said.
The return after fees and taxes – whether mutual fund or hedge fund – is most relevant.
Here are the questions investors should ask themselves:
What does this portfolio manager do exactly? Don’t be afraid to ask what you think might be dumb questions.
Can I trust this portfolio manager? “Trust is more than forensic analysis by accountants, lawyers and due diligence specialists,” Portnoy explained. “It is tricky.”
Portnoy contended it is a psychological engagement to size up others as potential long-term partners with whom we have a clear understanding of interests.
Are these portfolio managers good at their jobs?
Are they the right fit for me?
Note that Portnoy’s suggested questions for investors don’t ask anything about performance.
“Performance-chasing doesn’t work,” he said. “Like a sugar rush, great returns feel good for awhile and then dissipate, as a manager rarely and consistently meets or exceeds our expectations.”
Portnoy goes into more detail in his new book, The Investor’s Paradox (Palgrave Macmillan 2014), outlining his investment and due-diligence process.
Online overview of municipal bonds
ERIN E. ARVEDLUNDPublished Monday, February 10, 2014, 1:08 AM
Many readers have asked me how to find out the prices and yields on their municipal bonds, and the truth is, it hasn’t been easy. But on Friday, the Municipal Securities Rulemaking Board updated its website and muni bond database.
To make it easier to find important information about municipal bonds, the Municipal Securities Rulemaking Board (MSRB) unveiled an improved design of its Electronic Municipal Market Access (EMMA) website. The home page can be found at http://emma.msrb.org/Home.
You can search by state, city or other issuer, or the most actively traded bonds.
I have used EMMA in the past to look up issuers, but the website was clunky, difficult to navigate, and hard for nonprofessionals to understand.
EMMA’s updated home page and navigation should help regular folks (the majority of muni bondholders) to make more informed decisions. Some muni bonds are notoriously illiquid – meaning they don’t trade that often – but they are a key source of income for a lot of retail investors.
Take Puerto Rico, for example. Since around 70 percent of all muni bond mutual funds hold Puerto Rican municipal debt, everyone has been paying close attention to Puerto Rico’s commonwealth muni bonds, which were downgraded recently. This website should be a great way to research these bonds.
The new home page contains a list of most actively traded munis, including one Puerto Rico issue maturing in July 2020 at a price of about 96 cents on the dollar (just under par value, the face value of the bond) and yielding 6.19 percent.
You can also look for high-yielding munis under the heading Advanced Search (http://emma.msrb.org/Search/Search.aspx). I can, for example, view all municipal issues out of my home state of Delaware maturing in 20 years, or yielding between 7 percent and 8 percent.
Beware: The database is only as good as what issuers submit. One city’s data were so bad that the Securities and Exchange Commission cited it for failure to maintain current annual financials on the EMMA website. SEC officials termed the information misleading.
Still, this is a long overdue upgrade to an obscure market. Take advantage of it to understand what is happening in your muni bond portfolio. A tour of the upgrades is available at MSRB’s website (http://msrb.org/msrb1/EMMA/pdfs/EMMA-Homepage-2014.pdf ).
Time may be ripe soon to buy Puerto Rico bonds
ERIN E. ARVEDLUND
Inquirer.com Tuesday, February 4, 2014, 1:08 AM
Wall Street is starting to treat Puerto Rico’s municipal bonds as if they have already been downgraded to “junk” status. But what does that mean for our portfolios?The news is grim for the island commonwealth. Due to budget deficits and unfunded pension liabilities, the Moody’s, S&P, and Fitch rating agencies rate general obligation bonds issued by Puerto Rico at the lowest investment grade. The agencies have hinted at downgrades to below-investment grade, also known as “junk,” possibly within 30 days.
Why do we care? Roughly 70 percent of U.S. muni bond mutual funds hold Puerto Rico debt, which is tax-exempt. A downgrade to junk may prompt massive selling because some money managers can’t buy securities rated below investment grade.
The upside to Puerto Rico bonds is that they offer tasty yields. Since the start of 2014, the average yield of bonds in the S&P Municipal Bond Puerto Rico Index has improved by 0.11 percent to 7.33 percent. But the underlying prices of the bonds have plummeted; the index itself in 2013 fell 20.46 percent.
Since retail investors make up the bulk of municipal bond holders, this is a key development. When and if Puerto Rico is downgraded, much of the bad news should be priced into the bonds, and it will be time to look at buying.
“Events are still unfolding,” says Michael Comes, portfolio manager vice president of research at Cumberland Advisors’ Sarasota, Fla., office. “When things are still going downhill, it’s not a good time” to look at buying the debt.
Not all PR muni bonds are equal, he adds, noting that some bond issues, such as those backed by the commonwealth sales tax, are still rated investment grade.
Other PR issues currently yield 8 percent, and trade at around 70 to 80 cents on the dollar. Since muni bonds are tax-free, a taxable bond would have to yield about 15 percent for a similar return, he estimates.
You can see why PR bonds are so interesting. Still, there will be a ton of investors selling on any downgrade. Just on Friday, the S&P Dow Jones Indices removed bonds issued by Puerto Rico and other territories from the S&P National AMT-Free Municipal Bond Index. “It’s symbolic,” Comes says, “and could create more selling pressure.”
Keep your eye on Puerto Rico.
Look to emerging markets for higher bond yields
ERIN E. ARVEDLUND
Inquirer.com, January 29, 2014
For the last 30 years or so investors achieved three things when buying, say, 10-year U.S. Treasury bonds: income, stability, and an offset to stock market volatility in their portfolios.
They could accomplish all three goals with that one bond.
Those days are over. Still, there are alternatives, says Douglas J. Peebles, chief investment officer and head of Fixed Income at AllianceBernstein in New York.
Today, “if you only want to offset volatility, there’s nothing wrong with the 10-year Treasury,” as proven seemingly every time the stock market drops, says Peebles. “But it offers very little income. You have to find some other bond to buy” to solve that problem.
Currently, the 10-year Treasury yields 2.75 percent, barely ahead of the inflation rate of 2 percent, which leaves investors with a measly real return of just 0.75 percent.
For income, Peebles says, Europe and emerging markets debt look attractive from a valuation standpoint. “We like to sell when bonds are expensive and buy when they’re cheap,” he says, exercising the old adage. In particular, AllianceBernstein’s fixed-income department likes European corporate bonds and is examining which emerging market debt to start buying.
For example, some Brazilian bonds boast yields in the high teens, nearly triple what corporate bonds are yielding in the 4 percent to 5 percent range. The fixed-income team favors Brazil, but is avoiding Argentina and Venezuela for client portfolios, because of instability and poor economic policy decisions in those countries, Peebles adds.
Emerging markets are cratering in part due to tapering, or slowing, by the Federal Reserve of its latest bond-buying program, called quantitative easing, or QE. The first round of quantitative easing in the financial crisis helped restore bond markets; the second round helped boost real estate values and emerging markets, and the third round boosted the developed U.S. equity markets, which is why the S&P 500 rallied over 30 percent in 2013.
But the taper of QE? “Any change in liquidity has an impact on the riskiest markets first – which are the emerging markets. We’re seeing it right now,” Peebles explains of the sell-off.
For income, Peebles recommends investors try a multi-sector bond fund with higher yields, such as AllianceBernstein’s High Income Fund (ADGAX). Full disclosure: I’m an alum of Wall Street and worked at Bernstein’s Private Client division. You can read their research at AllianceBernstein’s blog (http://blog.alliancebernstein.com).
Another way to save for college
ERIN E. ARVEDLUNDPublished Wednesday, January 22, 2014, 1:08 AM
Grandparents, there’s another way to help pay for college – we thank Harry Miller of West Chester, a faithful Inquirer reader who called to explain his preferred savings vehicles when planning financially. He uses custodial accounts set up at a brokerage firm to save for his grandchildren’s education.
The financially able and extremely generous Miller gave us the details on how he helped his daughter and two grandchildren save and pay for college. Rather than investing in traditional 529 college savings plans, he is socking away the money many years ahead of time using the Uniform Gift to Minors Act.
The UGMA established a simple way for children or grandchildren to own securities without a lawyer to prepare trust documents. You manage the money for your children or grandchildren. Currently, the gift limit is $14,000 per child annually.
Miller set up brokerage accounts for each of his grandchildren, ages 2 and 4, and is giving $14,000 per child per year for their college education to the accounts. He’ll have given each child about $250,000 by the time they are ready to matriculate at age 18.
“The growth effect of the stock market should average 7 percent a year on top of the front-loading effect” of giving the money directly, he says, so he anticipates the accounts could grow to more than $250,000 by the time the grandchildren are ready for college. He also pays the taxes out of the account each year.
“I prefer this method to 529s, which differ depending on the state and the fees,” he says. We asked which mutual funds these custodial accounts are invested in for that stock market growth. Among them are the following: Fidelity Spartan Extended Market Index Fund (FSEMX); Fidelity OTC Portfolio (FOCPX), which invests in more small and medium-size companies and in the technology sector; Wells Fargo Advantage Discovery Fund (STDIX); the Yacktman Fund (YACKX) and Yacktman Focused Fund (YAFFX); Oakmark International Fund (OAKIX) and the Loomis Sayles Bond Fund (LSBRX).
Remember, the custodian controls the assets until the minor reaches a certain age, usually 18 to 21, depending on the state.
“Often, the only people in a position to help financially are grandparents,” he adds.
I asked Harry Miller if he’d take me on as his adopted granddaughter. I am available!
When art is more than just a pretty picture
ERIN E. ARVEDLUND
Published Monday, January 20, 2014, 1:07 AM
When is art an asset? When it provides future benefit, and when you sell your art and make money.
Financial advisors are taking note of the bull market in art. In December, a Francis Bacon painting, Three Studies of Lucian Freud, sold for $142 million, the most expensive artwork at auction.
Freeman’s auction house in Center City will host a panel of art and tax experts on Thursday, including Antiques Roadshow appraisers Alasdair Nichol and Scott Isdaner, managing member of Isdaner & Company CPAs. They will address tax and estate implications of owning, selling and donating art. These determine the value of your asset for you and your heirs.
“I’ve been a collector of works on paper for 30 years, so I love art,” said Isdaner. “But if you build a valuable collection, it can be taxed heavily when you die, and your heirs may not have the cash to pay the tax. Often, if they don’t donate to a museum, heirs are forced to sell to pay the estate tax.”
What are some factors in determining value? The artist is key. Andy Warhol, for example, is among the world’s top sellers. Other factors are provenance, the rarity, and, of course, the sales history, according to Anita Heriot, president of Pall Mall Advisors. She spoke at Freeman’s last autumn for Abbot Downing, the private wealth-management division of Wells Fargo.
In a recession, certain types of art tend to fall in value, such as decorative arts, furniture, and what she called “second-tier” paintings. “Blue-chip” paintings, on the other hand, retain their value, much like blue-chip stocks, she said.
Chinese and Russian billionaires have entered the global art market, pushing prices to stratospheric levels.
“Asians are paying huge prices,” Heriot said, but not for the pieces you might think. “They want to buy back their heritage, that power and grandeur,” she said, and they also pay up for Chinese contemporary art and classic paintings such as Pierre-August Renoir or Jackson Pollock.
The top artists in 2011 by sales revenue? Warhol, and two Chinese artists: Qi Baishi and Zhang Daqian.
A white jade seal, or stamp of the imperial palace of the Qing Dynasty, was found in a Main Line home and valued at $50,000, Heriot said. But at auction, an Asian buyer paid $3.5 million for the one-inch by one-inch piece of jade.
Database releases financial data, investments of members of Congress
ERIN E. ARVEDLUND
Inquirer.com Wednesday, January 15, 2014, 1:08 AM
How does Congress invest? We wanted to find out how our elected representatives invest their assets – and a new study from the Center for Responsive Politics is a gold mine.Among Congress’ favorite portfolio holdings? The top stock was General Electric, with 78 members of both the House of Representatives and the Senate listing the company as their No. 1 investment in 2012, the latest year for which personal financial data are available.
After GE, the most popular investments were the following blue-chip stocks: Wells Fargo, Microsoft, Procter & Gamble, Apple, Bank of America, JPMorgan Chase, IBM, Cisco Systems, AT&T, Exxon Mobil, Intel, Coca-Cola, Johnson & Johnson, Pfizer, Chevron, PepsiCo, Verizon Communications, McDonald’s, Qualcomm, Walt Disney Co., Berkshire Hathaway, and Wal-Mart.
By the way, for the first time, the majority of our elected officials have a net worth of at least $1 million, according to the center’s study. In my own state, the wealthiest Pennsylvania officials include Rep. Mike Kelly (R., Butler) with an average net worth of just over $14 million; Rep. Keith Rothfus (R., Beaver) with $7.19 million average net worth; Rep. Allyson Schwartz (D., Phila.) with average net worth $3.04 million, and Sen. Pat Toomey (R., Pa.) with $2.97 million.
Nationally, congressional Democrats had a median net worth of $1.04 million, while congressional Republicans had a median net worth of almost exactly $1 million. In both parties, the figures were up from 2011, when median net worth totaled $990,000 and $907,000, respectively.
Anyone can access the net worth and top investments of their U.S. representatives and senators at the Center for Responsive Politics website (http://www.opensecrets.org/pfds/).
My latest for the Philadelphia Inquirer:
Investing in private equity used to be reserved for the wealthy. Only millionaires who were “accredited” or “qualified” to invest the big bucks had money in private equity – essentially, the One Percenters.
Then, some of Wall Street’s biggest private equity firms went public, such as Blackstone Group L.P. (symbol: BX), Fortress (FIG) and Kohlberg Kravis & Roberts (KKR). (Bain Capital L.L.C. remains private, but gained fame when partner Mitt Romney ran as a presidential candidate.)
But their shares often have skimpy dividends. In many cases, private equity firms that went public paid out the largest dividends to their founders, rather than investors in the underlying funds.
There’s another way the rest of us can get into the private equity game – exchange-traded funds, or ETFs. And one nice surprise is that some offer healthy dividend yields.
There are two main private equity vehicles available to the retail public: PowerShares’ Global Listed Private Equity Fund Portfolio (PSP) and ProShares’ Global Listed Private Equity ETF (PEX).
PSP is the more liquid option, with around $500 million in assets and an average daily trading volume of roughly 300,000 shares.
We found someone who recently purchased PSP. He bought it because of the 13 percent yield.
Dan Weiskopf, founder of Access ET Solutions, in New York, said PSP is one of the “best ETFs in this space, where the structure really favors the investor.”
Rapid ratings index
Speaking of exchange-traded funds, James Gellert, chief executive of New York-based Rapid Ratings, says his independent ratings firm competes with the Big Three agencies – S&P, Moody’s, and Fitch.
Much like the Dow Jones or Standard & Poor’s 500 index fund, Rapid Ratings is in discussions to create an investable index and possible ETF, an alternative to the traditional benchmarks.
As of December 2013, Rapid Ratings’ highest-rated sectors included leisure, transportation, and media, while those with a negative bias included forest products, metals and metal fabricators, and oil and gas producers. Stay tuned for more news on this front.
The documents released this week by federal prosecutors do not show it did, and I suspect it did not. JPMorgan was penalized for failing to report “suspicious activity” in Mr. Madoff’s account at the bank — the account that took in money from the Ponzi investors and paid out withdrawals.
What the documents do show, however, is a huge bureaucracy where employees stuck to their own silos and did not communicate well with others. Suspicions were there, but so were profits, and the profits seem to have outweighed any other concerns. Many people simply filled out and filed forms, oblivious to what those forms might, or might not, indicate.
And, in a way, that may be more troubling. If clear crimes had been committed, then people could go to jail and a lesson would be taught. But there is no evidence that anyone acted with impure motives — assuming that we accept that making money is a proper motive. A combination of turf wars and incompetence combined to facilitate the biggest Ponzi scheme ever.
My favorite disclosure in the documents is that JPMorgan had a requirement that a “client relationship manager” certify every year that each client complied with all “legal and regulatory-based policies.” This was no doubt viewed as a tiresome and routine requirement, both by the bankers who did the certifying and by the people in the compliance department who collected the certifications.
“In March 2009,” we are told in a “statement of facts” agreed to by the bank and prosecutors, the Madoff relationship manager “received a form letter from JPMC’s compliance function asking him to certify the client relationship again.”
Evidently, whoever sent out that letter did not read it after a computer generated it. Or perhaps that person had somehow missed the report that Mr. Madoff had been arrested on Dec. 11, 2008. That would not have been easy. In the month after the arrest, The New York Times printed 15 front-page articles on the Madoff fraud, and it received exhaustive coverage everywhere else as well.
Another highlight is that on June 15, 2007, JPMorgan’s chief risk officer refused to increase the bank’s exposure to Mr. Madoff’s fund — more than $100 million at the time — to $1 billion. Mr. Madoff had made it clear that he would not allow JPMorgan to perform due diligence on what he was doing with investors’ money.
“We don’t do $1 bio trust me deals,” the risk officer wrote in an email, using what was apparently his abbreviation for billion.
But 12 days later, that risk officer approved going up to $250 million in Madoff exposure. In the meantime, Mr. Madoff had agreed to talk with him but not to allow any new due diligence. Joseph Evangelisti, a JPMorgan spokesman, says the risk officer “relied on the current and past due diligence of our markets and credit risk units, as well as our broker-dealer group” in approving the quarter-billion-dollar exposure.
So we have no fewer than three parts of JPMorgan voicing confidence in Mr. Madoff. That does not sound good, but Mr. Madoff fooled a lot of other people, too. At least the risk officer did not approve the full $1 billion.
Soon after his first decision — the one saying the bank did not do billion-dollar “trust me deals” — the risk officer heard from another bank executive that, as he put it in an email message sent afterward to top JPMorgan Chase executives, “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.” He asked that someone “google the guy” to find a negative article he had been told about.
In response, a lower-level bank employee conducted a search for the article but could not find it.
The article the bank could not find was published by Barron’s in May 2001. The article, “Don’t Ask, Don’t Tell,” by Erin E. Arvedlund, noted Mr. Madoff’s secrecy and said it appeared to be impossible that Mr. Madoff’s stated strategy had produced the reported profits. But she did not raise the possibility that it was a Ponzi scheme. Instead, she speculated that perhaps he was using information garnered about pending stock market trades handled by his brokerage firm to front-run those trades. Mr. Madoff’s denials are included.
thanks for the shout out!
Due diligence was crucial in Madoff, other investments; JPMorgan “failed miserably” says DOJ…
ERIN E. ARVEDLUND
Published Wednesday, January 8, 2014, 2:01 AM
Wall Street, it seems, is capable of doing business with criminals – like JPMorgan Chase & Co. did with scam artist Bernie Madoff. So it is critical to do your own due diligence when giving money to a new manager.JPMorgan agreed Tuesday to pay $2.5 billion in fines to Madoff’s victims and regulators for ignoring the red flags related to the $65 billion Ponzi scammer.
Despite warnings, JPMorgan continued to invest in Madoff’s secretive hedge fund up until just a few months before the criminal mastermind’s 2008 arrest. E-mails between top compliance executives reveal worries about “too-good-to-be-true” investment returns by Madoff. But JPMorgan Chase was generating millions of dollars in revenue annually from Madoff’s bank account, so the bankers continued doing business with Madoff.
Jeff Brenner, however, saw it coming. The founder of Maragell L.L.C. in Haddonfield, and an expert forensic investigator, Brenner was asked by a potential investor to look into Madoff.
“We went out to check Madoff’s auditors, Friehling & Horowitz,” Brenner said, referring to a small company in Rockland County, N.Y. “It was a two-man shop in a mall. One of the accountants [David Friehling] spent most of his day at the gym. There was no staff for a $65 billion hedge fund? I told [a prospective Madoff investor] it was stupid to invest.”
The client ended up investing anyway, and losing millions of dollars, Brenner said.
Friehling pleaded guilty in 2009 to fraud charges, and is cooperating with prosecutors. Horowitz had already retired and died shortly after the fraud came to light.
“Our 2006 investigation of Madoff raised numerous red flags,” Brenner explained. “While Madoff’s fraud was enormous, at its heart it was an affinity fraud. People who knew him – or who trusted their advisers, who in turn knew Madoff – invested their money without applying the same level of scrutiny as they did when purchasing other investments.”
No matter the manager, conduct your own due diligence, Brenner advised.
“Start by gathering documents, not just the prospectus, but from third-party sources like financial news outlets, former investors, lawyers, and bankers,” Brenner said. “Call everyone and ask questions.
“If the investment is opaque or it just doesn’t make sense, do background checks into the history of the principals regarding past businesses, investment track record, regulatory enforcement actions. We uncovered a hedge fund manager driving a $200,000 car and traced its ownership to an undisclosed affiliated business. It may be the current investment opportunity is just another in a series of failed strategies, or worse, the lifeline to pay off debts from an earlier scheme.”
if you thought it was tough filing your taxes, There are Four (4) Different Phone Numebers To call if you need information about buying or selling treasury bonds.
|TreasuryDirect||Please email or write to us|
|Legacy Treasury Direct||1-800-722-2678|
|Electronic Services for Treasury Bills, Notes, and Bonds||1-800-722-2678|
|Treasury Inflation-Protected Securities (TIPS)||1-202-504-3550 (NOT for savings bonds inquiries)|
U.S. Savings Bonds
For General Inquiries
|TreasuryDirect – Electronic EE and I Bonds|
|Paper Savings Bonds||800-553-2663|
For Financial Institutions
|General Paper Savings Bond Inquiries||800-553-2663|
Odds are that bond rates will rise in ’14
ERIN E. ARVEDLUND
Inquirer.com January 1, 2014, 2:01 AM
Do you care about the bond market and interest rates – that is, where are bond prices going and when will rates start rising? Then it’s time to start shifting bond portfolios. Go defensive, because odds are that rates will rise in 2014.
So says Guy LeBas, Janney Montgomery Scott’s chief fixed-income strategist. He predicted that with the Federal Reserve changing gears, “rates will continue to rise. But it’s not just whether rates rise that matters, but how fast and how far they go.”
The Fed wants the rise to be gradual to avoid shocking the economy, although rate moves are not fully under the central bank’s control. The Fed also is one of the Treasury market’s biggest bondholders, owning 18 percent of the $11 trillion Treasuries, LeBas added.
Janney recommends sticking with five-year Treasury bonds, which are yielding 1.73 percent. Interest rates have to rise by 0.50 percent for an investor to lose money on a five-year Treasury, LeBas estimates.
There are “speed limits” on potential economic growth, including U.S. demographics, low household formation, and a lack of investment in real-economy innovation, he added. Monetarily, the next several years will be defined by the Fed’s attempts to accelerate growth through these speed limits.
“The end of [quantitative easing] doesn’t mean the Fed gives up stimulation,” LeBas said. “Under [new Chairwoman Janet] Yellen, we expect alternative ways they will communicate expectations of what they’re going to do in the future.”
Fiscally, investment is being stymied by long-term uncertainty on tax policy.
So, interest rates are headed up, but probably not as high or as fast as Wall Street predicts, LeBas added. Janney’s “highest case” for 10-year Treasury yields over the next few years, given levels of inflation, is just 4 to 4.5 percent.
“We would peg 4 to 4.5 percent as the settling area for 10-year Treasury yields and 5 to 5.5 percent as the settling area for 30-year Treasury yields, but it could take until 2016, when the Fed starts hiking short-term rates, to see those levels,” LeBas said. See his 2014 Outlook here: http://www.janney.com/File%20Library/Fixed%20Income/Janney-2014-Macro—Fixed-Income-Outlook–12_10_13-.pdf .
Your Money: Fed’s bond tapering good news for investors
ERIN E. ARVEDLUND Inquirer.com Monday, December 30, 2013, 2:01 AM
Investors should celebrate that the Federal Reserve is finally getting out of the investment business. Why? Because it provides some certainty.”The announcement of tapering turned an uncertainty into a certainty. That is always good news for equity investors,” said James M. Meyer, who writes the note to clients for the Boenning & Scattergood investment firm in West Conshohocken.
“When investors are unsure what to expect, they tend to expect the worst,” said Ed Kohlhepp of Kohlhepp Advisors in Doylestown. “Investors are right to cheer now as the biggest, clumsiest bond buyer in history starts cautiously easing away from the auction table.”
Starting in January, the Fed will taper its bond buying to $35 billion in mortgage-backed securities each month (versus $40 billion previously) and $40 billion in Treasuries (versus $45 billion), citing better job markets and the economy as the reason. At the same time, the Fed will leave key interest rates unchanged until after unemployment falls below 6.5 percent and inflation rises to 2 percent.
But for bond investors, the central bank’s decision to taper is more complicated.
Federal Reserve Board economists believe the U.S. recovery is self-sustaining, and the central bank has managed to separate tapering from interest-rate change in the minds of investors. So where are rates going?
“Almost everyone I talk to is wondering about interest rates,” said J.R. Rieger, vice president of fixed-income indices at the S&P Dow Jones Index. “Even my taxi driver told me not to buy bonds!”
Why? Because as interest rates rise, bond prices fall, making them less attractive.
Big mutual-fund firms are complicating the bond markets because they are forced sellers, due to retail investors’ cashing out.
“The flight from bonds has forced mutual funds to sell. That means when Fidelity sells, it has to sell its bonds, and Vanguard is not able to buy because they have to sell bonds as well,” said David Kotok of Cumberland Advisors in Vineland.
That creates bargains in the bond space.
“We resist this notion that the bond market is headed for an absolute debacle in 2014. We particularly favor the tax-free municipal bond,” Kotok said. “When a high-grade, long-term, tax-free yield of 5 percent is obtainable in a very low-inflation environment, investors who run from bonds and liquidate will look back, regret the opportunities they missed, and wonder why they did it.”
Your Money: Upstart lets you invest in young entrepreneurs
ERIN E. ARVEDLUND
Inquirer.com Tuesday, December 24, 2013, 2:01 AM
Have you ever wanted to invest in a young person – invest in him or her as you would a stock or a bond? Basically, investing in the person’s future value?
Now you can, via a website called Upstart.
Dave Girouard, Upstart’s cofounder and CEO, was formerly president of Google Enterprise, and dreamed up the idea of backing young people financially.
Rather than invest in a company, Upstart backers invest in young people, like University of Pennsylvania 2012 graduate Michael Olorunnisola.
Olorunnisola and other students raise capital they need from individual backers to retire their student debt and get their start-up companies off the ground. In exchange, the new graduates share a small percentage of their personal income over five to 10 years with their backers.
Olorunnisola, for his part, is an entrepreneur seeking to build an education start-up that “aggregates the free resources of online education to streamline access for students and professors alike,” he explained. “I plan on testing the product over the course of summer 2014, and launch in September 2014, for the next school year. I’m still working on the development, and plan to undergo testing in the spring and summer.”
Student debt can be a career-limiting obstacle – especially for would-be entrepreneurs. For many, debt and day-to-day living expenses hold them back from pursuing their dreams.
Upstart investments works like this: Potential backers browse young people by school, area of study, or career interest, and read about their unique goals and backgrounds. To be funded, each Upstart must raise a minimum of $10,000.
Olorunnisola tapped Upstart to raise $10,500 to fund his education start-up, with long-term hopes of bringing those resources back to Nigeria, his homeland. He worked with student computer developers at Penn, and they fleshed out the initial stage of his website.
Other students and graduates of local colleges are involved with Upstart. Information about them can be found at: www.upstart.com.
If you want to invest for a real return, know where and how your money is being spent, and would feel good doing so, check out Upstart.
Your Money: Dispute with your broker? Brace yourself
ERIN E. ARVEDLUND
Inquirer.com Friday, December 20, 2013, 2:01 AM
If you invest, you might have a run-in, a complaint, or a dispute with your broker. If you decide to fight them, here’s a cautionary tale – and it’s not pretty.Mark Mensack, independent fiduciary consultant and founder of Prudent Champion, went into a years-long arbitration with his former employer Morgan Stanley after blowing the whistle on hidden fees he thought customers shouldn’t pay.
Most customer-broker disputes don’t go through a civil court. Your only option is arbitration through FINRA (Financial Industry Regulatory Authority). In the last round, the FINRA arbitration panel lost hours of Mensack’s testimony in his hearing. FINRA ruled against him and he lost.
“Go to arbitration in hope, but don’t expect to win. It’s not a fair process,” says Mensack, who now runs a Cherry Hill-based 401(k) consulting firm helping companies pick the right plan without getting ripped off by hidden fees.
FINRA is a self-regulatory organization with the power and responsibility to supervise broker-dealers and brokers, according to Stuart Berkowitz, a securities lawyer representing customers.
“What do the public arbitrators look like? Many of them are lawyers who either are employed by firms that represent brokerages, want to represent brokerages, or do primarily defense work. Nonlawyers are predominately from the corporate world, conservative and often retired,” he notes.
“What are the results? Less than 50 percent of customers receive anything and if there is any award there is usually just a few cents on a dollar,” he adds.
In Mensack’s case against Morgan Stanley, the insult of losing against the Wall Street firm was added to the injury of FINRA case administrator Arthur Baumgartner’s claiming he lost a good portion of the audio recording. Turned out, it wasn’t his first time misplacing evidence.
“Only after filing a FINRA ombudsman complaint did he tell me on the phone that the missing eight hours was never recorded due to human or mechanical error,” Mensack says. It turned out that this same case administrator, Baumgartner, worked on a Massachusetts case initiated in 2008 in which records also went missing, according to the Massachusetts Lawyers Weekly.
So, be wary of fighting your broker, and prepare yourself; you may end up in kangaroo court.
Your Money: Tips and tricks for women after 60
ERIN E. ARVEDLUND
Inquirer.com Thursday, December 12, 2013, 2:01 AM
Two retired Philadelphia professors – Barbara Fleisher and Thelma Reese – are riding the growing wave of women over 60, one of the fastest-growing demographics in America. Not only are 10,000 baby boomers retiring every day, but many female boomers outlive their husbands, as do women in general.
“If you are part of this growing group of women over 60, what can we do about using this time well? There aren’t any role models. My mother lived to be just short of 97, but she never wore slacks. She lived in a different world,” Reese, now in her 80s, said in an interview.
“Younger women in their 60s are turning out to be our audience. We talk about our lack of role models” for boomer women, added Fleisher.
On their blog, ElderChicks.com, they tell real-life stories of women who have dealt with the challenges of living a full life after 60, and offer some answers to increasingly familiar questions about money and investing: How to learn about your finances if your spouse was the one handling all your assets. How to avoid high-fee financial products and stick with fee-only advisers.
“Women look forward to this time as a fork in the road, a time of transition. They need preparation. They have told us they find our blog helpful with many approaches to their lives,” Reese said.
“They’re also concerned about how to keep the family together. The relationships between our children and us have changed; children live together before marriage, they live around the world, or in blended families,” Fleisher explained. “And boomers themselves are more mobile. Families scatter. Notions of family solidarity are challenged. I have friends who talk with grandchildren on Skype every day.”
In addition to ElderChicks.com, the two women just wrote and published The New Senior Woman: Reinventing the Years Beyond Mid-Life (Rowman & Littlefield, 2013). Reese and Fleisher share insights and guidance from a wide range of women over 60.
Reese will speak and sign books next Thursday at “The Best Day of My Life (So Far)” event at the Senior Center at Broad and Lombard Streets. She is also scheduled to speak Feb. 25, 2014, at the Cosmopolitan Club in Philadelphia.
Your Money: 5 years after, the lessons from Madoff
ERIN E. ARVEDLUND
Published in the Philadelphia Inquirer (Inquirer.com paywall) December 11, 2013, 2:01 AM
Wednesday marks a five-year anniversary in the biggest financial fraud in American history – the day Bernie Madoff, a Wall Street icon who cowed regulators and investors alike, was arrested for stealing $65 billion.Madoff, now serving a 150-year prison term, maintains he perpetrated the decades-long fraud by himself. However, he’s a pathological liar and what I like to call a “financial serial killer,” who was still defrauding investors just days before his arrest.
For the last month, Madoff’s former right-hand man Frank DiPascali has been testifying in a federal trial against colleagues who worked for Madoff, unraveling how they enriched themselves by creating false financial statements dating back to the 1970s.
When the Securities and Exchange Commission did come calling in 2005, Madoff panicked, and even searched through one of the government investigator’s briefcases when he wasn’t around. And, according to the New York Post’s coverage of DiPascali’s testimony, Madoff “freaked out after discovering a copy of a Barron’s article( Don’t Ask, Don’t Tell_ Bernie Madoff Attracts Skeptics in 2001” questioning how the billion-dollar fund made money.
I wrote that 2001 Barron’s article, which quoted skeptics about Madoff’s secretive investment advisory business, which on Dec. 11, 2008, was revealed as an epic $65 billion fraud. Madoff turned himself in then only because the financial crisis had hit, and his investors were rushing to redeem at the same time. The truth was, Madoff never invested a single dollar in the market – the assets were all languishing in a checking account at JPMorgan Chase.
I didn’t expose Madoff fully – I wish I had – but his hedge fund was allegedly returning 10 percent or 11 percent a year consistently even when the stock market was crashing in the 2001 dot.com bust. Red flag!
What are the lessons for investors? Ask yourself:
Does an investment sound too good to be true? Are the returns too high or too consistent? If so, don’t invest.
When you ask questions do you get answers? When clients queried Madoff about his returns, holdings, and investment style, he refused to answer. Red flag! Don’t invest.
Do you have all your money at one firm? Many victims maintained most of their liquid net worth with Madoff. Diversify; don’t invest all assets in one place.
Does the money manager custody assets with a third party? If not, don’t invest. Madoff “self-custodied,” meaning he had his hands on client money.
Does your financial adviser use a major accounting firm to audit results, or a family member or close friend? If the latter, they could be persuaded to doctor the statements. Don’t invest.
Your Money: Two finance books for the rest of us
ERIN E. ARVEDLUND
Published Thursday, November 28, 2013 (Inquirer.com sub required)
“No one on Wall Street has learned a lesson,” notes Sheila Bair in the new paperback edition of her gutsy book, which details white-collar crime during the Great Financial Crisis and the banksters who got away with it.Bair spoke at the Federal Reserve Bank of Philadelphia recently, and gave us an interview to discuss Bull by the Horns (Simon & Schuster, 2012) and her children’s book, due out in 2014, about money and investing.
Bair butted heads with some other powerful regulators when she was head of the Federal Deposit Insurance Corp., particularly Treasury Secretaries Hank Paulson and Timothy Geithner. They were regulators who, she wrote, confused “what is best for large financial institutions with what is best for the broader public.” She was against the bailout of American International Group Inc., for instance, which Paulson orchestrated.
She praised other regulators such as Commodity Futures Trading Commission chief Gary Gensler, who “did a terrific job leading the investigation of derivatives” and the Libor interest rate rigging (Libor stands for “London interbank offered rate”). On the other hand, “the Volcker rule still has not been finalized, and the pace of Dodd-Frank is slow and enactment weak.” The Volcker rule would split off risky proprietary trading from commercial and deposit banks so customers’ money wouldn’t be put at stake.
A smaller tome, The Investor’s Paradox by Brian Portnoy (Palgrave Macmillan, 2014), demystifies the opaque world of hedge funds. Portnoy offers practical advice on the limits of mass-market mutual funds and the false dichotomy between “traditional” – long-only mutual funds – and “alternative” investments such as hedge funds.
“Over the past 14 years I have conducted roughly 4,000 interviews with portfolio managers and other investment professionals,” he writes. “If your expectation is that a fund manager should never lose you money, then it’s fair to be disappointed when they do. But is it fair to hold that expectation in the first place?”
Instead, Portnoy takes the reader through his methodical thought process of picking winners and, most important, avoiding losers. He starts with the four basic questions of due diligence: “Can I trust you? What do you do? Are you good at your job? Are you the right fit for me?”
In Bankers’ Stead
By ERIN E. ARVEDLUND | Barron’s
Hedge-fund Seer Capital has seized on the retreat of banks’ proprietary desks to carve out a profitable niche in mortgage-backed securities.
- One of Seer Capital Management’s best-timed bets was its founding in 2008, anticipating both the bottom in bond prices and big banks’ departure from proprietary trading.
After several years of strong returns, the hedge fund now manages $2.1 billion, mostly in the securitized-credit and bond markets. These markets were at the heart of the financial crisis, which not only raised banks’ fears of risk, but resulted in tougher regulatory standards. Among the new restrictions are the pending Volcker rule forbidding certain sorts of in-house trading by banks, and U.S. and international accounting measures that raise the amount of money lenders have to put aside if they want to hold many of the types of securities that Seer buys and sells.
Sensing there would be an opportunity, Philip Weingord left Deutsche Bank more than five years ago and over time brought along colleagues Richard d’Albert, Karen Weaver, and Michael Lamont. Before founding Seer, Weingord, now 52, had been a trader, both at Deutsche and before that at the former Credit Suisse First Boston.
Jennifer S. Altman for Barron’sSeer Capital’s Weingord has made money in J.C. Penney, Fannie Mae and Punch Taverns. He’s not a fan of Sallie Mae.
“In the old days, hedge funds would compete with banks for attractive investment opportunities,” he notes. “Now the banks are retreating to more of an agent role,” relying on the funds as partners.
SEER CAPITAL FOCUSES on distressed and special situations in residential and commercial mortgage-backed bonds, which make up about 60% of its portfolio. It also buys asset-backed securities, and other debt. The New York-based firm’s mortgage and credit research skills have pointed it toward companies that have been in the news lately, such as J.C. Penney, Fannie Mae, and Freddie Mac . Its approach has also given it a negative view of student loans and the lenders that specialize in them, such as SLM, better known as Sallie Mae.
Weingord and his group have been especially active traders in debt issues affected by the troubled department-store giant. Earlier in the year it bought commercial-mortgage-backed securities (CMBS) that included J.C. Penney (ticker: JCP) loans because it expected the issues to gain as the commercial market recovered. It took profits in the J.C. Penney-related CMBS after the company reported disappointing earnings in August and the debt markets began to research the effect J.C. Penney store closings would have on these issues. (CMBS include loans from a variety of sources like hotels, office buildings, and shopping malls.)
Whether J.C. Penney goes bankrupt or not, it will have to close more stores, which affects both its and other borrowers’ debt because the retailer is often an anchor tenant in a mall, notes Weingord. Seer Capital analyzes the effect on cash flows from “not only lease expirations, but also the likelihood of a store closing, based on its per- square-foot sales, regional economic outlook, and the asset’s competitive position in the area,” he says. “We also assess scenarios that include secondary impact of an anchor store’s departure, whereby other tenants may be entitled to rent concessions if the anchor goes dark.” More-senior J.C. Penney debt is so well protected that it will be fine in almost any scenario.
ALTHOUGH NOT SO well known in this country, Punch Taverns, a special-situation debt holding, has been a mainstay for the London financial media for years. The company (PUB.U.K.) was formed from the Bass beer family of British pubs, and now owns about 4,000 drinking-and-eating establishments.
Punch, which has gone through a dizzying succession of buying and selling properties since it was created in 1997, today has 2.5 billion British pounds ($4 billion) worth of mortgage-like borrowings, secured by real estate, which are now in restructuring. The company took on the debt to make acquisitions, but cash flows have dropped as competition has increased, and restrictions on smoking have limited the bars’ appeal for some.
When Seer Capital began buying the senior notes in the second quarter, they were yielding 7%. Recent gains in price have brought the yield down to 6.25%, providing the firm with a 7% total return in just a few months. Post-restructuring, “we believe over the next six months these bonds could rise much further in price. This would be a fantastic return for a senior, well-protected, well-collateralized investment,” says Weingord. Punch is expected to propose a revised restructuring in early December.
Punch represents the kind of opportunity that once would have gone to proprietary trading desks. “Pre-[financial]-crisis, Wall Street trading desks acted both as market-makers and proprietary traders,” he says. “If still the case, it would have been difficult for Seer to build a large position at an attractive price.”
The firm has done well exploiting its opportunity. Seer Capital Partners Offshore Fund returned 25.9% in 2012, 2.1% in 2011, 24.9% in 2010, and about 14% annually since inception. Year to date through October, Seer gained 9.5% net of fees, which are 1.5% management and 20% of performance annually.
AVOIDING PROBLEMS ALSO improves returns. “We’ve sold out of deals backed by student loans,” says d’Albert, Seer’s co-chief investment officer. “They have performed well. But the thing to consider is they’re long-duration bonds, and you have a credit story where borrowers continue to pile on debt,” he says.
U.S. borrowers owe $1.2 trillion in student-loan debt–from the government and private lenders such as Sallie Mae (SLM). That surpasses all other kinds of consumer borrowing except mortgages. The overall three-year default rate on federal government student loans is 14.7%, up from 13.4% a year ago, according to U.S. Department of Education figures released at the end of September. That includes students at for-profit institutions, private nonprofits, and public nonprofits. The highest three-year rate, 21.9%, was for students at for-profit schools.
Making school more affordable has become a matter of public debate, so there’s uncertainty about the future terms and conditions of the loans. If more of them can be forgiven in personal bankruptcy, default rates could rise. And in the case of high default rates in a student-loan-backed security, “it’s only institutional investors who lose out,” notes d’Albert.
Weingord expects default rates could go as high as 35%, so this is one area he’s happy to leave to the banks.
Pew urges payday-loan reform, cites Colo. changes
ERIN E. ARVEDLUND
Published Monday, November 25, 2013 (Inquirer.com)
The Pew Charitable Trusts issued a report recommending changes to payday loans nationwide – and showcased Colorado as the way to reform payday lending.
State regulators in 2010 updated laws so borrowers in Colorado now pay an average of just 4 percent of their paychecks to service the loans – down from 36 percent under conventional lump-sum payday loans.
Payday loans in Colorado remain costly. With fees and interest, the average annual percentage rate is 129 percent, and that is down from 319 percent, according to the Pew report, issued Oct. 30.
Under the old law, Colorado borrowers were charged 319 percent annually in interest – meaning someone who got a $500 loan paid back $1,950 after a year. Under the new law, the average annual rate is 129 percent, for a final amount paid back of $580 on a $500 loan.
Twelve million Americans use payday loans every year. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest. Most borrowers use payday loans to cover ordinary living expenses, not emergencies. So the average borrower is indebted for about five months of the year, the report said.
Calling for action by the Consumer Financial Protection Bureau and policymakers, Pew recommended that lenders allow borrowers at least six months to repay loans via installment.
Payday lenders have come under scrutiny at the state level, too. Benjamin Lawsky, New York’s banking superintendent, is asking banks in his state to “choke off” access, claiming that payday lenders illegally charge annual interest rates above New York’s 16 percent civil usury cap.
Some payday lenders include companies claiming affiliation with Native American tribes, exempting the lenders from state laws and complicating the already vast disagreement over licensing requirements.
The confusion has revived calls for an interest cap. According to the Online Lenders Association, a lobbying group, Nathalie Martin, professor at the University of New Mexico School of Law, says a federal usury cap “would clarify everything.”
The Pew final report is available here:http://www.pewstates.org/research/reports/payday-lending-in-america-policy-solutions-85899513326
Virtual currencies like Bitcoin legal – and will stay that way
ERIN E. ARVEDLUND
Published Thursday, November 21, 2013 (Inquirer.com)
Virtual currencies like Bitcoin, Ripple and others are perfectly legal – and there is little Congress can do to change that. But are they good investments?Mercedes Tunstall, a partner at the Philadelphia law firm Ballard Spahr L.L.P., testified Tuesday before federal lawmakers that until the 1870s, virtual currencies circulated in America, as individual states issued their own notes.
“The Supreme Court then established the dollar as the money of the land. So virtual currencies are legal,” Tunstall said, “but dollars have to be accepted.”
For a full list of all virtual currencies, we got this link from Coindesk.com.
That is why Congress has difficulty banning Bitcoin. Even today, some U.S. merchants on the Mexican and Canadian borders accept pesos and loonies.
Some firms such as Silk Road, which used Bitcoin as virtual currency, have shut down, “but that doesn’t mean Bitcoin is dead in the water,” Tunstall said. In October, federal criminal charges were unsealed against Silk Road, an online market that allowed users to buy and sell drugs and other illegal goods using Bitcoin.
The virtual money has “significant challenges, like failure to comply with anti-money- laundering and the volatility of the currency,” Tunstall said. “A week ago, Bitcoin traded at $400 per unit, and it rose to $900 per unit during the hearings. You can’t have those kinds of swings and still be useful to consumers.”
Instead, virtual currencies could become mainstream – if they embrace U.S. banking and compliance regulations. Bitcoin investment funds, however, would likely fade out.
Each day in London, traders at five banks set the price of gold in what is known as a “fixing” – a measure of the spot price for the physical yellow metal.
Turns out, the five banks – Barclays P.L.C. (BARC), Bank of Nova Scotia (BNS), Deutsche Bank (DBK), HSBC Holdings, and Societe Generale (GLE) – might have been using the London gold fixing to help their bottom lines.
British regulators have opened a preliminary review, not a formal investigation yet, into how the gold benchmark is set, and, according to Bloomberg News, the Commodity Futures Trading Commission met this year to discuss it as well.
It is yet another example of how old-fashioned traditions in the markets haven’t kept up with modern technology and trading. The London gold fixing started in 1919 and was conducted in person for 84 years at N.M. Rothschild & Sons’ offices in London. In 2004, it started taking place over the telephone.
Watch this space on whether the gold inquiries could affect widely traded gold exchange-traded funds, such as SPDR Gold Shares (GLD and iShares Gold Trust (IAU)