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Money back for mortgages and student loans?


It’s a funny acronym that may have cost you big bucks.

LIBOR, the London Interbank Offered Rate, is a global benchmark for interest rates. It’s tied to everything from mortgage rates and student loan rates to complex financial derivatives. And guess what? For a very long time it was rigged.

Now, multiple lawsuits are pending, and that could mean some money back for some investors, traders and consumers.

LIBOR is set each day by a group of bankers, based on estimates of rates at which banks would expect to borrow money from each other. It’s a system built on trust, not math. Regulators were tipped off back in 2007 that banks were fixing rates, and by the summer of 2012, an ugly scandal was revealed. An estimated $300 trillion in financial securities worldwide are based on LIBOR.

Philadelphia Inquirer writer and author Erin Arvedlund says more people should have been outraged because the scandal revealed that “even interest rates are being rigged by Wall Street.” Arvedlund’s new book, “Open Secret: The Global Banking Conspiracy that Swindled Investors out of Billions,” gives details of the scandal that involved banks lowballing rates or artificially inflating them to boost profits or appear more credit-worthy.

The investigation into LIBOR rate-rigging has led to several lawsuits here in the U.S. and many more abroad. They involve some of the biggest banks in the world as well as individual traders. More than $6 billion in fines has been levied as a result of the scandal already.

It may seem like just another tale of bankers behaving badly, says Arvedlund, but this scandal casts a wide net. Fannie Mae (FNMA) and Freddie Mac (FMCC) are suing on behalf of mortgage holders. Charles Schwab (SCHW) is suing on behalf of some of its investors. The U.S. Supreme Court has agreed to hear an appeal related to a bondholder who filed a class action lawsuit claiming she lost out on interest on bonds she owns. Citigroup (C), Credit Suisse (CS), Bank of America (BAC), JPMorgan Chase (JPM), HSBC (HSBC), Barclays (BCS), UBS (UBS), and Royal Bank of Scotland (RBS) are all named in that suit.

But while many of the suits are held up in courts around the globe, not much has changed since the scandal was revealed, Arvedlund points out. Despite the investigations and lawsuits, rates are still based on Libor. However, NYSE Euronext now oversees the rate. “It’s like we found out the Equator is in the wrong place, but we’re still going to use it,” says Arvedlund. She says it “remains to be seen” if the new administrator will be tougher.

The Federal Reserve is actively looking into an alternative benchmark to LIBOR.

More from Yahoo Finance


Supreme Court to hear LIBOR interest rate rigging case

Published Monday, September 22, 2014, 1:08 AM
If you read the fine print in your mortgage, student-loan documents, or credit-card statements, you may discover you’re paying an obscure interest rate on your borrowing. And you may be owed some money.
Students, homeowners, mortgagees, and bond investors are accusing a slew of banks of rigging their interest rate, known as the London Interbank Offered Rate, or LIBOR.

In lawsuits, they allege a global conspiracy to manipulate LIBOR.

Some of their cases, and their lawyers, are from the Philadelphia area.

Kirby McInerny is among the lead plaintiff lawyers in New York representing traders and other professional investors who lost money trading in LIBOR-linked securities. The Center City law firm Berger & Montague is helping out in those cases.

Two other local firms, Weinstein Kitchenoff & Asher in Center City and Morris & Morris in Wilmington, represent bondholders in another class-action case.

Consumers are getting in on the action, too. Homeowners are suing, saying they overpaid on mortgages when LIBOR was rigged too high.

Others, like the brokerage Charles Schwab, allege banks manipulated rates lower, so money-market funds lost money.

Linda Zacher of Bryn Mawr is suing as a bondholder. She argues that she lost out on interest paid to her on her bonds.

What is LIBOR anyway? It’s a daily benchmark at which banks set the rate for short-term borrowing from one another. It’s the “wholesale” interest rate banks use in their club; then they turn around and lend us money at “retail” interest rates.

But rigging LIBOR upward – or downward – made the banks more money for their bottom line, and we, the public, had no clue.

Zacher’s bonds were earning interest rates indexed to LIBOR from August 2007 through May 2010. The banks setting her bond rate were in the U.S. dollar LIBOR club, which included almost every major Wall Street, British, and global bank: Credit Suisse Group, Bank of America, JPMorgan Chase, HSBC, Barclays, Lloyds Banking Group, UBS, Royal Bank of Scotland Group, Deutsche Bank, Citigroup, Bank of Tokyo-Mitsubishi, HBOS, and Royal Bank of Canada. She’s suing all of them.

This month, the U.S. Supreme Court agreed to hear an appeal related to the case Zacher brought. Her petition called LIBOR “the most important benchmark for short-term interest rates in the United States and around the world.” We can’t wait to hear what the Supremes think.

If you think you’ve been affected financially by LIBOR manipulations, it’s not too late take similar steps.



Erin Arvedlund’s book “Open Secret” (Penguin, 2014), about the LIBOR rate-rigging scandals, is due out Thursday.

Family-run firms a la Madoff? Questions to make sure they aren’t.

Monday Money Tip: Some questions to ask your family-run investment advisor

Bernie Madoff is in prison. Now, one son and another’s estate are being sued. By Erin E. Arvedlund, Inquirer Columnist Looking for some sleazy beach reading? Here’s a tale of a whole family ripping off investors: Bernie Madoff and his sons are back in the news. More precisely, surviving son Andrew Madoff and deceased son Mark Madoff’s estate have been sued, yet again, by a court-appointed trustee for over $150 million. They are accused of stealing directly from accounts of their clients, faking trades, deleting incriminating e-mails, and taking fake “loans” from the family business. I’ve long argued that Bernie Madoff’s crime was too complicated to do alone, and earlier this year, five of his former employees were found guilty of helping him – they now face prison sentences. Madoff himself took the blame entirely, in an effort to shield his brother, sons, and niece. He is serving 150 years in prison, and his brother is in jail. His niece has been granted her freedom in exchange for her assets. Now, vivid details of his sons’ involvement are emerging, and offer a roadmap of how a family-run investment shop sloshed money in and out of bank accounts and abused client money as a personal “piggy bank” (as the trustee Irving Picard called the crime). In all, Picard alleges, the brothers stole $153.3 million over the decades they worked with their father. That’s a small portion of the $20 billion or so ultimately stolen, but if successful, the suit would show the family was, it can perhaps appropriately be said, thick as thieves. Andrew and Mark are also accused of deleting e-mails that linked them to their father’s Ponzi scheme during a 2005 U.S. Securities and Exchange Commission investigation. The trustee also alleged the pair diverted tens of millions from the firm to engineer fake loans. They then used that money to buy real estate – million-dollar apartments in Manhattan and houses in Nantucket, Mass., and in Greenwich, Conn. Investment firms larded with family are a minefield for conflicts of interest. Here are some questions investors should ask before they give money to such a firm: Does the adviser have physical custody of your customer funds? Or are the assets held by a third party, such as a bank or custodian? Because they should be. Madoff had custody of his clients’ money, and that’s partly how he managed to cover up his fraud. Does an independent third party, unaffiliated with the family, administer your account? Will you get brokerage statements from an outside firm? You should. Madoff also issued false account statements to his clients, and wouldn’t provide online access. Who is the family firm’s auditor? Is the auditor related to the family in any way? He or she shouldn’t be. New rules target advisers with custody, or advisers who are affiliated with a third-party custodian, by requiring them to undergo an annual surprise audit by an independent auditor. Who has check-signing authority at the firm? If it’s family, take your business elsewhere. Don’t get tripped up by another Madoff. These types have stolen enough already. earvedlund@phillynews.com 215-854-2808 @erinarvedlund

Meb Faber’s new global fund? Greece and Russia top picks

New fund aims to cash in on global opportunities

Published Monday, March 31, 2014
If you’re a fan of buying low and selling high, then some (but not all) markets outside the U.S. might represent value for your portfolio.

We interviewed Mebane Faber (his first name is Scottish, pronounced “meb-bin”), a portfolio manager running about $350 million in assets. His firm recently launched a new exchange-traded fund called the Cambria Global Value ETF (GVAL). This fund invests in roughly 100 stocks in the world’s most undervalued markets, and Faber says those are – brace yourselves – Greece, Russia, Hungary, Ireland, Spain, Czech Republic, Italy, and Portugal.

It’s not that Faber dislikes American stocks; they are just not a bargain now. He argues that based on a ratio called the Schiller CAPE model, the U.S. market is actually very expensive, and for this fund, he is currently not invested in American equities. And, yes, the Schiller is Yale University economist Robert Schiller.

Faber runs other ETFs, such as Cambria Shareholder Yield ETF (NYSE: SYLD), which do currently invest in U.S. stocks.

“Japanese equities in the 1980s were a big bubble, approaching half the world’s market cap. The U.S. market is almost there,” Faber said.

Moreover, “most investors have home-country bias,” Faber said, in an interview from his Los Angeles offices.

“This is a way to get more exposure to a globally market-weighted portfolio,” he added. “Plus, we are buying the value among value.” He means the cheapest, most liquid stocks in places where either political or economic crises have crushed stock prices.

Wesley Gray of Drexel University is one of Faber’s investment research partners, and their takeaway is to buy beaten-down stocks in beaten-down markets, what Faber calls “value among value.”

“Yes, the stocks could go down further before they rebound,” Faber said, but by investing in many markets, the fund is diversified.

We’ll keep an eye on Cambria’s newest ETF and report back when performance data are available.


Fraudster fighter

We wrote about Ingrid Robinson, a defrauded investor from California in the Remington Financial advance-fee scam, and she spoke last week at the sentencing hearing of Andrew Bogdanoff, the head of Remington, which operated from Arizona and Philadelphia. Bogdanoff received more than 18 years in prison for financial crimes.

Robinson shows how one person who perseveres against criminals – in this case, commercial brokers Bogdanoff and Andrew McManus, who were convicted of stealing investors’ “due diligence” fees – promising loans that never arrived – can prevail.

Robinson also met with members of Congress to push for legislation regulating commercial brokers. If a commercial broker has victimized you, contact her at Ingrid.robinson2@yahoo.com


Yes, Muni Bond Prices Hose Retail Investors: S&P Dow Jones


Phila Inquirer Thursday, March 13, 2014, 1:08 AM

If you are a municipal-bond investor, we have two news flashes for you.First, we found a local money manager who recently purchased some Puerto Rican muni bonds, despite the island’s debt downgrade to junk-bond rating some weeks ago. For investors with a high risk tolerance, Puerto Rico debt yielding about 8 percent tax-free has drawn some sophisticated buyers.

Second, a new study out of S&P Dow Jones confirms that Wall Street is getting one over on us when it comes to municipal bonds: If you try to buy individual munis yourself, you are getting hosed on the price.

On Puerto Rico, we circled back to David Kotok, chief investment officer at Cumberland Advisors of Vineland, N.J., to find out whether he liked Puerto Rico’s new bond issue last week.

“We have certain segregated accounts that are Puerto Rico-only, and we position certain P.R. debt in them. We do not do so for high-grade accounts,” Kotok said. “We must remember P.R. is a junk credit.”

Puerto Rico muni bonds have attracted some atypical buyers, such as corporate junk-bond investors and hedge funds.

“These are not typical high-grade muni buyers, so their pricing behavior is not a reflection” of how risky these muni bonds truly are, Kotok added. Still, an 8 percent yield tax free is tough to beat. Similarly rated corporate bonds yield about 4.8 percent, according to Bloomberg data.


Want to buy munis?

Don’t do it yourself. Leave it to your portfolio manager or an exchange-traded fund (ETF).

That’s the upshot from J.R. Rieger, global head of fixed income at S&P Dow Jones Indices, who found that a retail investor pays about twice the transaction cost for a muni bond as for a corporate bond.

In December, the average cost to buy an individual municipal bond was 1.73 percent for retail investors. An investment-grade corporate-bond transaction cost roughly half that, at 0.87 percent.

“Buying a muni bond entails an unseen transaction cost, which may not always be clear to retail investors,” Rieger said in an interview. Because muni bonds are sold without commissions, brokers make up the difference by padding the price and building a markup into the muni bond.

“We don’t know what the markup is exactly,” Rieger said, but he suggested that retail investors stick with muni bonds in either mutual funds or ETFs.

Haverford Trust likes stocks that yield more than bonds

Haverford Trust executive bullish on  stocks



Hank Smith, chief investment officer for Haverford Trust. (Photo from Bloomberg)
Hank Smith, chief investment officer for Haverford Trust. (Photo from  Bloomberg)
 Erin E.  Arvedlund
Posted:   Monday, February 24, 2014, 1:08 AM  

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.

Read more at http://www.philly.com/philly/business/personal_finance/20140224_Daily_Money_Tip__Haverford_Trust_executive_bullish_on_stocks.html#lzJvbMcaG9FAr4UG.99

Why gold is rising: Fed taper, emerging markets and..deflation?

Why is gold rising?

Why is the price of gold rising when inflation seems benign? For years, investors have been told the yellow metal is a hedge against inflation; so why is gold rising with little or no inflation?

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.


So-called “frontier markets” stand out amid wobbly developed markets

Inquirer.com Wednesday, February 12, 2014, 1:08 AM

The sell-off in the United States and emerging stock markets has highlighted some shining “frontier” markets, which have performed well in the meantime.What is a “frontier” market? It’s even less liquid, with fewer laws and less-developed capital markets, than an emerging market. For frontier, think Vietnam, Iraq, Myanmar, or Ivory Coast.

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.

Blurred Lines: Between Mutual and Hedge Funds, Is the Wrapping the Key Difference?

Picking hedge funds, mutual funds not about winners, but avoiding losers, says author

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.

New muni bond EMMA database updates clunky old website

Online overview of municipal bonds

ERIN E. ARVEDLUNDPublished Monday, February 10, 2014, 1:08 AM
The Electronic Municipal Market Access site makes finding information about municipal bonds easier.
The Electronic Municipal Market Access site makes finding information about municipal bonds easier.

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 ).



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