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>>> Schwab, Ameritrade Adopt Zero-Fee Stock Trades; Schwab Dives; TD Ameritrade, E-Trade Crash
Investors Business Daily
10-1-19
https://finance.yahoo.com/m/d1808c5d-f955-3515-af19-6f007c59ed1d/schwab%2C-ameritrade-adopt.html
Charles Schwab (SCHW) joined Interactive Brokers (IBKR) in ditching trading commissions on stocks and ETFs, as online-broker fee wars intensify. Charles Schwab stock plunged with IBKR stock, while E-Trade Financial (ETFC) and TD Ameritrade stock tanked to multiyear lows. After the close, TD Ameritrade (AMTD) said it'll go to zero-fee trades as well.
Starting Oct. 7, Schwab will offer zero-fee trades on stocks, ETFs and options listed in the U.S. and Canada. Options traders will continue to pay 65 cents per contract.
Stock trades at Schwab currently cost $4.95. The online broker kicked off a round of fee cuts in February 2017, lowering commissions from $8.95 to $6.95 and finally to $4.95, in response to a move by Fidelity Investments.
Meanwhile, TD Ameritrade will kick off zero-fee stock, ETF and options trades on Oct. 3, down from $6.95. Options traders will pay 65 cents per contract.
Tuesday's moves by Schwab and Ameritrade come days after Interactive Brokers announced unlimited no-fee trades for retail investors. Interactive Brokers kept a low-fee stock trading option, with potentially better pricing for professional investors.
Interactive Brokers' zero-fee stock trading service also debuts this month. Both Interactive Brokers and Schwab will do away with account minimums. TD Ameritrade didn't specify, but will provide a final pricing schedule on Oct. 3.
Both Schwab and Interactive Brokers have tied their zero-fee changes to broader investing access. Schwab CFO Peter Crawford, in a blog post Tuesday, also cited "new firms trying to enter our market." That could be an allusion to the zero-fee Robinhood app, which has disrupted stock trading. Also, Wall Street giants JPMorgan Chase (JPM) and Bank of America (BAC) have ventured into some form of free trading of late.
Robinhood responded Tuesday that it remains focused on "intuitively designed products" that reduce barriers to investing, including account minimums and commission fees.
TD Ameritrade CEO Tim Hockey said in a statement: "We've been taking market share with a premium price point, and with a $0 price point and a level playing field, we are even more confident in our competitive position, and the value we offer our clients."
No word from E-Trade Financial, but the move to zero-free stock trades seems irresistible.
Schwab Stock Dives
Schwab stock plunged 9.7% to close at 37.76 on the stock market today. As for the other online brokers, IBKR stock lost 9.5%, TD Ameritrade stock tanked 26% to hit a three-year low of 34.64, and E-Trade stock reeled 16% to a two-year low. Fidelity is privately held.
TD Ameritrade stock rose slightly in late trading after the brokerage announced zero-fee trading. The other online brokerage stocks were little changed.
Fee wars have escalated since 2013, as zero-fee trading apps like Robinhood strike a chord with new investors and rack up users at a furious pace.
But online brokers' moves to zero-fee stock trades bode ill for the planned Robinhood IPO.
Online brokerage stocks, including Charles Schwab stock, have lagging RS lines. The relative strength line, which tracks a stock's performance against the S&P 500, is the blue line in the charts provided.
Stock and ETF trade commissions are a small part of online brokers' revenue. Schwab derives 90% of net revenue from net interest income and asset management fees. But TD Ameritrade and E-Trade are more exposed.
All four publicly traded online brokers are seeing decelerating or declining profit growth.
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>>> Hedge Funds Struggle to Replicate Warren Buffett’s Reinsurance Success
It’s not that easy to be like Berkshire Hathaway.
Bloomberg
By Katherine Chaglinsky
September 27, 2019
https://www.bloomberg.com/news/articles/2019-09-27/why-it-s-not-that-easy-to-be-like-warren-buffett?srnd=premium
Berkshire Hathaway Inc.’s Warren Buffett issued a warning about eight years ago: Reinsurance isn’t easy. Still, hedge fund managers—including David Einhorn of Greenlight Capital and Daniel Loeb of Third Point—have borrowed a bit from Buffett’s playbook and gone into reinsurance, which provides coverage for other insurers.
Buffett had an advantage. He owned insurance companies within his conglomerate and could invest their “float”—the premiums they take in but don’t have to pay out in claims right away. The hedge funds’ approach is different. Their managers have set up separate, publicly traded reinsurance companies that invest in the hedge funds. Investors can use the reinsurance stocks as a way to get a taste of the investments of the hedge funds, which then get more money to use and earn fees on.
The trick is to do well in writing insurance policies and investing the portfolio. Einhorn’s Greenlight Capital Re Ltd. and Loeb’s Third Point Reinsurance Ltd. have had trouble with both at times. The companies’ shares are trading below their initial public offerings. “Investors have really soured on this model because it doesn’t seem to work,” says Meyer Shields, an analyst at Keefe, Bruyette & Woods Inc. “It’s not like it couldn’t work. It just hasn’t.”
Greenlight Re is at a crossroads: Facing criticism from an insurance ratings agency about its underwriting, it announced in May it was reviewing its business. Einhorn said in August that the company had to search for the “best strategic direction,” but liquidation wasn’t his first option. Third Point Re hasn’t posted an annual underwriting profit since at least its 2013 IPO.
The insurance business got crowded. In 2013 the “floodgates” of capital opened and altered the market, says Shields. As new players joined in, it got harder to charge high premiums. Natural disasters in 2017 forced insurers to pay out a record $138 billion, according to Munich Re.
Investment markets haven’t always been kind, either. Greenlight Re’s portfolio declined 30.3% last year, and Third Point Re’s investments managed by the hedge fund fell 10.8%. This year, Greenlight Re’s investments are up 7.8% through the end of August, and Third Point Re’s hedge fund holdings recorded an estimated net return of 11.4%. As Greenlight Re seeks a new path, it says it will stash a majority of its investments in cash and short-term Treasuries. Third Point Re ended up shifting some bets into fixed-income assets. Greenlight Re and the Greenlight hedge fund declined to comment.
Loeb isn’t giving up. He says he’d like to see Third Point Re, which has a market capitalization of about $918 million, become a $5 billion to $10 billion company in the next 5 to 10 years. “I’m fully prepared to put more capital into this business to make strategic acquisitions,” he says. The original plan was to seek relative stability while getting upside from Loeb’s investment bets. Now the company is working to shift its underwriting strategy to higher-margin types of policies.
Hedge fund reinsurers aren’t alone in being scarred by the business. In 2011, Buffett admitted Berkshire didn’t really succeed until the arrival of Ajit Jain, now vice chairman for insurance operations. How long did it take Berkshire to find its footing? Fifteen years, Buffett said.
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>>> Deutsche Bank Still Faces an $83 Billion Question
Bloomberg
by Ferdinando Giugliano
July 18, 2019
https://finance.yahoo.com/news/deutsche-bank-still-faces-83-073025150.html
(Bloomberg Opinion) -- The radical restructuring of Deutsche Bank AG unveiled at the start of July will be a monumental task for the lender’s senior managers. The job of the European Central Bank’s finance industry supervisors, who have to make sure the revamp goes smoothly, won’t be easy either.
Deustche’s plan is a last-ditch attempt to make sure the troubled bank avoids more serious problems in the future. The ECB will need to use its regulatory stick and carrot wisely. This means standing by the lender in its sensible efforts to downsize, but being ready to demand more capital if the attempt doesn’t go according to schedule.
Andrea Enria, head of the Single Supervisory Mechanism (the ECB’s banking supervisory body), dodged a bullet in April when Deutsche and its domestic rival Commerzbank AG decided not to merge. The combination would have created a mega-lender that was too big to fail and one that had little credible prospect of shrinking any time soon. The collapse of the talks left Deutsche’s executives with little alternative but to scale down on their own, which was always the best route.
So far the supervisors have been supportive of the bank’s restructuring. Deutsche will target a core capital ratio (CET1) of 12.5%, which is above its minimum level of 11.8% but below the 13.7% in the fist-quarter and a previous full-year target of higher than 13%. This concession means the lender won’t have to raise extra capital on the market, a boon for its shareholders. The message from the ECB seems to be that so long as the bank is willing to address its problems and become less risky, the supervisors will support it.
Such leniency makes sense but it cannot last forever. Deutsche’s strategy involves several uncertain steps, including the creation of a “bad bank” to hold 74 billion euros ($83.2 billion) of risk-weighted assets. This move accompanies the courageous decision to shut down Deutsche’s equity trading and sales business, which became a liability as the lender tried unsuccessfully to compete with Wall Street’s giants. Some of these assets will have to be sold and the central question for supervisors is what price Germany’s largest bank will be able to command. Should it be too low, this might create a capital hole.
This issue is acute because Deutsche will start from a position of weakness in any sale negotiations. Some of the assets are illiquid and there may not be many buyers queuing up for them. Deutsche’s bargaining power will be weakened further because potential purchasers know it’s under pressure to sell.
The unwinding of Deutsche’s equity business could bring to the fore a controversy that has long tormented the SSM. Some – notably the Bank of Italy – have argued that the illiquid assets sitting on the balance sheets of large lenders like Deutsche are a far bigger problem than the ECB has dared acknowledge. The central bank has always insisted supervision has been adequate and that there’s been no special treatment for certain countries or lenders.
Supervisors certainly can’t afford for this restructuring to go wrong. In 2016 the International Monetary Fund singled out Deutsche as “the most important net contributor to systemic risks” to the global financial system. For now the German lender appears to have enough capital and plenty of liquidity, although its profitability has been poor. In the absence of a convincing turnaround, the ECB may face uglier questions in the future, including whether Berlin should be allowed to rescue the bank. While the EU has vowed to ensure that any bank can be wound down safely, this is untested in the case of mega-banks such as Deutsche.
Enria’s legacy at the helm of the SSM will hinge on how well he oversees Deutsche’s reset. For the sake of the EU’s financial stability, one hopes he gets it right.
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>>> With Wall Street's Secret Shackles Gone, Dimon Prowls for Deals
Bloomberg
By Michelle Davis
July 10, 2019
https://www.bloomberg.com/news/articles/2019-07-10/wall-street-unbound-old-shackles-quietly-disappear-under-trump?srnd=premium
U.S. lets banks grow after furtively snuffing out expansion
Jamie Dimon’s goal: ‘One more big one before I’m done’
For Jamie Dimon, the lone crisis-era CEO left on Wall Street, the move hardly looked like the deal of the decade.
But behind his recent bid for a young health-care payments company called InstaMed is a tectonic shift for JPMorgan Chase & Co. -- and the rest of American banking.
Since the 2008 financial crisis, federal regulators have publicly -- and often privately -- tried to keep giant banks like JPMorgan, already deemed too big to fail, from getting even bigger. Operating through back channels, Washington snuffed out merger ambitions and discouraged plans to expand businesses, offer new products and open branches. The goal: to contain the industry, and its worst impulses, without the glare of public scrutiny.
That’s over now. The Trump administration has rolled back the stealth campaign. And the implications -- for the banks, their customers, investors and the economy -- could be enormous.
Trump Bump
Interviews with more than two dozen current and former industry executives and regulators underscore how banks have managed to wriggle free from much of the strict oversight enacted to prevent another meltdown -- all without any wholesale changes to the laws enacted on Wall Street after the crisis.
Behind the scenes, the industry’s primary regulators -- the Federal Reserve and Office of the Comptroller of the Currency -- have adopted a friendlier approach, giving banks more leeway to expand into new markets, introduce products and make acquisitions.
The lighter touch has unleashed bankers’ animal spirits. Dealmaking and boom-time arms races are back -- as witnessed by a burst of expansion plans like JPMorgan’s push into new states and its InstaMed Inc. takeover, the bank’s biggest purchase since the financial crisis.
Much of how regulators such as the Fed and OCC interact with banks is confidential. It’s illegal to divulge supervisory information about specific banks because bad news might panic customers. But people with knowledge of the matter described the growth restrictions as one of the more extreme ways regulators during President Barack Obama’s term exerted their control behind the scenes. Some argue that what seems like a policy shift now is partly just a reflection of the banks’ improved health, which makes their case for growth easier to approve.
The numbers tell at least part of the tale. Banks announced more mergers and acquisitions in the first five months of this year than they did during any full-year period in the past decade, according to data from S&P Global. BB&T Corp.’s $28 billion tie-up with SunTrust Banks Inc., announced in February, was the biggest banking combination proposed since the 2008 financial crisis. Four days after that announcement, Morgan Stanley unveiled its largest acquisition in a decade: a $900 million deal to expand the firm’s wealth business. Goldman Sachs Group Inc. followed suit three months later with its biggest acquisition in almost 20 years.
Read More:
JPMorgan’s Secret Punishment: U.S. Halted Its Growth for Years
Bankers ‘Banging on the Doors’ as BB&T, SunTrust Spur Deal Talk
Volcker Rule Overhaul May Need an Overhaul, Bank Regulators Say
Banks are also being allowed to expand their reach into everyday America. After years of shutting branches to save costs, four of the six biggest banks -- JPMorgan, Bank of America Corp., U.S. Bancorp and PNC Financial Services Group Inc. -- have indicated they’re looking to push into new markets, in some cases for the first time since before the Great Recession.
The timing isn’t a coincidence. Many of the deals wouldn’t have been possible before Trump, because the top banking agencies under Obama followed an informal policy to stop or discourage dozens of banks from expanding while they dealt with compliance issues, according to people with knowledge of the matter.
That era’s shadow constraints most often stemmed from compliance issues related to consumer-protection and anti-money-laundering rules, rather than concerns about financial stability, the people said, asking not to be identified discussing confidential information.
The anti-expansionary attitude meant growth plans were derailed even in some situations where the Fed and OCC didn’t usually have formal approval powers, like when a financial holding company buys non-bank assets, according to people familiar with conversations between banks and their supervisors.
Representatives for most of the banks declined to comment, although spokesmen for SunTrust and BB&T said the two companies are “fully engaged” with regulators in the review process for their merger, and encouraged by “positive comments” they’ve received.
The OCC declined to comment for this story, and a Fed spokesman said the agency’s criteria for reviewing mergers and new branches and markets is clear and publicly available. “While those criteria have not substantively changed in recent years, the financial conditions and risk-management capabilities of many firms have improved and are taken into consideration,” the spokesman, Eric Kollig, said.
JPMorgan Branches
Last year, in one of the first signs of a reversal, Trump-appointed regulators green-lit JPMorgan’s plans to open branches in new states as part of an ambitious national expansion. For years leading up to that about-face, regulators had used their discretion to stifle the bank’s growth.
To be sure, the increase in activity is still a far cry from the spree of mergers in the 1990s that led to the formation of global titans such as Citigroup Inc. and Bank of America.
But the shift is dramatic compared with the first years after the financial crisis. Around 2012, for instance, JPMorgan attempted to set up banking operations in Ghana and Kenya as part of a push to foster more lucrative relationships with governments and multinationals. The plans were derailed when Tom Curry, then-comptroller of the currency, said the move would be too risky, according to people with knowledge of the matter.
Later, JPMorgan executives mapped out a strategy to boost revenue by opening branches in new markets such as Washington, D.C., where the biggest U.S. bank already offered credit cards and mortgages. The OCC told the bank that plan also carried too many risks, the people said. The bank was also quietly prohibited from engaging in mergers and acquisitions, one of the people said.
Joe Evangelisti, a JPMorgan spokesman, declined to comment.
Official Channels
The OCC and Fed almost never use official channels to block a bank’s attempt to engage in new activities like buying a rival or opening branches. Of the 12,869 proposals banks submitted for Fed approval between 2009 and 2018, the agency denied only two -- one in 2013 and another in 2014, according to regulatory data.
Instead, during the Obama years, watchdogs thwarted growth plans before banks had taken formal actions to seek approval, people with knowledge of the matter say.
Bank of America was discouraged from growing while the company worked to resolve a series of private notices, known as matters requiring attention, and public enforcement actions that identified weaknesses across the bank, according to two people with knowledge of the matter. In one example, regulators criticized the way the bank logged and kept track of customer complaints, and it took the company years to resolve the matter. The lender said last year it planned to open 500 new branches across the U.S., including moving into new cities.
“We’ve steadily opened more than 300 financial centers during the last decade, and plan to open over 300 more during the next few years,” said Bill Halldin, a Bank of America spokesman.
At Regions Financial Corp., supervisors stopped the bank from growing in the years following the financial crisis after an internal audit revealed shoddy loan practices, according to two people familiar with the matter. While the punishment was private, the impact was stark: The bank didn’t open a single branch from mid-2012 to March 2015, according to FDIC data.
In December 2015, Regions got into trouble for failing to meet Community Reinvestment Act requirements, which led regulators to restrict its ability to do M&A and open branches until it improved its rating. Regions has moved on, opening about 50 branches in the past year and a half. In February, the bank unveiled a three-year plan to boost growth.
Evelyn Mitchell, a Regions spokeswoman, said the bank doesn’t comment on supervisory relationships.
Dimon’s Ambitions
Then there was U.S. Bancorp, which had to put a strategy revamp on hold after the OCC slapped it with a consent order in 2015 for improperly handling suspicious transactions under anti-money-laundering and bank-secrecy regulations, according to a person with knowledge of the matter. It hasn’t opened a branch since 2015, according to data from the Federal Deposit Insurance Corp.
The Minneapolis-based bank alluded to the restrictions in a February regulatory filing: The termination of the consent order late last year “will give the company more flexibility to optimize its existing branch network and to selectively expand into new markets,” the bank said.
During their tenures, the message from Curry at the OCC and Dan Tarullo, the Fed’s bank-supervision chief, was clear: Compliance should be a top priority and anything that might distract management -- like a planned shift in corporate strategy -- was to be avoided.
But three months after Trump’s 2017 inauguration, a sequence of events laid the groundwork for deals to finally get done: Tarullo, whom bankers had nicknamed the “the Wizard of Oz” for his behind-the-curtains influence, stepped down from his post at the Fed. Curry left the OCC a month later, and Treasury Secretary Steven Mnuchin named a banking lawyer, Keith Noreika, to temporarily replace him. Under Noreika, who ran the OCC for about seven months until November 2017, the regulator relaxed its stance on expansion.
Now unfettered, Dimon is on the prowl. While the chief executive officer has frequently said he prefers internal growth over deals, he doubts regulators would stand in his way if he tried to expand JPMorgan, according to a person familiar with his thinking. The 63-year-old CEO told a recent New York conference he’s hunting for the bank’s next acquisition, said a person who was in the audience.
“I want to do one more big one before I’m done,” Dimon said.
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Main Street Capital Corp (MAIN) - >>> 3 Monthly Dividend Stocks to Buy Today
by Aaron Levitt
InvestorPlace
June 21, 2019
https://finance.yahoo.com/news/3-monthly-dividend-stocks-buy-185123145.html
Retirement: It’s all about one thing and that’s income … replacing a steady paycheck with your savings. With that, dividend stocks have plenty of appeal for retirees. Not only can you score higher yields than bonds, but you have the ability to grow those payouts over time as well. However, dividend stocks do have one major drawback.
Their payment schedules.
Most dividend stocks pay on a quarterly or even semi-annual basis. And while that may not seem like a problem, for many retirees used to a monthly or bi-weekly paycheck balancing cash flows can be a hard pill to swallow. After all, your mortgage, cable bill and car payments are due each month. To that end, getting a monthly dividend could be the answer to budgeting issues.
Luckily, there are plenty of dividend stocks that do happen to payout monthly. Here are three of the best.
Main Street Capital Corp (MAIN)
Dividend Yield: 5.89%
Most investors have never heard of businesses development companies (BDCs). That’s a shame because they can be some of the biggest yielding stocks around. BDCs are set up as pass-through entities much like real estate investment trusts, and similarly must pay out at least 90% of their earnings as dividends. How they earn that income is by loaning cash to mid-sized firms — companies too big to ask the local bank for a loan, but not big enough to launch a significant bond offering — at competitive rates. The best way to really think of them is like public-private equity firms.
And when it comes to BDCs, Main Street Capital (NASDAQ:MAIN) could be one of the best.
MAIN has provided capital to more than 200 private companies and thanks to its underwriting and deal standards, it has been very successful at turning a big profit on those loans. Just for the first quarter of this year, MAIN has already seen its investment income rise by 10% year-over-year. Those sorts of gains have allowed the firm to become a great dividend stock since its IPO in 2007. The BDC has managed to grow its payout by 127% since then.
Today, you can score a great recurring monthly dividend with a current yield of 5.89%. The best part is that MAIN’s management likes to reward shareholders further with extra supplemental dividends. This allows the BDC to use excess capital if a great deal can be had or for dividends. Adding those extra payouts in, and investors are looking at closer to 7.2% yield.
BDCs like MAIN provide a much-needed service to many firms. And thanks to its underwriting skill and focus on quality firms, MAIN has quickly become one heck of a dividend stock.
Shaw Communications (SJR)
Dividend Yield: 4.5%
One sector that can be a fertile hunting ground for dividend stocks, and is also known for its stability, is the telecommunications industry. Top stocks like AT&T (NYSE:T) and Verizon (NYSE:VZ) are in plenty of income portfolios. The reason is easy to see. Predictable fixed costs and demand allow telcos to pay out reliably healthy dividends. The problem is T and VZ aren’t monthly dividend stocks.
But Canada’s Shaw Communications (NYSE:SJR) is.
Shaw remains one of Canada’s largest telecoms and offers the usual bundle of services, including cable, internet and wireless phone services. It has been doing this for decades just like T and VZ here at home. And SJR has also tackled the problem of cord cutting head on. The telecom has been able to successfully convert customers to faster internet service to overcome lower cable subscriptions. This has helped boost revenues. At the same time, SJR has been one of the first movers in Canada for new 5G networks. That will give it a heads-up in bringing faster mobile internet, IoT and other applications to the nation.
As Shaw moves forward in these areas, investors can sit back and collect a hefty monthly yield. Currently, SJR pays 4.5%. Now, that dividend will fluctuate based on changes to the U.S./Canadian dollar. However, given Shaw’s stability and potential growth, it’s a small price to pay for a great dividend stock.
LTC Properties (LTC)
Dividend Yield: 4.89%
Honing in on so-called mega-trends is a great way to find dividend stocks that will stand the test of time. For monthly-dividend payer LTC Properties (NYSE:LTC) that mega-trend is the “Graying of America.”
Thanks to advances in medicine, lifespans are only increasing and longevity is almost assured at this point. LTC is uniquely positioned to take advantage of this fact. The firm invests in the senior housing and assisted living facility sectors of the healthcare property market. Currently, the firm owns/invests in roughly 200 properties that are right in the sweet spot for the nation’s aging baby boomers. Demand for these facilities continues to grow as more seniors need aid to get along.
The key is that LTC doesn’t operate the facilities or even own the buildings in many cases. What it does is provide financing for owner/operators to construct and renovate their properties or it buys properties from owners in a sale-leaseback transaction. It’s basically a mortgage lender that collects a monthly rent check. This position in the sector allows it to avoid some of the profitability issues that can result in senior living and assisted living facilities.
It also allows for some safety and steady profits on its end. Year-over-year, LTC saw a gain in FFO for the first quarter of 2019. Steady FFO gains have allowed it to raise its dividend over 46% since 2008. Currently, LTC yields 4.89%.
All in all, LTC is in the right area at the right time. And that makes it a great monthly dividend stock to own.
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>>> Breaking Up the Banks Is Easier Than You Might Think
If Trump really wanted to go after the banks, there’s a simple way he could do it.
By Nomi Prins
JUNE 8, 2017
https://www.thenation.com/article/breaking-banks-easier-might-think/
Donald, listen, whatever you’ve done so far, whatever you’ve messed up, there’s one thing you could do that would make up for a lot. It would be huge! Terrific! It could change our world for the better in a big-league way! It could save us all from economic disaster! And it isn’t even hard to grasp or complicated to do. It’s simple, in fact. Reinstitute the Glass-Steagall Act. Let me explain.
In the world of romance, if you break up with someone, it’s pretty simple (emotional complications aside). You’re just not together anymore. In the world of financial regulation, it used to be as simple as that too. It was like installing a traffic light at a dangerous intersection to avoid deaths. In 1933, when the Glass-Steagall Act was passed, it helped break up the biggest banks of the day and for good reason: They had had a major hand in triggering the most disastrous economic depression our country ever experienced.
Certain divisions of those banks were no longer allowed to coexist with others. The law split the parts of banks that placed bets by creating and trading certain risky securities and those that took deposits and provided loans. In other words, it ensured that the investment bank and the commercial bank would no longer cohabit. Put another way, it separated bankers with a heinous gambling habit from those who only wanted a secure nest egg. It was simplicity itself.
After 1933, the gamblers and savers went their separate ways, which proved a boon for the economy and the financial system for nearly seven decades. Then legislators, lobbyists, bankers, and regulators started to chisel away at the wall separating those two kinds of banks. By November 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act that repealed the Glass-Steagall Act totally. The abusive marriages of gamblers and savers could once again be consummated.
And who doesn’t remember the result: the financial crisis of 2007–08 that led to taxpayer-funded bailouts, subsidies, loans, and sweetheart fraud-settlement deals. Just as the crash of 1929 had been catalyzed by the manufacturing of shady “trusts” stuffed with shady securities, this crisis was enabled by the big banks that engineered complex assets stuffed with subprime mortgages and other loans that were sold around the world.
Under President Obama, the 2010 Dodd-Frank Act was signed into law. The act sought to limit the ability of big banks to trade the riskiest types of securities. Through inclusion of something called the “Volcker Rule,” Dodd-Frank prohibited the trading of securities (even if with many loopholes). What it didn’t do was actually break up the big banks again. That meant another 1933 still awaited its moment.
Then along came the bizarre 2016 presidential election campaign during which, strangely enough, Democrats and Republicans found one issue on which they had some common ground: the banking system. Key figures in both parties agreed that it was time to stop the investment bank and the commercial bank from commingling. Bernie Sanders ran on a campaign to break up the banks—and so did Donald Trump. At at an October campaign rally in Charlotte, North Carolina, Trump even stated, “It’s time for a 21st-century Glass-Steagall.”
The Democratic National Committee platform offered a similar message. “Banks,” it said, “should not be able to gamble with taxpayers’ deposits or pose an undue risk to Main Street. Democrats support a variety of ways to stop this from happening, including an updated and modernized version of Glass-Steagall as well as breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.”
The Republican National Committee wasted even fewer words making the point in their platform: “We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.” And it didn’t even suggest that the act should be “modernized” or mention a “21st-century” version that didn’t do what the 20th-century one had done.
For the first time since its repeal, in other words, a return to the Glass-Steagall Act had bipartisan support. It couldn’t have been simpler, right? Two parties, one idea: split banks into two pieces. But then, as if you hadn’t already guessed, it got complicated.
BREAKING UP, REPUBLICAN STYLE
In the new administration, two key figures are now offering quite different and conflicting views of what a resurrection of the Glass-Steagall Act might mean. At his Senate confirmation hearings, Steven Mnuchin, former Goldman Sachs partner and Trump’s nominee to be secretary of the Treasury, faced Senator Maria Cantwell (D-Wash.) as she bluntly asked “Do you support returning to Glass-Steagall?”
He replied, “I don’t support going back to Glass-Steagall as is. What we’ve talked about with the president-elect is perhaps we need a 21st-century Glass-Steagall. But, no, I don’t support… taking a very old law and say we should adhere to it as is.”
Cantwell then pressed him further: “And so, is that the position of what the Republican platform was? Because I thought it was Glass-Steagall?”
To this, Mnuchin responded, “Again, the Republican platform did pass at the convention Glass-Steagall and…[when] we talked about policy with the president-elect, our view is we need a 21st-century Glass-Steagall.”
The skepticism in the room was thick enough to cut with a knife. Here, after all, was a man who had made windfall profits on the fallout from the 2007–08 “too big to fail” financial crisis by organizing a cadre of hedge fund billionaires to buy the collapsed IndyMac Bank at a discount. He then proceeded to foreclose on some of its mortgages and resell it for a $2.5 billion profit. Why should such a man want to restrict banking activity, Glass-Steagall-style, when his loan practices had allowed him to make a fortune off the taxpayer bailouts that were the result of not doing so? What would the point be when a crisis, as history had just shown, forced the federal government to subsidize risk and failure?
The only problem he faced: The Republican platform said he should.
Last month, testifying before the Senate Banking Committee and under questioning from Senator Elizabeth Warren, he backtracked even further: “The president said we do support a ’21st-century Glass-Steagall,’ that means there are aspects of it that we think may make sense. But we never said before we support a full separation of banks and investment banking.”
Warren responded incredulously, “Tell me what ‘21st-century Glass-Steagall’ means if it doesn’t mean breaking up those two parts. It’s an easy question.”
Mnuchin replied, “It’s actually a complicated question.… We never said we were in favor of Glass-Steagall. We said we were in favor of a 21st-century Glass-Steagall. It couldn’t be clearer.” Which, of course, couldn’t have been murkier.
And then there’s that other former Goldman Sachs man, Gary Cohn, Trump’s director of the National Economic Council. He had quite a different Glass-Steagall tale to tell Senator Warren. According to Bloomberg News, he insisted that he “generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans.” That sounds a lot like breaking up the banks.
This division and the as-yet unresolved nature of the Trump administration response to the Glass-Steagall question could, in the face of another financial crisis, come back to haunt us all, if it translates into more bailouts and systemic failures.
THE DEMOCRATS’ DILEMMA
As with the proverbial difficulty of chewing gum and walking at the same time, certain Democrats seem to find the very idea of supporting both Dodd-Frank and a new Glass-Steagall Act perplexing. Many of them have promoted the idea that no big bank actually failed in the Great Recession moment (which was true only because those banks got huge infusions of federal aid to remain solvent). As a result, they avoided all responsibility for the way the repeal of Glass-Steagall allowed too-big-to-fail banks to come into existence in the first place.
In the process, they also conveniently ignored the way the big banks lent money to, or funded, the investment banks that did fail like both of my former employers, Bear Stearns and Lehman Brothers. Without those loans or that funding, those outfits couldn’t have purchased the overload of toxic assets that, in the end, imploded the whole system.
President Obama summed up this position when he told Rolling Stone in 2012, “I’ve looked at some of Rolling Stone’s articles that say, ‘This didn’t go far enough, we didn’t institute Glass-Steagall’ and so forth, and I pushed my economic team very hard on some of those questions. But there is not evidence that having Glass-Steagall in place would somehow change the dynamic. Lehman Brothers wasn’t a commercial bank; it was an investment bank. AIG wasn’t an FDIC-insured bank; it was an insurance institution. So the problem in today’s financial sector can’t be solved simply by re-imposing models that were created in the 1930s.” He needed a more astute team.
Hillary Clinton took a similar tack in her campaign and it may have contributed to her devastating election loss. The continued promotion of such fallacies does not bode well for the future of the party if it continues to adopt that view. A return to a safer system on the other hand, would be more populist—and far more popular.
GLASS-STEAGALL’S BIPARTISAN PAST
Fortunately, current legislation is circulating in Congress that would promote the long-term stability of the financial system by restoring Glass-Steagall for real. HR 790 (“Return to the Prudent Banking Act of 2017”) is one of two reinstatement bills in the House of Representatives. It has 50 co-sponsors from both parties and its passage is being spearheaded by Marcy Kaptur (D-Ohio) and Walter Jones (R-North Carolina). The second bill, HR 2585, sponsored by Mike Capuano (D-Massachusetts), bears a close relationship to Senate bill S 881 (the “21st-Century Glass-Steagall Act of 2017”), sponsored by Elizabeth Warren (D-Massachusetts) and nine cosponsors including John McCain (R-Arizona), Maria Cantwell, and Angus King (I-Maine). Either of the bills, if enacted, would do the same thing: break up the banks.
Even before Roosevelt began his first term, congressional Republicans had initiated an investigation into bankers’ practices. In early 1933, as Roosevelt was preparing to take office with an incoming Democratic Senate, outgoing Senate Banking and Currency Committee chairman Peter Norbeck, a Republican from South Dakota, hired former New York Deputy District Attorney Ferdinand Pecora to lead the Senate Banking Committee in a new investigation.
Later known as the Pecora hearings, they would shed light on the kinds of financial manipulations by unscrupulous bankers that had led to the crash of 1929. They would also provide the new president with the necessary populist political capital to enact America’s most sweeping financial reforms. No less crucial was the way banking leaders aligned themselves with Roosevelt’s new program. Duty to country over balance sheets seemed then to be the order of the day, even on Wall Street. (It’s not an attitude that lasted into the 21st century.)
Two days after his inauguration, for instance, Roosevelt invited incoming National City Bank Chairman James Perkins to the White House for a secret meeting. The next day, under Perkins’ direction, his bank board passed a resolution splitting apart its trading and deposit-taking divisions. Chase National Bank chairman Winthrop Aldrich, a major financial power player, lent a hand as well. Both Perkins and he would back the new Glass-Steagall bill. (Lest you think that all was sweetness and light, they were also convinced that it would diminish the strength of their main competitor, the Morgan Bank.)
Three days after Roosevelt called Perkins to the White House, Aldrich’s views on breaking up the banks hit the front page of the New York Times when he announced that Chase National Bank and Chase Securities Corporation would become separate entities, effectively enforcing the bill before it even became law. It wasn’t simple—the Chase Securities Corporation was the biggest of its kind in the world—but it happened.
Aldrich then took part in a series of private meetings with the president at the White House about the pending legislation. Without the support of Aldrich and Perkins, it’s possible that the bill wouldn’t have passed. After all, a far weaker version proposed during the previous administration of Herbert Hoover hadn’t.
The Glass-Steagall Act also created the Federal Deposit Insurance Corporation to insure citizens’ bank deposits. This left commercial banks with a choice to make. If they took deposits and made loans, they could not speculate with depositors’ money. If they wanted to create and speculate, they were on their own. There’s much to be said for protecting hardworking Americans in this fashion.
HOW THE WALLS CAME TUMBLING DOWN
In the 1980s, the walls between investment and commercial banking first began to crumble. The deregulation of the financial sector that followed would prove to be as bipartisan as the passage of Glass-Steagall had been. In 1982, as the Republican presidency of Ronald Reagan began, Congress passed the Garn-St. Germain Act, deregulating the kinds of investments that savings and loan banks could make to include riskier real estate loans. This had the effect of exacerbating the savings and loan debacle, which hit its pinnacle in the late 1980s. By 1989, more than 1,000 S&L banks in the United States would crash and burn. In total, the crisis wound up costing about $160 billion, $132 billion of which was footed by taxpayers. And the suppliers of risky S&L securities tended to be the big banks.
In 1987, still in the age of Reagan, Federal Reserve Chairman Alan Greenspan, a past board member of JPMorgan, said that non-bank subsidiaries of bank holding companies could sell or hold “bank ineligible securities”—that is, securities prohibited by Glass-Steagall, including mortgage securities, asset-backed securities, junk bonds, and other derivative products. The move exacerbated the S&L crisis, but it also offered an avenue for commercial banks to stock up on some of the securities at the heart of that crisis.
And so commercial banks began investing in hedge funds, whose very purpose in life is to gamble on securities, stocks, and commodities. In 1998, in an early warning of what the future might hold, one of them, Long Term Capital Management, crashed and nearly brought down the whole financial system with it. 55 commercial banks had invested in it using depositors’ money to back their bets. Only an emergency meeting of the presidents of the major banks at the Federal Reserve averted a larger economic meltdown, but because Glass-Steagall was still in place, they had to figure out how to save themselves. No government bailouts were forthcoming.
Having narrowly avoided disaster, Wall Street only plunged deeper into financial deregulation. In 1999, Glass-Steagall itself was repealed. On December 21, 2000, Congress passed the Commodity Futures Modernization Act deregulating derivatives trading. The big commercial banks then merged with investment banks, insurance companies, and brokerage firms. By 2007, the assets of those big banks had tripled. The four largest—Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo—by then controlled (and still control) more than half the assets of the banking system.
In the fall of 2007, that system finally started buckling because of the problems of Citigroup, not because of the investment banks, which would not have been covered by Glass-Steagall. The catastrophe that hit Citigroup makes it clear just how crucial the repeal of that act was to the financial meltdown to come. Citigroup would “require” a taxpayer-financed bailout of $45 billion, $340 billion in asset guarantees, and $2 trillion in near-0% Federal Reserve loans between the fall of 2007 and 2010. That in itself was staggering and Citigroup wasn’t alone. Federal Reserve Chairman Ben Bernanke would later testify that, by 2008, 11 out of the 12 biggest commercial banks were “insolvent” and had to be bailed out. The entire banking system was rotten to the core and the massive buildup of bad paper, high leverage, and speculative bets (derivatives) that made disaster inevitable can be traced directly back to the repeal of Glass-Steagall.
Today, a fresh bubble is inflating. This time, it’s not US subprime mortgages at the heart of a budding banking crisis, but $51 trillion in corporate debt in the form of bonds, loans, and related derivatives. The credit ratings agency S&P Global Ratings has predicted that such debt could rise to $75 trillion by 2020 and the defaults on it are starting to increase in pace. Banks have profited by the short-term creation and trading of this corporate debt, propagating even greater risk. Should that bubble burst, it could make the subprime mortgage bubble of 2007 look like a relatively small-scale event.
WHAT WILL THE PRESIDENT DO?
On the positive side, there’s a growing bipartisan alliance in Congress and outside it on restoring Glass-Steagall. This increasingly wide-ranging consensus reaches from the AFL-CIO to the libertarian Mises Institute, in the Senate from John McCain to Elizabeth Warren, Bernie Sanders, and Maria Cantwell, and in the House of Representatives from Republicans Walter Jones and Mike Coffman to Democrats Marcy Kaptur and Tulsi Gabbard. In fact, just this week, Kaptur and Jones announced an amendment to the pending Financial Choice Act in the House of Representives, that would represent the first genuine attempt to bring to a vote the possibility of resurrecting the Glass-Steagall Act since its repeal.
So, Donald, here’s the question: Where do you—the man who, in the course of a few weeks, embraced Middle Eastern autocrats, turned relations with key NATO allies upside down, and to the astonishment of much of the world, withdrew the United States from the Paris climate agreement—stand? In just a few months in office, you’ve turned the White House into an outpost for your family business, but when it comes to the financial wellbeing of the rest of us, what will you do? Will you, in fact, protect us from another future meltdown of the financial system? It wouldn’t be that hard and you were clear enough on this issue in your election campaign, but does that even matter to you today? I noticed that recently, in an Oval Office interview with Bloomberg News, when asked about breaking up the banks, you said, “I’m looking at that right now. There’s some people that want to go back to the old system, right? So we’re going to look at that.”
Your party and your own appointees are split on the subject. Where will you fall? You could still commit yourself to securing the financial wellbeing of our nation for generations to come. You could commit yourself to Glass-Steagall. The question is: Will you?
Nomi Prins is the author of Collusion: How Central Bankers Rigged the World (Nation Books). She is also the author of All the Presidents' Bankers: The Hidden Alliances that Drive American Power.
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>>> Warren Buffett urges Wells Fargo to look beyond Wall St for next CEO
Financial Times
by Robert Armstrong, Eric Platt and Oliver Ralph in Omaha
4/7/2019
https://www.msn.com/en-us/money/companies/warren-buffett-urges-wells-fargo-to-look-beyond-wall-st-for-next-ceo/ar-BBVHAvJ#page=2
“They just have to come from someplace [outside Wells] and they shouldn’t come from Wall Street,” Mr Buffett said of the bank’s next leader in an interview with the Financial Times. “They probably shouldn’t come from JPMorgan or Goldman Sachs.”
Wells Fargo’s former chief executive, Tim Sloan, stepped down last month after coming under pressure from both Congress and regulators. He has been replaced by Wells’ general counsel Allen Parker on an interim basis.
The bank has struggled to recover from a fake accounts scandal, in which branch employees, hoping to hit incentives targets, illicitly opened millions of accounts for customers without their consent.
The wrongdoing first emerged in 2016 under the previous chief executive, John Stumpf. But the decision to replace Mr Stumpf that year with Mr Sloan, a 25-year veteran of the bank, antagonised some politicians.
Mr Buffett, who has held shares in Wells since 1989, now prefers the new leader to be an outsider and one who has not worked in investment banking, judging that either would be a red rag in Washington.
“There are plenty of good people to run it [from the Wall Street banks], but they are automatically going to draw the ire of a significant percentage of the Senate and the US House of Representatives, and that’s just not smart,” Mr Buffett said.
Excluding Wall Street bankers would eliminate many of the potential candidates floated by analysts and investors to run the fourth-largest US bank by assets. On that list are former Goldman Sachs executives Gary Cohn and Harvey Schwartz, ex-JPMorgan Chase banker Matt Zames and current JPMorgan chief financial officer Marianne Lake.
One potential candidate from outside Wall Street whose name has been raised by analysts is Bill Demchak, another former JPMorgan executive who is now chief executive of PNC Financial, a Pittsburgh-based bank.
Mr Buffett owns almost 10 per cent of Wells’ shares, worth about $22bn. He believes that the bank’s competitive position remains strong, despite the damage done by the fake accounts scandal that broke over two years ago.
“If you look at Wells, through this whole thing they’re uncovering a whole lot of problems, but they aren’t losing any customers to speak of,” he said. “They are losing the ones in the public sector?.?.?.?but one household out of every three does business with Wells one way or another.” The bank still holds more than $900bn in customer deposits.
Only hours before Mr Sloan announced his intention to depart, Mr Buffett had given the former CEO his support in an interview with CNBC television. Betsy Duke, the bank’s chair, has said the board is only considering external candidates.
On the same day last month that Mr Sloan received a grilling before the House financial services committee, regulators at the Office of the Comptroller of the Currency issued a highly unusual statement saying it was “disappointed” in the bank’s efforts to reform its governance. Two senior Democrats — Maxine Waters, chair of the House financial services committee, and presidential candidate Elizabeth Warren — had both called for Mr Sloan’s departure.
While deposits and assets at Wells have been relatively stable since the scandal , the bank’s once industry-leading growth has slowed. Yet Mr Buffett said: “I don’t care whether they grow [revenues] or not, I care about whether they grow in earnings per share over time.”
Berkshire Hathaway, the investment vehicle Mr Buffett chairs, is also the largest shareholder in US Bancorp, the largest of America’s “regional” banks, with an $80bn market capitalisation. Since two other large regional lenders announced a merger earlier this year, Bancorp has been the subject of speculation that it could embark on a merger, perhaps as a buyer of PNC Financial, which has a $58bn market capitalisation.
Mr Buffett, however, says “I don't like having a bank we own buy another bank”, believing the key to the banking business is avoiding stupid mistakes and that in mergers, “the acquirer usually overpays”.
The full interview with Mr Buffett will be published later this month.
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>>> Warren Buffett Is Loading Up On Bank Stocks: This Might Be Why
Seeking Alpha
Feb. 11, 2019
by Lyn Alden Schwartzer
https://seekingalpha.com/article/4239971-warren-buffett-loading-bank-stocks-might
Bank stocks in the U.S. trade at rather low valuations due to concerns over a global economic slowdown, but the numbers show this to be a decent entry point.
Bubbles rarely pop from the same place twice in a row; banks are more financially sound than a decade ago and more critical eyes are on them.
There are considerable risks in equities in general, but a diverse portfolio that focuses on quality, value, and yield should hold up well.
My two favorite bank picks.
Bank stocks in general are rather cheap at the moment due to a flat yield curve and growth concerns. Although an economic slowdown or recession would be rough for many banks, some of the fears about them appear to be overblown.
I'm not overweight financials, but I'm not avoiding them either. Bank stocks appear appropriately priced at the current time. This article shows several reasons why banks are actually in pretty good shape relative to their valuations.
The Financial Select Sector SPDR ETF (XLF) representing the U.S. large cap financial sector currently has an average P/E of about 11.6 and an average P/B of less than 1.4.
Due to some big laggards in the mix, it still hasn't reached the peak value it had prior to the subprime mortgage crisis, although many of the higher-quality banks and insurers have grown tremendously.
Bank Stocks Have Strong Balance Sheets
Warren Buffett's Berkshire Hathaway has over $80 billion invested in banks. They represent about 40% of Berkshire's public stock portfolio. Berkshire itself also operates a massive insurance business.
Some of his bank stocks are large legacy positions, but in the most recent quarter he started new positions in JPMorgan Chase (JPM), PNC (PNC), and Travelers Companies (TRV), and added to his existing positions in Goldman Sachs (GS), Bank of New York Mellon (BK), U.S. Bancorp (USB), and Bank of America (BAC). He did, however, trim his exposure to Wells Fargo (WFC) which is understandable given their headlines over the past few years.
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>>> BlackRock, Inc. (BLK) is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors including corporate, public, union, and industry pension plans, insurance companies, third-party mutual funds, endowments, public institutions, governments, foundations, charities, sovereign wealth funds, corporations, official institutions, and banks. It also provides global risk management and advisory services. The firm manages separate client-focused equity, fixed income, and balanced portfolios. It also launches and manages open-end and closed-end mutual funds, offshore funds, unit trusts, and alternative investment vehicles including structured funds. The firm launches equity, fixed income, balanced, and real estate mutual funds. It also launches equity, fixed income, balanced, currency, commodity, and multi-asset exchange traded funds. The firm also launches and manages hedge funds. It invests in the public equity, fixed income, real estate, currency, commodity, and alternative markets across the globe. The firm primarily invests in growth and value stocks of small-cap, mid-cap, SMID-cap, large-cap, and multi-cap companies. It also invests in dividend-paying equity securities. The firm invests in investment grade municipal securities, government securities including securities issued or guaranteed by a government or a government agency or instrumentality, corporate bonds, and asset-backed and mortgage-backed securities. It employs fundamental and quantitative analysis with a focus on bottom-up and top-down approach to make its investments. The firm employs liquidity, asset allocation, balanced, real estate, and alternative strategies to make its investments. In real estate sector, it seeks to invest in Poland and Germany. The firm benchmarks the performance of its portfolios against various S&P, Russell, Barclays, MSCI, Citigroup, and Merrill Lynch indices. BlackRock, Inc. was founded in 1988 and is based in New York City with additional offices in Boston, Massachusetts; London, United Kingdom; Gurgaon, India; Hong Kong; Greenwich, Connecticut; Princeton, New Jersey; Edinburgh, United Kingdom; Sydney, Australia; Taipei, Taiwan; Singapore; Sao Paulo, Brazil; Philadelphia, Pennsylvania; Washington, District of Columbia; Toronto, Canada; Wilmington, Delaware; and San Francisco, California.
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>>> Why Warren Buffett Is Big on Big Banks
By Andrew Bary
Nov. 23, 2018
https://www.barrons.com/articles/why-warren-buffett-is-big-on-big-banks-1543019299
Berkshire Hathaway CEO Warren Buffett is famous for having a good eye for value. These days, he has been looking hard at big U.S. banks.
Berkshire Hathaway (ticker: BRK.A) bought more than $13 billion of bank stocks in the third quarter, highlighted by a new, $4 billion holding in JPMorgan Chase (JPM) and an almost $6 billion purchase of Bank of America (BAC), the first major open-market buy by Berkshire.
Buffett’s company now holds stakes in seven of the country’s top 10 banks: Wells Fargo (WFC), U.S. Bancorp (USB), Goldman Sachs Group (GS), PNC Financial Services Group (PNC), and Bank of New York Mellon (BK), as well as JPMorgan and Bank of America. ( Citigroup (C), Morgan Stanley (MS), and Capital One Financial (COF) are the ones left out.)
“Buffett’s investments offer validation for what we see as the value in the group,” says Mike Mayo, a banking analyst with Wells Fargo. “Banks are less cyclical than they have been in decades and have more resilient earnings streams because of improved financial discipline and risk control.” He sees earnings growth of 50% or more for JPMorgan, Citigroup, and Bank of America over the next four years.
Buffett's Financial Exposure
How the major financial company holdings of Berkshire Hathaway stack up.
Company / Ticker
Shares Owned (mil)
Value (bil)
Shares Added* (mil)
Value of Shares Added** (mil)
Stake in Company
Bank of America / BAC 877 $23.9 198 $5,840 8.9%
Wells Fargo / WFC 442 23.1 -10 -507 9.4
American Express / AXP 152 16.1 0 0 17.7
U.S. Bancorp / USB 125 6.7 24 1,280 7.7
Bank of New York Mellon / BK 78 3.9 13 665 7.9
JPMorgan Chase / JPM 36 3.8 36 4,024 1.1
Goldman Sachs Group / GS 18 3.5 5 1,143 4.9
PNC Financial Services Group / PNC 6 0.8 6 829 1.3
TOTAL 82.0 13,274
Showing 1 to 9 of 9 entries
*Shares added in third quarter. **As of Sept. 30.
Investors don’t share Mayo’s—or Buffett’s—enthusiasm. Bank stocks have been weak on concerns about the global economy and slowing loan growth. The KBW index of 24 bank stocks is down 8% this year. Wells Fargo, led by CEO Timothy Sloan, and Citigroup are off about 15%. Goldman, the worst performer in the Dow Jones Industrial Average, is down 25%.
Buffett, who didn’t respond to a request for comment, may see what Mayo and other bulls do: a group that has lagged behind the market despite strong earnings growth and the most generous capital returns of any major industry.
Earnings at large banks are expected to rise about 40% this year. With income rising and stock prices generally lower, bank valuations have contracted. Large banks now have an average forward price/earnings ratio of just 10.2, against a forward P/E of 12.6 at the start of the year, based on 22 institutions covered by Barclays analyst Jason Goldberg.
“Investors can get good earnings growth and good capital returns at a discounted valuation relative to the overall market,” Goldberg says. “Just because we’re late in the cycle doesn’t mean we’re at the end of it.” He sees 9% growth in bank earnings per share in 2019.
John McDonald of Bernstein estimates that mid- and large-cap banks will return about 100% of their earnings to holders in dividends and buybacks in the year ending in June 2019, up from 60% in 2015.
Investors can play the group through any of the stocks favored by Buffett or via ETFs like Invesco KBW Bank (KBWB) or the broader Financial Select Sector SPDR (XLF); seven of its top 10 stocks are banks. Berkshire is the top holding.
A decade after the financial crisis, billionaire investor Warren Buffett explains what was behind the 2008 mayhem, what we can do to limit the damage and opportunities missed last time.
Mayo’s view is that a tougher regulatory regime may help keep banks out of any major trouble. “Bank investors should be sending holiday cards to regulators,” he says. “They’ve facilitated additional risk discipline in the industry.”
And while loan growth is slowing, it’s still rising in the low-single digits. The yield curve—the gap between long and short rates—has been narrowing, but banks are still reporting wider net interest margins.
With the seven big banks, a longstanding investment in American Express , and some smaller bank stakes, Berkshire’s financial-stock exposure is about $85 billion. That’s more than 40% of Berkshire’s total equity holdings of $200 billion—against a 14% weighting for the group in the S&P 500.
Buffett and his two investment lieutenants, Todd Combs and Ted Weschler, plowed money into stocks in the first three quarters of 2018, buying a net $24 billion of equities, versus $4 billion in the same period of 2017. The big stock purchases come as Buffett has failed to land a sizable acquisition.
The most intriguing stock purchase was JPMorgan. Buffett is a longtime fan of the bank’s CEO, Jamie Dimon, and Combs sits on the bank’s board. Buffett has said that he owned the stock personally and finally doubled down with Berkshire’s money.
With Berkshire owning just 1% of JPMorgan, there is plenty of room to build that stake. At $106.50 per share, it’s little changed this year and one of the best performers among major bank stocks. JPMorgan trades at a premium to much of the group with a 2018 P/E of 11.5, but below the market multiple of 16, and it has a dividend yield of 3%.
Goldberg has an Overweight rating and a $135 price target. He’s also a fan of Citigroup, which at $61.50 is the only major bank trading below tangible book value. His Citi rating is Overweight with a $93 price target. Goldman, at $189, trades just above its tangible book of $186 a share.
Barron’s recently wrote favorably on Bank of America, headed by CEO Brian Moynihan. Its strong deposit franchise and U.S.-focused consumer business give it one of the better earnings-growth outlooks among its peers. A bullish Mayo see the potential for $4 earnings per share in 2022, up more than 50% from this year’s expected $2.55. The stock trades at $27 and yields 2%.
Buffett isn’t always right, but he loves bank stocks. And that’s a pretty good endorsement.
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CME Group - >>> 7 Best Stocks to Buy as You Recalibrate Your Compass
by Josh Enomoto
InvestorPlace
November 2, 2018
https://finance.yahoo.com/news/7-best-stocks-buy-recalibrate-164509126.html
Throughout mankind’s history, and even to this day, Polaris, or the north star provides a crucial frame of reference. Polaris is situated directly atop the earth’s axis, staying put while other stars dance around it. Similarly, companies levered toward secular and stable businesses represent the best stocks to buy during market downturns.
While the vast majority of publicly traded securities have absorbed substantial pain last month, they all share a common negative catalyst: fear of the unknown. For most organizations, that fear is China and the real possibility of a protracted trade war. In other cases, it’s the upcoming midterm elections and the questions they will raise.
But the best stocks to buy at this present time have gone against the grain. Whether they’re holding onto their market value, or have experienced profitability, some organizations haven’t let distractions derail them.
Typically, this is because their industry demand isn’t vulnerable to geopolitical whims. A customer might skimp on a flat-screen TV, but they can’t say the same about their medication. Or, a company’s products are aligned with future business trends that extracurricular distractions simply don’t matter.
Admittedly, it’s difficult to concentrate on your portfolio during a bearish phase. But “north star” investments do exist, and they’re more plentiful than you might think. Here are seven of the best stocks to buy in these troubled waters:
Walgreens Boots Alliance (WBA)
One of the best stocks to buy amid a market crash is a company that’s levered toward an indispensable industry. A prime example is Walgreens Boots Alliance (NASDAQ:WBA). As a retail pharmaceutical company with both domestic and international exposure, WBA stock offers fundamental protection against cyclical volatility.
Sometimes, though, theory and reality don’t often align. Fortunately for WBA stock, this is a case where the fundamentals are well represented in the markets. Indeed, shares of Walgreens Boots Alliance have greatly exceeded benchmark indices. For October, WBA gained 9.5%, while during the second half of the year, shares are up nearly 35%.
While the company has already enjoyed outstanding performances, WBA stock still has more upside potential. Its most recent earnings report for the fourth quarter impressed the markets, producing strong earnings and sales growth. Plus, consumers are unlikely to skimp out on the company’s essential products, irrespective of economic conditions.
CME Group (CME)
At first glance, CME Group (NASDAQ:CME) doesn’t immediately strike you as one of the best stocks to buy right now. Anything to do with the broader markets and investment services seems like an opportunity to deleverage. However, a quick look at CME stock suggests otherwise.
CME Group has simply proven to be one of the best stocks during this market fallout. In October, while the Dow Jones Industrial Average crumbled, CME stock gained nearly 7%. Going back to the July open, shares have jumped almost 13%.
I’m sure most investors are still hesitant on buying into CME stock. We’ve heard time and again that millennials are not investing in the stock market. If that’s the case, why risk exposure to a company that operates futures and options exchanges?
For one thing, these “exotic” instruments represent a necessary component of the broader markets. Second, CME Group has demonstrated surprising flexibility for such a staid organization. This is perfectly demonstrated with the company’s foray into bitcoin.
I’ve heard that bitcoin has some popularity among millennials, which is why you should give CME stock a second look.
Coca-Cola (KO)
I’m not saying anything new when I say that Coca-Cola (NYSE:KO) has frustrated long-term shareholders. While no one expects KO stock to be a superior growth engine, investors do like to see returns. Unfortunately, Coca-Cola shares, at their current price, haven’t moved much for two-and-a-half years.
That might change in the current environment. For the month of October, KO stock almost hit 4%. No, that’s not going to transform the iconic beverage-maker into a high-powered tech company. But have you seen tech firms lately? By not dying, KO puts itself among the best stocks to buy.
Better yet, the positive sentiment surrounding the company isn’t based on whimsical emotions. Earlier this summer, Coca-Cola pulled off a surprising Q2 earnings beat. It followed that up with another comprehensive top-and-bottom beat in Q3. That promptly pushed KO stock higher.
I still see reasons for believing in Coca-Cola. First, the company specializes in selling cheap, and increasingly relevant consumer staples. Second, KO stock features a fairly generous 3.3% dividend yield, a huge bonus at this juncture.
American Tower (AMT)
Another name that some investors may find surprising is American Tower (NYSE:AMT). In recent weeks, shares of smartphone-component manufacturers have suffered tremendously volatility. But for AMT stock — where the underlying company specializes in cell phone towers — it has experienced the opposite effect.
During the October selloff when most publicly traded firms were suffering catastrophic losses, AMT ended the month up nearly 7%. That stat is more impressive when you consider that shares dropped more than 3% on Halloween. For the year-to-date, American Tower has gained 9%.
Although AMT stock lacks the pizzazz that typically belongs on a list of best stocks, its underlying industry is indispensable. As we move further into the world of 5G wireless networks, American Tower’s enviable real-estate portfolio levers significant value.
And while it’s true that AMT’s cell towers are suited for 4G, 5G cells must still communicate with larger towers. Further, American Tower has a strong international presence, and not all countries will adopt 5G simultaneously.
Starbucks (SBUX)
For whatever reason, several notable firms have suffered a backlash from racially motivated incidents. The most recent example is Papa John’s (NASDAQ:PZZA) notorious incident involving founder John Schnatter.
Although not quite as controversial, Starbucks (NASDAQ:SBUX) generated negative headlines for racially discriminating against specific customers.
That aside, both Papa John’s and SBUX stock have something interesting in common: they have climbed back from their post-discrimination woes.
Since hitting bottom near June end, SBUX stock has skyrocketed nearly 22%. Last month, Starbucks was one of the few investments that didn’t roll over, gaining a little over 2%. Frankly, I find this shocking considering how divisive our political rhetoric has become.
Nevertheless, it’s clear that the American people are more forgiving than I thought. That puts SBUX stock in a good position during these uncertain times. The company delivered an overall strong earnings report, albeit with some weaknesses in foot traffic.
But the bottom line for me is that nothing — not even racial controversy — can take down the Starbucks brand. This is an awkward but still viable reason to consider SBUX stock.
Disney (DIS)
With all that’s happened over the past few weeks, and with a heavily contested midterm elections coming up, I’ve completely forgotten about Disney (NYSE:DIS). Yet perhaps that’s for a good reason. Sometimes, flying under the radar is the key to success.
While I wouldn’t call DIS stock a superb October investment, it was one of the few Dow 30 companies to keep the bears at bay. Yes, Disney shares lost 2% last month, but I consider that a victory against the bigger picture. The underlying index dropped almost 6% during the same timeframe.
But with DIS stock, I’m not so much interested in analyzing stats than I am assessing its potential. Indeed, I think Disney is ideally positioned, and even more so if broader bearishness continues.
As I explained my thoughts on AMC Entertainment (NYSE:AMC) in another article, people seek escapism during troubled times. AMC benefits because it presents value-packed entertainment. In a similar fashion, Disney offers that same escapism but through multiple avenues. Thanks to its vast entertainment empire, I see DIS stock moving higher from here.
TJ Companies (TJX)
A quick look at Amazon’s (NASDAQ:AMZN) price chart reveals that the retail markets haven’t found a complete respite. Nevertheless, TJX Companies (NYSE:TJX) could end up being one of the best stocks to come out of this sector.
For one thing, TJX stock has avoided the severe volatility impacting so many other competitors. For October, shares have dropped a little bit less than 3%, which is really nothing. The benchmark exchange-traded fund SPDR S&P Retail ETF (NYSEARCA:XRT) has fallen 6.5% during the same timeline.
Another factor that boosts TJX stock is the underlying company’s business. TJX specializes in off-season, discounted fashion and home goods. During an economic upheaval, everyday low pricing drives foot traffic into stores. Even during an economic upswing, very few people are going to turn down a good deal.
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Visa - >>> 3 Growth Stocks to Buy and Hold for the Next 50 Years
by Neha Chamaria, Chris Neiger, and Maxx Chatsko
Motley Fool
November 21, 2018
https://finance.yahoo.com/news/3-growth-stocks-buy-hold-213500910.html
Growth stocks outperform the market because they're able to grow revenues at a faster pace than the industry average year after year. How long can such growth last, though? The answer could surprise you.
There are some great companies out there that can potentially grow bigger and better for not just years, but decades, thanks to a strong footing and innovative approach to growth in an industry with a huge addressable market. They're the kind of growth stocks you'd want to buy and hold for as many as 50 years. Here are three that our Motley Fool contributors have identified: NextEra Energy Partners (NYSE: NEP), Visa (NYSE: V), and Amazon (NASDAQ: AMZN).
Read along to learn what makes these stocks such terrific long-term buys.
A fast-growing, high-yielding renewable energy stock
Maxx Chatsko (NextEra Energy Partners): It's easy to be pessimistic when it comes to humanity's response to climate change, but that has a lot to do with pessimistic headlines. The trajectories of renewable energy technologies -- which are exponential, not linear -- suggest humanity could actually end up crushing long-term clean energy and climate goals. And it's all supported by cold, hard data.
Onshore wind power is set to replace hydropower as the top renewable energy source in the United States in 2018 -- one year ahead of the most ambitious estimate... from 2017. Current trends indicate wind and solar could combine to generate 25% to 30% of total U.S. electricity by 2030. That doesn't even include an estimated 24,000 megawatts of offshore wind power currently in the nation's pipeline or the very real possibility that nearly all of the country's coal-fired power plants might be retired by 2040.
That's great news for companies with leading positions in renewable energy and ambitious plans to plow full steam ahead into the future. NextEra Energy Partners is one such business. It owns 4,700 megawatts of wind and solar to go along with 4 billion cubic feet per day of natural gas pipeline capacity in South Texas. In other words, it's all over the future of energy in America -- and it's only getting started.
The company's close association with NextEra Energy, which expects to grow its renewable energy asset backlog to 40,000 megawatts by 2020, provides easy access to great growth assets. The pair just completed a transaction that added $1.275 billion in wind and solar assets to the portfolio of NextEra Energy Partners. That provides enough firepower to grow the dividend (currently yielding 3.8%) at least 12% per year through 2023.
That's a big reason why management thinks it can deliver total returns of around 16% per year between now and then. That means an investment of $1,000 today would grow to $2,100 by 2023 -- if management delivers. While it could fall short in the next five years for any number of reasons, investors have to like the chances for growth in the next 50 years.
Fintech is the next big thing to profit from
Neha Chamaria (Visa): As the world goes digital, a company that's investing in the next wave of digital payments should have a bright future. That's why I believe in Visa, a company whose branded cards you're probably already using, thanks to your bank, which probably issued them.
As cashless modes of payment and e-commerce gather steam, more banks will scramble to issue debit, credit, and prepaid cards. With nearly 3.3 billion cards in circulation across the globe, Visa is a top choice for merchants and banks alike. For Visa, every additional card issued on its payments-processing network adds value to its business. Visa earns transaction and volume fees every time someone swipes its card to make a purchase.
Emerging markets are a hotbed of opportunities for Visa, and the company is going all out to exploit them. For example, Visa recently renewed its relationship with India's leading private and public sector banks, even as it bought a stake in Billdesk, one of the nation's largest online-payment gateways. The Indian government's aggressive cashless drive makes the nation one of the largest potential markets for Visa. Likewise in Latin America, Visa recently struck deals with a leading travel agency and card issuer.
Visa also is tapping new technologies and trends such as mobile payments. Examples include Visa Checkout, which allows users to make payments through Visa with a single-click option on integrated digital wallets, and the company's collaboration with tech giant IBM to use the latter's Internet of Things platform to embed payments into devices and home appliances.
Each of these moves is futuristic, which, when combined with Visa's network effect moat and a high-margin business, makes it a compelling stock to own for decades to come.
Amazon just can't stop winning
Chris Neiger (Amazon): If you look at Amazon's stock price over the past six months, you'll notice it's relatively flat. But don't let the steep share-price drop that happened in October fool you -- this company's best days still are ahead of it.
I think Amazon is a stock to buy and hold for the next five decades because of its ability to enter new markets and dominate them. For example, there's no question that Amazon is an e-commerce powerhouse, with about 49% of all online sales in the U.S. happening on the company's platform. That's impressive, but how does Amazon plan on keeping its competitive advantage? By keeping customers tied to its platform by selling Prime memberships that offer free two-day shipping, video- and music-streaming services, and more.
That's not just a service -- it's a way to get users hooked on using Amazon for more of their retail needs, and the data shows they spend more on Amazon's site once they become members. The great news is that in 2019, more than half of American households will have Prime membership.
While retail brings in most of Amazon's revenue, the company also has invested heavily in its Amazon Web Services (AWS) cloud-computing platform, as well. This gives the company a completely different business than retail to benefit from -- and with better margins -- and provides the company with a bigger chance of having staying power for decades to come. AWS is the No. 1 public cloud-computing company, far outpacing its No. 2 rival Microsoft, and the market is expected to grow to $302 billion by 2021.
If all of that wasn't enough to help give Amazon staying power, the company just recently became the third-largest digital ad platform in the U.S. That's notable because in the next few years, Amazon's advertising operating income could surpass Amazon's AWS operating income and become an even more significant part of the company's overall business.
Amazon is one of those rare companies that can evaluate a new market and enter it, then beat nearly every competitor in that space -- and then go and do the same thing a few years later in a completely different area. For that reason, I think Amazon is a great buy-and-hold stock for the next 50 years.
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>>> Paychex, Inc. provides payroll, human resource (HR), retirement, and insurance services for small to medium-sized businesses in the United States and Europe. The company offers payroll processing services; payroll tax administration services; employee payment services; and regulatory compliance services, such as new-hire reporting and garnishment processing. It also provides HR outsourcing services, including Paychex HR solutions comprising payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative; and retirement services administration, including plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition, the company offers insurance services for property and casualty coverage, such as workers' compensation, business-owner policies, and commercial auto, as well as health and benefits coverage, including health, dental, vision, and life; cloud-based HR administration software products for employee benefits management and administration, time and attendance, recruiting, and onboarding solutions; and other HR services and products, such as employee handbooks, management manuals, and personnel and required regulatory forms. Further, it provides various accounting and financial services to small to medium-sized businesses comprising payroll funding and outsourcing services, which include payroll processing, invoicing, and tax preparation; and various services, such as payment processing services, financial fitness programs, and a small-business loan resource center. The company markets its products and services through direct sales force. Paychex, Inc. was founded in 1979 and is headquartered in Rochester, New York.
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>>> As Banks Embrace Biometric Tracking of Customers, Cybertheft Explodes in Mexico
by Don Quijones
Apr 8, 2018
https://wolfstreet.com/2018/04/08/banks-biometric-tracking-of-customers-in-cybertheft-mexico/
With impeccable timing.
Criminal organizations in Mexico have branched out into a lucrative new market and revenue stream: big data. They have developed innovative practices to obtain sensitive user information by lifting data from the databases of government agencies such as Condusef, Consar and Buró de Crédito. They call bank customers and spoof on the caller ID screen the phone number of the bank they claim to represent. To gain the target’s trust, they give the credit card security code to the target and ask if it matches what they see on the back of their card. And it goes from there. Now, they’re about to be gifted an invaluable cache of data: the biometric identifiers of Mexican bank customers.
In recent years, Mexico has become a haven for the black market of stolen personal data of all kinds — enough to earn it ninth place in PriceWaterhousecooper’s latest list of “economic crime” hot spots. According to Symantec, in 2015 Mexico lost 101.4 billion pesos ($6.7 billion at the prevailing exchange rate) in breaches, identity theft, and other unlawful cyber activity per year, about 12 times more than the total annual losses from fraud committed against banks.
A large part of the problem is the widespread impunity cyber criminals enjoy in the country, owing to the absence of adequate legal tools and the lack of enforcement of the existing laws. Cyber theft in Mexico is not just the preserve of isolated hackers but is dominated by highly professional criminal organizations. According to Sebastian Brenner, a security strategist for Symantec Latin America, these are “very well structured groups, with experts for every stage of the process: infiltration, capture, commercialization.”
Now, these criminal organizations are eying the most personal data of all: the biometric identifiers of millions of Mexican bank customers.
This year, banks in Mexico are required to begin collecting biometric data (finger prints and iris scans) on all of their customers. Whenever a customer asks for a new home or car loan, cashes a paycheck, applies for a credit card, or opens a new savings account, the bank will have to request the customer’s digital fingerprints and then match those fingerprints with data against information in the database of the National Electoral Institute.
The law is only in its infancy and it’s highly unlikely that all of Mexico’s banks — in particular the smaller ones — will be able to develop the infrastructure needed to comply with the new rules by the end of this year.
As is the case with biometric programs being tried and tested all over the world right now, from the uncharted backwaters of long-forgotten war zones to the bustling metropolises of the West or East, no one is being consulted along the way.
Biometric identification systems are already encroaching into more and more facets of everyday life. Most national passports these days include biometric data. Driver licenses in the US already have them or soon will. In India, biometric data is starting to underpin everything. Meanwhile, millions — perhaps billions — of people have volunteered their digital fingerprints to log into their smartphones and other digital devices. In other words, people are already giving away their most private data to work, communicate, cross borders, or get on planes.
The government of Mexico is already finalizing its own national ID scheme. According to the former Secretary of Finance and Public Credit, José Antonio Meade, by the summer of 2018 all Mexicans will have a single biometric identification number.
The development of a single biometrics database to be used by banks and government raises serious questions about data privacy and financial security. As recent data leaks have shown, most databases remain incredibly porous, even in countries with far more advanced cyber security systems than Mexico. In Mexico almost one-third of all cyber attacks registered in 2015 targeted government agencies. A further 26% were aimed at private sector institutions, including banks. These are the selfsame organizations that will soon be entrusted to protect tens of millions of Mexicans’ most personal data — the biological traits that make them unique.
“Biometrics are tricky,” says Woodrow Hartzog, an Associate Professor of Law at Samford University. “They can be great because they are really secure. It’s hard to fake someone’s ear, eye, gait, or other things that make an individual uniquely identifiable. But if a biometric is compromised, you’re done. You can’t get another ear.” In other words, if the newly harvested data is hacked by one of Mexico’s burgeoning ranks of cyber criminals, which it almost certainly will be, there is no way of undoing the damage done. By Don Quijones.
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>>> Factset Research Systems Inc. is engaged in providing integrated financial information and big data analytical applications for the global investment community. The Company's segments include the U.S., Europe and Asia Pacific. The U.S. segment services finance professionals, including financial institutions throughout the Americas. The European segment maintains offices in France, Germany, Italy, Ireland, Latvia, Luxembourg, the Netherlands, Spain, South Africa, Sweden and Dubai. The Asia Pacific segment maintains office locations in Australia, Hong Kong, Singapore and Mumbai, India. The Company delivers insight and information to investment professionals through its analytics, service, content, and technology. Its offerings include a complete services solution focused on verifying, cleaning and loading portfolio data across asset classes, and an execution management system. The Company offers third-party content through desktop, wireless and off-platform solutions. <<<
>>> Fiserv, Inc., together with its subsidiaries, provides financial services technology worldwide. The company?s Payments and Industry Products segment provides debit and credit card processing and services; electronic bill payment and presentment services; Internet and mobile banking software and services; person-to-person payment services; and other electronic payments software and services. This segment also offers card and print personalization services; investment account processing services for separately managed accounts; and fraud and risk management products and services. Its Financial Institution Services segment provides account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services, and other products and services that support various types of financial transactions. This segment also offers a range of services, such as customization, business process outsourcing, education, consulting, and implementation services; and ACH, treasury management, source capture optimization, and enterprise cash and content management solutions, as well as case management and resolution services to the financial services industry. The company also provides document and payment card production and distribution, check processing and imaging, source capture systems, and lending and risk management products and services. Fiserv, Inc. serves banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants, mutual savings banks, and building societies. The company was founded in 1984 and is headquartered in Brookfield, Wisconsin. <<<
>>> ProAssurance Corporation, through its subsidiaries, provides property and casualty insurance, and reinsurance products in the United States. The company operates through Specialty Property and Casualty, Workers' Compensation, and Lloyd's Syndicate segments. It offers professional liability insurance for healthcare professionals and facilities; professional liability insurance for attorneys; liability insurance for medical technology and life sciences risks; and workers' compensation insurance for employers, groups, and associations. The company markets its products through independent agencies and brokers, as well as an internal sales force. ProAssurance Corporation was founded in 1976 and is headquartered in Birmingham, Alabama. <<<
Synchrony Financial - >>> Are American Debt Slaves Getting in Trouble Again?
by Wolf Richter
May 1, 2017
http://wolfstreet.com/2017/05/01/are-american-debt-slaves-getting-in-trouble-again/
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The economy depends on them, but they’re cracking.
American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up?
Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.
Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.
Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.
Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.
The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves
In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.
Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.
Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”
This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse.
And what changes would most positively affect their financial situations? The top two: earning more money (29%) and getting rid of debt (26%). Alas, those two, for many people, are precisely the most elusive factors in the current economy.
But there is a lot of irony in how Americans look at debt. The study asked them what they would do with a $2,000 windfall: 40% said they’d pay down debt. And this is the irony: they’d pay down their maxed out credit cards, but a few months later, their credit cards would be maxed out again, and thus that $2,000 would be consumed. Because the money always has to get spent.
It’s not like consumers don’t know this. According to the study, one quarter of Americans flagged “excessive/frivolous” spending as the financial pitfall they are prone to. And how are these debt slaves keeping the plates spinning? According to the study:
•35% said they pay as much as they can on each of their debts each month.
•19% said they pay off debts with the highest interest first and make minimum payments to others.”
•18% (and 25% of Millennials) said they pay what I can when they can.
•17% make minimum monthly payments to each creditor.
The study didn’t say how many of them are beginning to fall behind on their debts. But that number is growing, as the soaring net charge-offs at Capital One, Synchrony, and Discover show.
“One of the hardest challenges is resisting the urge to splurge on items that are beyond our budget,” explained Rebekah Barsch, VP of planning, Northwestern Mutual. “While giving into temptation can feel good in the short-term, it often contributes to an ongoing cycle of buy and borrow that can become hard to escape.”
All the more so because buy-and-borrow has become the replacement American dream for a large number of people – with the corollary: if you can borrow more, you can buy more. But these debt slaves are a crucial driver of the economy. Spending money they don’t have on goods and services they cannot afford and may not need keeps the economy from sinking. If they ever started living within their means and paying off debt as they go, the economy would quickly reveal its true colors.
This time, lousy consumer spending and the “weather” were blamed for the hobbling economy, even as inflation rose to the Fed’s target. Read… Economy “Surprises” to Downside, Growth Near Zero
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Glass-Steagall - >>> Getting Serious Now? Senators Warren, McCain, Cantwell, and King Introduce New Glass-Steagall Act
by Wolf Richter
Apr 6, 2017
http://wolfstreet.com/2017/04/06/senators-warren-mccain-cantwell-king-introduce-new-glass-steagall-act/
Sometimes Senators can move fast.
Earlier today, I reported on a confidential meeting yesterday where White House economic advisor and ex-Goldman executive Gary Cohn had dropped a bombshell by speaking in support of reverting to a version of the Glass-Steagall Act. It had once separated commercial banks from all other financial activities, but was repealed in 1999 – with terrible consequences that ended in the Financial Crisis.
The digital ink on that article wasn’t even dry when Senator Elizabeth Warren (D-Massachusetts), who’d been part of that meeting, announced today that she and three other senators – John McCain (R-Arizona), Maria Cantwell (D-Washington), and Angus King (I-Maine) – would re-introduce “the 21st Century Glass-Steagall Act.”
Senator Warren said in the statement that it would protect American taxpayers, help community banks and credit unions compete, and decrease the likelihood of future financial crises:
Reinstating Glass-Steagall has broad bipartisan support from the public and policymakers, including from President Trump, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn. Both the 2016 Democratic and Republican party platforms supported reinstating Glass-Steagall.
The legislation, first introduced in the 113th Congress [2013-2014] by Senators Warren, McCain, Cantwell and King, would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities.
The bill would clarify regulatory interpretations of banking law provisions that undermined the protections under the original Glass-Steagall and would make “Too Big to Fail” institutions smaller and safer, minimizing the likelihood of a government bailout.
Senator Warren added:
“Despite the progress since 2008, the biggest banks continue to threaten our economy. For 50 years, the original Glass-Steagall Act helped produce broad-based economic growth and avoid any major financial crisis.”
“The 21st Century Glass-Steagall Act will re-establish the wall between commercial and investment banking and make our financial system more stable and secure. Reinstating Glass-Steagall has broad bipartisan support, and it’s time to get it done.”
Senator McCain said:
“Since core provisions of the Glass-Steagall Act were repealed in 1999, a culture of excessive risk-taking has taken root in the banking world, placing the financial security of millions of hardworking American taxpayers at risk.”
“Even with the thousands of pages of misguided and burdensome regulations imposed by Dodd-Frank in the wake of the 2008 financial crisis, there are indications that this culture of risky behavior continues today.”
“That’s why I believe it is critical for Congress to reinstate the protections that separated main street banks and investment banks. Our 21st Century Glass-Steagall Act of 2017 would return banking ‘back to the basics’ and go far to restore Americans’ confidence in the banking system.”
Senator Cantwell said:
“It has been clear for 60 years that separating commercial and investment banking would protect consumers from having to pay for the debts of bad financial practices of Wall Street. We need to reinstate this sharp bright line.”
“Congress should take steps to see that taxpayers across Maine and America aren’t again faced with having to bail out big Wall Street institutions at the expense of Main Street.”
Senator King said:
“This bill will advance common-sense reforms that will provide strong protections for Americans against the spillover effects of another financial institution failure.”
The statement also added some historical perspective on how the repeal happened in two ways, to purloin a phrase from Hemmingway – gradually and then suddenly:
Starting in the 1980s, regulators at the Federal Reserve and the Office of the Comptroller of the Currency reinterpreted longstanding legal terms in ways that slowly broke down the wall between investment and depository banking and weakened Glass-Steagall. In 1999, after 12 attempts at repeal, Congress passed the Gramm-Leach-Bliley Act to repeal the core provisions of Glass-Steagall.
I remain more doubtful than hopeful. Introducing legislation happens all the time. As Senator Warren pointed out, she had already introduced this act in prior years, and it went nowhere. Other efforts have also been made.
Just this year, Representative Marcy Kaptur (D-Ohio) along with Reps. Walter Jones (R-North Carolina), Tim Ryan (D-Ohio), and Tulsi Gabbard (D-Hawaii) re-introduced legislation to reinstate the Glass-Steagall Act. It too went nowhere.
Nevertheless, perhaps this time, the Senators will pick up enough momentum to get this act airborne.
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Allied World Assurance - >>> 6 Stocks With Growing Yield and Strong Returns
GuruFocus.com
October 10, 2016
http://finance.yahoo.com/news/6-stocks-growing-yield-strong-211748598.html
- By Tiziano Frateschi
Using the GuruFocus All-In-One Screener, I want to highlight stocks that have a 5-year growing dividend yield with strong profitability and a long-term track of solid returns and growing asset value.
Church & Dwight Co. Inc.(CHD) has a dividend yield that has grown by 31.80% over the last five years. The yield is now 1.49% with a payout ratio of 40%. The company has a 10-year asset growth rate of 8%, supported by a current return on assets (ROA) of 10.66% that, during the last 10 years, has had a median value of 9.19%.
The GuruFocus profitability and growth rank of 9/10 is confirmed by a current return on equity (ROE) of 22.76% that has been strong over the last 10 years, with an average ratio of 17.23%. ROE and ROA are outperforming the industry median and are ranked higher than 84% of competitors. Financial strength is ranked 6/10 and shows a cash to debt ratio of 0.20 that is underperforming 72% of its competitors and an equity to asset ratio of 0.47 that is below the industry median of 0.52.
Church & Dwight develops, manufactures and markets household, personal care and specialty products. The Company has eight power brands, Arm & Hammer, Trojan, Oxiclean, Spinbrush, First Response, Nair, Orajel and Xtra.
The largest investors in the company among the gurus are Ron Baron (Trades, Portfolio) with 1.42% of outstanding shares, followed by Jeremy Grantham (Trades, Portfolio) with 0.36%, Mario Gabelli (Trades, Portfolio) with 0.16%, Joel Greenblatt (Trades, Portfolio) with 0.1%, Pioneer Investments (Trades, Portfolio) with 0.1% and Paul Tudor Jones (Trades, Portfolio) with 0.03%.
CVS Health Corp. (CVS) has a dividend yield that has grown by 31.60% over the past five years. The yield is now 1.88% with a payout ratio of 36%. The company has a 10-year's asset growth rate of 15%, supported by a current ROA of 5.40% that, during the last 10 years, has had a median value of 6.14%.
The GuruFocus profitability and growth rank of 8/10 is confirmed by a current ROE of 13.18% that over the last 10 years has an average ratio of 11.33%. ROE and ROA are outperforming the industry median and are ranked higher than 60% of their competitors. Financial strength has a rating of 6/10. Its cash to debt ratio of 0.04 is underperforming 100% of its competitors and its equity to asset ratio of 0.38 is barely above the industry median of 0.34.
CVS is an integrated pharmacy health care provider. The company has three segments: Pharmacy Services, Retail Pharmacy and Corporate.
Pioneer Investments (Trades, Portfolio), who holds 0.54% of outstanding shares, is the main investor of the company among the gurus, followed by Jim Simons (Trades, Portfolio) with 0.36%, PRIMECAP Management (Trades, Portfolio) with 0.33%, Jeremy Grantham (Trades, Portfolio) with 0.17% and Mario Gabelli (Trades, Portfolio) with 0.11%.
Allied World Assurance Co. Holdings AG (AWH) has a dividend yield that has grown by 29.40% over the past five years. The yield is now 2.38% with a payout ratio of 52%. The company has a 10-year's asset growth rate of 7%, supported by a current ROA of 1.31% that has had a median value of 4.14% over the last 10 years.
The GuruFocus profitability and growth rank of 7/10 is confirmed by a current ROE of 4.98% that over the last 10 years, had an average ratio of 14.34%. ROE and ROA are underperforming the industry median and are ranked lower than 74% of their competitors. Financial strength has a ratio of 7/10 and shows a cash to debt ratio of 0.44 that is underperforming 77% of its competitors and an equity to asset ratio of 0.26.
Allied World Assurance is a Swiss-based insurance and reinsurance holding company whose subsidiaries underwrite a diverse portfolio of property and casualty lines of business.
The main investors of the company among the gurus are Columbia Wanger (Trades, Portfolio) with 1.08% of outstanding shares, followed by Jim Simons (Trades, Portfolio) with 0.44%, Keeley Asset Management Corp (Trades, Portfolio) with 0.31% and Chuck Royce (Trades, Portfolio) with 0.21%.
Packaging Corp. of America (PKG) has a dividend yield that has grown by 29.30% over the last five years. The yield is now 2.83% with a payout ratio of 47%. The company has a 10-year asset growth rate of 13%, supported by a current ROA of 8.48% that, during the last 10 years, has had a median value of 7.87%.
The GuruFocus' profitability and growth rating of 9/10 is confirmed by a current ROE of 27.59%, which has been steady over the last 10 years with an average ratio of 22.48%. ROE and ROA are outperforming the industry median and are ranked higher than 80% of their competitors. Financial strength has a rating of 6/10, it shows a cash to debt ratio of 0.09 that is underperforming 82% of its competitors and an equity to asset ratio of 0.31 that is below the industry median of 0.51.
Packaging Corp. of America is a producer of container board and corrugated products in the United States. The company also produces multi-color boxes and displays, as well as meat boxes and wax-coated boxes for the agricultural industry.
First Eagle Investment (Trades, Portfolio) holds 1.33% of outstanding shares and is the main investor in the company among the gurus, followed by HOTCHKIS & WILEY with 0.93%, Joel Greenblatt (Trades, Portfolio) with 0.54%, Robert Olstein (Trades, Portfolio) with 0.11%, Pioneer Investments (Trades, Portfolio) with 0.09%, Ray Dalio (Trades, Portfolio) with 0.01% and Paul Tudor Jones (Trades, Portfolio) with 0.01%.
NewMarket Corp. (NEU) has a dividend yield that has grown by 28.60% over the last five years. The yield is now 1.59% with a payout ratio of 31%. The company has a 10-year asset growth rate of 7%, supported by a current ROA of 18.50% that, during the last 10 years, has had a median value of 17.95%.
The Gurufocus' profitability ratio of 9/10 is even confirmed by a current return on equity of 58.10% that is strong since the last 10 years, with an average ratio of 41.53%. ROE and ROA are outperforming the industry median, with a ratio that is ranked higher than 94% of their competitors. Financial strength has a ratio of 6/10 and it shows a cash to debt ratio of 0.30 that is under performing 30% of its competitors and an equity to asset ratio of 0.32 that is below industry median of 0.54.
NewMarket Corp. manufactures and sells petroleum additives used in lubricating oils and fuels to enhance their performance in machinery, vehicles and other equipment. The petroleum additives market has two products: lubricant additives and fuel additives.
The main investors among the gurus are Jim Simons (Trades, Portfolio) with 0.42% of outstanding shares, followed by Mario Gabelli (Trades, Portfolio) with 0.14% and Murray Stahl (Trades, Portfolio) with 0.01%.
Equifax Inc. (EFX) has a dividend yield that has grown by 28% over the last five years. The yield is now 0.98% with a payout ratio of 32%. The company has a 10-year asset growth rate of 9%, supported by a current ROA of 8.57% that, during the last 10 years, has had a median value of 7.88%.
The GuruFocus profitability and growth ranking of 8/10 is confirmed by a current ROE of 19.72% that over the last 10 years had an average ratio of 16.48%. ROE and ROA are outperforming the industry median and are ranked higher than 79% of their competitors. Financial strength has a rating of 5/10 and shows a cash to debt ratio of 0.03 that is underperforming 97% of its competitors and an equity to asset ratio of 0.38 that is below the industry median of 0.49.
Equifax Inc. provides information solutions and human resources business process outsourcing services for businesses and consumers.
Ken Fisher (Trades, Portfolio) holds 0.16% of outstanding shares and is the largest investor among the gurus followed by Jeremy Grantham (Trades, Portfolio) with 0.14% and Meridian Funds (Trades, Portfolio) with 0.14%
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Equifax - >>> 6 Stocks With Growing Yield and Strong Returns
GuruFocus.com
October 10, 2016
http://finance.yahoo.com/news/6-stocks-growing-yield-strong-211748598.html
- By Tiziano Frateschi
Using the GuruFocus All-In-One Screener, I want to highlight stocks that have a 5-year growing dividend yield with strong profitability and a long-term track of solid returns and growing asset value.
Church & Dwight Co. Inc.(CHD) has a dividend yield that has grown by 31.80% over the last five years. The yield is now 1.49% with a payout ratio of 40%. The company has a 10-year asset growth rate of 8%, supported by a current return on assets (ROA) of 10.66% that, during the last 10 years, has had a median value of 9.19%.
The GuruFocus profitability and growth rank of 9/10 is confirmed by a current return on equity (ROE) of 22.76% that has been strong over the last 10 years, with an average ratio of 17.23%. ROE and ROA are outperforming the industry median and are ranked higher than 84% of competitors. Financial strength is ranked 6/10 and shows a cash to debt ratio of 0.20 that is underperforming 72% of its competitors and an equity to asset ratio of 0.47 that is below the industry median of 0.52.
Church & Dwight develops, manufactures and markets household, personal care and specialty products. The Company has eight power brands, Arm & Hammer, Trojan, Oxiclean, Spinbrush, First Response, Nair, Orajel and Xtra.
The largest investors in the company among the gurus are Ron Baron (Trades, Portfolio) with 1.42% of outstanding shares, followed by Jeremy Grantham (Trades, Portfolio) with 0.36%, Mario Gabelli (Trades, Portfolio) with 0.16%, Joel Greenblatt (Trades, Portfolio) with 0.1%, Pioneer Investments (Trades, Portfolio) with 0.1% and Paul Tudor Jones (Trades, Portfolio) with 0.03%.
CVS Health Corp. (CVS) has a dividend yield that has grown by 31.60% over the past five years. The yield is now 1.88% with a payout ratio of 36%. The company has a 10-year's asset growth rate of 15%, supported by a current ROA of 5.40% that, during the last 10 years, has had a median value of 6.14%.
The GuruFocus profitability and growth rank of 8/10 is confirmed by a current ROE of 13.18% that over the last 10 years has an average ratio of 11.33%. ROE and ROA are outperforming the industry median and are ranked higher than 60% of their competitors. Financial strength has a rating of 6/10. Its cash to debt ratio of 0.04 is underperforming 100% of its competitors and its equity to asset ratio of 0.38 is barely above the industry median of 0.34.
CVS is an integrated pharmacy health care provider. The company has three segments: Pharmacy Services, Retail Pharmacy and Corporate.
Pioneer Investments (Trades, Portfolio), who holds 0.54% of outstanding shares, is the main investor of the company among the gurus, followed by Jim Simons (Trades, Portfolio) with 0.36%, PRIMECAP Management (Trades, Portfolio) with 0.33%, Jeremy Grantham (Trades, Portfolio) with 0.17% and Mario Gabelli (Trades, Portfolio) with 0.11%.
Allied World Assurance Co. Holdings AG (AWH) has a dividend yield that has grown by 29.40% over the past five years. The yield is now 2.38% with a payout ratio of 52%. The company has a 10-year's asset growth rate of 7%, supported by a current ROA of 1.31% that has had a median value of 4.14% over the last 10 years.
The GuruFocus profitability and growth rank of 7/10 is confirmed by a current ROE of 4.98% that over the last 10 years, had an average ratio of 14.34%. ROE and ROA are underperforming the industry median and are ranked lower than 74% of their competitors. Financial strength has a ratio of 7/10 and shows a cash to debt ratio of 0.44 that is underperforming 77% of its competitors and an equity to asset ratio of 0.26.
Allied World Assurance is a Swiss-based insurance and reinsurance holding company whose subsidiaries underwrite a diverse portfolio of property and casualty lines of business.
The main investors of the company among the gurus are Columbia Wanger (Trades, Portfolio) with 1.08% of outstanding shares, followed by Jim Simons (Trades, Portfolio) with 0.44%, Keeley Asset Management Corp (Trades, Portfolio) with 0.31% and Chuck Royce (Trades, Portfolio) with 0.21%.
Packaging Corp. of America (PKG) has a dividend yield that has grown by 29.30% over the last five years. The yield is now 2.83% with a payout ratio of 47%. The company has a 10-year asset growth rate of 13%, supported by a current ROA of 8.48% that, during the last 10 years, has had a median value of 7.87%.
The GuruFocus' profitability and growth rating of 9/10 is confirmed by a current ROE of 27.59%, which has been steady over the last 10 years with an average ratio of 22.48%. ROE and ROA are outperforming the industry median and are ranked higher than 80% of their competitors. Financial strength has a rating of 6/10, it shows a cash to debt ratio of 0.09 that is underperforming 82% of its competitors and an equity to asset ratio of 0.31 that is below the industry median of 0.51.
Packaging Corp. of America is a producer of container board and corrugated products in the United States. The company also produces multi-color boxes and displays, as well as meat boxes and wax-coated boxes for the agricultural industry.
First Eagle Investment (Trades, Portfolio) holds 1.33% of outstanding shares and is the main investor in the company among the gurus, followed by HOTCHKIS & WILEY with 0.93%, Joel Greenblatt (Trades, Portfolio) with 0.54%, Robert Olstein (Trades, Portfolio) with 0.11%, Pioneer Investments (Trades, Portfolio) with 0.09%, Ray Dalio (Trades, Portfolio) with 0.01% and Paul Tudor Jones (Trades, Portfolio) with 0.01%.
NewMarket Corp. (NEU) has a dividend yield that has grown by 28.60% over the last five years. The yield is now 1.59% with a payout ratio of 31%. The company has a 10-year asset growth rate of 7%, supported by a current ROA of 18.50% that, during the last 10 years, has had a median value of 17.95%.
The Gurufocus' profitability ratio of 9/10 is even confirmed by a current return on equity of 58.10% that is strong since the last 10 years, with an average ratio of 41.53%. ROE and ROA are outperforming the industry median, with a ratio that is ranked higher than 94% of their competitors. Financial strength has a ratio of 6/10 and it shows a cash to debt ratio of 0.30 that is under performing 30% of its competitors and an equity to asset ratio of 0.32 that is below industry median of 0.54.
NewMarket Corp. manufactures and sells petroleum additives used in lubricating oils and fuels to enhance their performance in machinery, vehicles and other equipment. The petroleum additives market has two products: lubricant additives and fuel additives.
The main investors among the gurus are Jim Simons (Trades, Portfolio) with 0.42% of outstanding shares, followed by Mario Gabelli (Trades, Portfolio) with 0.14% and Murray Stahl (Trades, Portfolio) with 0.01%.
Equifax Inc. (EFX) has a dividend yield that has grown by 28% over the last five years. The yield is now 0.98% with a payout ratio of 32%. The company has a 10-year asset growth rate of 9%, supported by a current ROA of 8.57% that, during the last 10 years, has had a median value of 7.88%.
The GuruFocus profitability and growth ranking of 8/10 is confirmed by a current ROE of 19.72% that over the last 10 years had an average ratio of 16.48%. ROE and ROA are outperforming the industry median and are ranked higher than 79% of their competitors. Financial strength has a rating of 5/10 and shows a cash to debt ratio of 0.03 that is underperforming 97% of its competitors and an equity to asset ratio of 0.38 that is below the industry median of 0.49.
Equifax Inc. provides information solutions and human resources business process outsourcing services for businesses and consumers.
Ken Fisher (Trades, Portfolio) holds 0.16% of outstanding shares and is the largest investor among the gurus followed by Jeremy Grantham (Trades, Portfolio) with 0.14% and Meridian Funds (Trades, Portfolio) with 0.14%
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>>> Fiserv to Acquire Online Banking Solutions, Inc.
December 12, 2016
http://finance.yahoo.com/news/fiserv-acquire-online-banking-solutions-143000282.html
BROOKFIELD, Wis.--(BUSINESS WIRE)--
Fiserv, Inc. (FISV), a leading global provider of financial services technology solutions, announced today that it has entered into a definitive agreement to acquire Atlanta-based Online Banking Solutions, Inc. (OBS). Through this acquisition, Fiserv will gain additional cash management and digital business banking capabilities, which complement and enrich its existing solutions.
“Financial institutions are increasingly focused on deepening relationships with commercial customers,” said Jeffery Yabuki, President and Chief Executive Officer, Fiserv. “The addition of Online Banking Solutions’ technologies further enables Fiserv clients to provide greater value to their commercial customers through sophisticated cash management solutions when and where they need them.”
OBS offers a modern cash management platform with the user experience and functionality that sophisticated business users expect. Its cash management capabilities are designed for digital channels, have easy-to-use interfaces and enable notification and authentication via smartphones, tablets and wearable devices. A single platform facilitates a unified experience across multiple devices, while integrated security and analytics offer enhanced fraud prevention. In addition to cash management, OBS provides a secure browser that functions as a secure, convenient gateway to applications provided by financial institutions to their commercial customers.
OBS received the “Up-And-Comer Award” in the Aite Group U.S. Cash Management Vendor Evaluation 2016.
OBS products are currently integrated across a number of Fiserv solutions and with other core processing platforms. OBS product integration is currently available across Fiserv core account processing platforms such as Signature®, Premier® and Cleartouch®, and post-closing will include DNA®.
“Our relationship with Fiserv is already established through our activities with several mutual clients,” said Dan Myers, CEO, Online Banking Solutions. “Joining Fiserv allows us to create new opportunities for our associates and to broaden the reach of our leading solutions to more banks and credit unions, ultimately enabling them to better serve their commercial customers.”
The transaction is subject to customary closing conditions and is expected to close before the end of 2016. Financial terms have not been disclosed
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Visa -- >>> Consumers win as Visa and PayPal go from enemies to ... frenemies?
By Therese Poletti
July 21, 2016
PayPal users will be able to link their account directly to a Visa debit card thanks to a deal the two companies announced Thursday.
http://www.marketwatch.com/story/consumers-win-as-visa-and-paypal-go-from-enemies-to-frenemies-2016-07-21?siteid=yhoof2
Visa Inc. and PayPal Holdings Inc. have signed a deal that might be the perfect example of what Michael Corleone said in “The Godfather Part II”—“Keep your friends close but your enemies closer.”
One of the most important aspects of the deal Visa and PayPal announced Thursday along with their quarterly earnings is that it will now be easier for consumers to use a Visa credit or debit card when paying with PayPal PYPL, +0.20% which currently defaults to a user’s PayPal account or their bank account. Any PayPal user who has had a payment default to a checking account, as opposed to the credit card that they thought they were using, can understand a rant two months ago by the CEO of Visa V, -0.72% in which he went after PayPal.
“They drive a lot of business our way. That’s supposedly the friend part of it,” Visa Chief Executive Charles Scharf said in May at the J.P. Morgan Technology Conference. “The foe part is where ... we and our clients get disintermediated from the transaction, the entire experience, and it causes tremendous customer service problems for the bank specifically.”
He added that he would love to figure out a different model that put consumer choice first, but was willing to declare war on PayPal if needed.
“The other door is where we go full steam and compete with them in ways that people have never seen before,” he said.
Instead, PayPal appears to have reached out with an olive branch, though the former eBay Inc. EBAY, +10.89% subsidiary did mention “threats of a targeted pricing action” from Visa in a conference call Thursday. The two companies forged a deal that will make it easier for consumers to use their Visa cards for payment on PayPal. In addition, Visa debit card customers can move money instantly via PayPal and its fast-growing Venmo unit, a digital wallet service for smartphones. Previously, there has been a waiting time for funds to clear in those transactions. PayPal also joins the Visa mobile payments framework and will provide more data to credit card companies on transactions.
“It is a fantastic thing for both companies,” said Michael Moeser, director of payments at Javelin Strategy & Research in Pleasanton, Calif., adding that the recent escalation of their rivalry had an impact on PayPal’s stock in late May. “When (PayPal CEO) Dan (Schulman) responded, Wall Street didn’t buy it that it was water under the bridge.”
The effects may not all be positive, however. The deal is likely to have some impact on PayPal’s profit margins, even if it drives higher volumes with more transactions.
“We expect the agreement could drive higher payment volumes for PayPal, but with lower transaction margins (higher mix of credit-card transactions),” said Colin Sebastian, an analyst with Robert W. Baird & Co., in a note to clients.
On its call with investors, PayPal executives said there may be a short-term rise in its expenses, similar to an acquisition, but of long-term benefit. The company also said the deal also opens up the door to more “new partnerships.”
PayPal no longer has the specter of a full-frontal attack from a payments giant hanging over its head and could even see better headway in physical payments, because the deal also opens up access to Visa mobile-payment stations in stores. Meanwhile, Visa is likely to experience a boost in online transaction volume.
The deal does not make the two companies best buddies, however: Visa still has a competing option in Visa Checkout, and PayPal seems to be accepting this change to its longtime practices only after threat of a corporate assault. Neither company saw big boosts in late trading after the deal, showing investors consider the effects to be rather neutral.
The big winner, for once, is consumers, who will receive easier transactions using two things most already have: A Visa card and PayPal account.
“Consumer choice is an important point of the discussion in the press release,” Scharf said in a conference call with analysts on Thursday. “What we have done in this agreement, we have tried to work with PayPay to take away the things that discourage people from working together and take away the bad customer experience.”
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Synchrony Financial - >>> More Growth Is in the Cards for Synchrony
By James Passeri
Jan 08, 2016
http://realmoney.thestreet.com/articles/01/08/2016/more-growth-cards-synchrony?puc=yahoo&cm_ven=YAHOO
When General Electric (GE) needed help offloading its appliances to cash-strapped customers during the Great Depression, it created Synchrony Financial (SYF).
The credit arm, which started as a lender for ovens and refrigerators, has since sprawled into the biggest private-label credit card in the country.
But as GE's CEO, Jeff Immelt, spent 2015 throwing out just about every GE finance business save the kitchen sink, more than $20 billion in Synchrony shares were added to the public market. And analysts say it's time to start buying them.
Last year alone, Immelt sold off more than $100 billion of assets that were tied to GE Capital, its longtime lending arm that, among other things, contributed to GE's ensnarement in the 2008 financial crisis as well as its slow recovery. His vision is to get GE back to its core industrial businesses, from manufacturing jet engines to railcars.
Immelt's ambitious effort, which launched in April, includes hiking GE's industrial share of total earnings to 90% by 2018 (from a mere 58% in 2014). And his shareholders appear ready to say goodbye to GE Capital and its stake in Synchrony (GE shares climbed 23% last year throughout the unwinding).
After first spinning Synchrony off in its own initial public offering in the summer of 2014, GE offloaded its remaining 85% equity stake for $20.4 billion last November, marking the biggest share exchange in history. (Immelt was simultaneously wrapping up the largest acquisition in GE's history -- $10 billion for French turbine-maker Alstom's energy businesses in Europe.)
At this point, it should be clear to investors that it's going to be difficult to recognize GE this year from, say, 2008, but the more difficult (and important) question is what investors should be thinking about Synchrony Financial.
In short, Wall Street appears to love Synchrony.
With an average price target of $38.89 (35% above where Synchrony closed Friday), 22 of Synchrony's 24 listed analysts recommend buying the stock, while the other two say hold, according to consensus data compiled by Bloomberg.
And as the company finds its balance without the backing of GE, the word is that Synchrony is going to be an agile competitor with plenty of room to outperform rivals like Discover (DFS) and American Express (AXP) through new partnerships.
American Express was plagued in 2015 by the loss of longtime partner Costco (COST), the sudden death of its president, Ed Gilligan, and unfavorable litigation that will allow AmEx's retailers the freedom to "steer" customers to rival cards.
Synchrony, on the other hand, has recently partnered with refiner Citgo, a deal that will become effective this quarter, which is just one of many healthy growth signs, Jefferies analyst John Hecht wrote in a recent note. Jefferies maintains a Buy position on Synchrony with a $42 price target.
"We believe Synchrony is one of the best-positioned players in the industry as it continues to benefit from strong loan growth as well as continued credit tailwinds," Hecht wrote. "We favor Synchrony into the quarter and expect American Express to continue to face headwinds."
Keefe, Bruyette & Woods is also among the most bullish, setting a $40 price target on Synchrony, and Nomura analysts have labeled Synchrony "our top pick in the cards."
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>>> Synchrony Financial operates as a consumer financial services company in the United States. The company offers private label credit cards, dual cards, and small and medium-sized business credit products; and promotional financing for consumer purchases, such as private label credit cards and installment loans. It also provides promotional financing to consumers for elective healthcare procedures or services, such as dental, veterinary, cosmetic, vision, and audiology; debt cancellation products; and deposit products, including certificates of deposit, individual retirement accounts, money market accounts, and savings accounts under the Optimizer+Plus brand. The company offers its credit products through programs established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers; and deposit products through multiple channels, including online, print, and radio advertising. Synchrony Financial was incorporated in 2003 and is headquartered in Stamford, Connecticut. Synchrony Financial (NYSE:SYF) operates independently of GE Consumer Finance, Inc. as of November 17, 2015. <<<
US Treasury money market funds -- >>> Debt-ceiling debate could put money funds into uncharted waters
October 22, 2015
Trevor Hunnicutt and Richard Leong
http://finance.yahoo.com/news/debt-ceiling-debate-could-put-200410183.html
BOSTON/NEW YORK, Oct 22 (Reuters) - A failure by Washington leaders to raise the federal debt ceiling by next month could test whether new regulations have made money market mutual funds more robust.
With $2.7 trillion in assets, money funds play a key role in the financial system as purchasers of corporate and government debt used to fund short-term operations. Some funds' managers were rattled when past debt showdowns cast doubt on the payment schedules of U.S. Treasury securities they held, though investors ultimately stayed with the funds.
Now Republicans in the U.S. Congress are once again resisting requests to raise the federal debt ceiling, leading to concerns the U.S. Treasury Department might not have enough cash to make interest payments due mid-November. The Treasury on Thursday decided to postpone a scheduled auction of two-year notes, citing the borrowing limit.
The threat of payment interruptions has already caused one-month T-bill rates to jump temporarily. This time, industry analysts say, money funds could face an extra squeeze because of reforms passed in 2014 that have sponsors converting funds into ones that hold more government-backed debt, which in the worst case could lose value if Washington seizes up.
More than $200 billion in funds are in the process of conversion, according to Peter Crane, who tracks the money-market industry, potentially shifting assets to the area that could be affected by a protracted debt-ceiling battle.
"If you have a debt showdown, the new rules are going to raise the risk," said Crane, publisher of the cranedata.com website. On the other hand the government money funds did not face big withdrawals during prior debt debates, a record Crane said could reduce the stakes for the industry this time around.
Still the situation is a somewhat ironic outgrowth of new rules going into effect in 2016. These were passed with an eye to strengthening so-called "prime" funds for institutional investors that hold a wide range of debt, including corporate paper, and which caused the biggest problems during the financial crisis.
Starting next year these funds will allow their net asset values to vary, or float away from the traditional $1-per-share mark, as a way to get investors used to day-to-day fluctuations.
Regulators allowed safer-seeming government funds to keep their traditional $1 per share value, however. They also exempted those funds from new rules that give fund boards new powers to limit withdrawals in times of stress, unless the government funds previously disclosed those abilities to investors.
Because investors prefer the fixed value and dislike withdrawal limits, funds including the $116 billion Fidelity Cash Reserves Fund have begun to convert from prime funds into government funds that are limited to the likes of treasuries and debt issued by agencies such as Fannie Mae and Freddie Mac. This potentially exposes more assets to Washington's foibles.
As of Sept. 30, the Fidelity fund had 41 percent of its portfolio in U.S. government agency paper, up from 12 percent in June, though it has reduced its holdings of Treasuries to 4 percent from 6 percent in June.
Fund analysts say another issue is the leeway given to government fund sponsors on whether to assume new powers to limit withdrawals, which could leave their hands tied in a crisis.
Fidelity and Federated Investors Inc have said they will not adopt the new limits on certain funds, and pledges like those "remove some potential arrows from the quiver that you might want to use in a moment of overwhelming stress," said Barry Weiss, director for Standard & Poor's Ratings Services.
Deborah Cunningham, Federated's chief investment officer for global money markets, said other SEC rules would still enable the funds to limit withdrawals in a crisis.
She also noted how institutional money fund holdings of Treasuries and other government securities have not changed much since 2013, suggesting the new rules have not had a big impact on the market. Lipper data shows institutional government money funds held $327 billion at Sept 30, down from $349 billion at the end of October 2013, for instance.
"The impact of the reforms has not been felt from a supply-demand perspective," Cunningham said.
Fidelity spokeswoman Sophie Launay said its policies reflect the preferences of its investors who want access to funds with stable asset values and not subject to withdrawal limits. Of the debt ceiling debate, she said, "We closely follow market events and developments. We are comfortable with the positioning of our money market mutual funds."
Fund analysts and executives say it is hard to predict exactly how disruptive events in Washington could become, and most still expect some type of deal. Jerome Schneider, head of the short-term and funding desk at Pacific Investment Management Co., said money managers learned from previous crises to avoid risky securities and said high demand for Treasuries should stabilize money markets.
A problem for any fund manager would be if the value of holdings like Treasury bills declined because of missed government interest payments, said Greg Fayvilevich, a Fitch Ratings director.
A manager holding those securities, he said, either would have to take a loss or hold them and hope for a quick resolution. "It will be a dilemma," Fayvilevich said.
Fitch pointed to the $9.3 billion Vanguard Admiral Treasury money market fund as one exposed to a debt-ceiling fight, with 44 percent of its portfolio invested in Treasuries maturing in November, including $1.6 billion of notes maturing Nov. 15.
Vanguard spokesman David Hoffman said the company is monitoring the situation in Washington, saying: "We remain confident in the prudent and conservative approach to managing our money market funds."
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>>> Ready or not, it's credit card chip and dip time: What you need to know
USA Today
Charisse Jones
http://www.msn.com/en-us/money/personal-finance/Ready-or-not-its-credit-card-chip-and-dip-time/ar-AAeY7uR?ocid=ansmsnmoney11
Thursday marks a milestone in the effort to shift the U.S. to the use of microchip-embedded credit cards, a more secure alternative to traditional cards that require the swipe of a magnetic stripe.
But not to worry if your new chip-enabled card has yet to arrive in the mail. The October deadline is more a call to action for retailers than a cutoff, electronic payment experts say.
"That's the date by which if a merchant doesn't have a chip terminal, and a counterfeit card is used at that location, they may be liable for that fraud on that transaction,'' says Stephanie Ericksen, vice president risk products, for Visa. But "we know, based on experience in other countries, it takes several years to get to critical mass. So we're seeing Oct. 1 as more of a kickoff toward increasing the momentum toward chip. People will still be able to use their (cards with) magnetic stripes.''
Chip, or "EMV,'' cards are more secure than those with just a magnetic stripe because they produce a unique code for each transaction, making them harder to counterfeit and preventing the card from being used for future fraudulent purchases.
A huge job to switch
The electronic payment industry has long called for adoption of such technology, but a series of high-profile data breaches at companies such as Target have underscored the need for more consumer protections.
Still, getting tens of millions of new cards in the hands of consumers, and then making sure millions of merchants can process them is a mammoth undertaking. Ericksen says that for nations like Australia, Brazil and Canada, it took two to three years to get to the point that more than 60% to 70% of the transaction volume was being made with chip cards, and four to five years to bump that up to more than 90%. "The U.S. is a much larger market,'' she says.
The Strawhecker Group (TSG), a management consulting company for the payments industry, found in a recent survey that just 27% of merchants in the U.S. will be able to process chip-enabled cards by Oct. 1, down from the 34% that was predicted in March.
"EMV adoption has been slower relative to other countries due to the number of moving parts involved in making this transition,'' Mike Strawhecker, principal at TSG, said in an emailed statement. "For example, there are thousands of banks that need to issue new cards to millions of consumers, millions of merchants that need to get their technology upgraded and staffs trained, as well as thousands of technology providers making changes to their infrastructures and offerings."
Retailers are not happy
But Mallory Duncan, general counsel and senior vice president of the National Retail Federation, says that many of the group's members are "disappointed'' that they are being required to spend what will amount to a cumulative $30 billion to $35 billion on the implementation of new chip readers, though banks and card companies generally have opted for the less-secure option of chip cards that require a signature, rather than a pin. In the U.S., many of the new chip-enabled credit cards require a signature only, and not a PIN.
"We're a little bit between a rock and a hard place,'' Duncan says of the Oct. 1 liability shift. "We're taking a baby step in order for the banks to save money, so that's the concern. ... If you're really serious about reducing fraud, we've known for years that pins greatly reduce fraud.''
Many retailers are instead implementing other systems that they feel will be more effective in blocking hacking. "They will install the chip-reading equipment,'' Duncan says, "but it's less of a priority.''
Still, Ericksen says there's been a great deal of progress. "We're very encouraged by what we're seeing so far,'' she says. "We're exactly where we expected to be. ... It's a lot of infrastructure to upgrade.''
As of Sept 15, more than 314,000 merchant locations in the U.S. were enabled to process chip cards, vs. 55,000 as of last September, Ericksen said in a briefing on the eve of the liability shift. Visa has also dramatically increased the number of chip-enabled cards that it has in the market, going from roughly 20 million at the end of August 2014, to 151.8 million as of mid-September. That represents roughly 21% of all Visa credit and debit cards in the U.S.
Also, the Payments Security Task Force says that roughly 60% of all cards from top issuers will be converted to chip by the end of this year, going to 98% by the end of 2017. Meanwhile, 40% of terminals are expected to be chip enabled by the end of 2015, according to the task force.
Effect on consumers
As chip cards, and retailers that can accept them, become ubiquitous, consumers will need to get used to changes at the cash register.
"I think there will be a learning curve for consumers ... because it's a big change in using something that we've been using the same way for decades,'' says Matt Schulz, senior industry analyst for CreditCards.com. "It's not hard. It's just different. ... Instead of swiping the card, you insert the card into the terminal and the card stays in there while you complete the transaction, whether it's signing or entering in a pin. And when the transaction is done, you take the card out of the terminal and go about your business.''
That change, Schulz says, is of concern to some retailers. "Confusion about the use of the new cards is going to make lines longer during the holiday shopping season because the customer might be confused about how it works,'' he says of what some merchants fear. "The employee at the checkout counter might be confused. And you add it all up and you could end up with some frustrated customers.''
Big retailers lead the way
Big retailers have been on the leading edge of the transition. Walmart, for instance, was able to accept chip-enabled cards at all of its locations as of Nov. 1, 2014.
"We've been a leader in pushing for payments that offer more security ... and EMV technology does that,'' says Walmart spokesman Randy Hargrove.
But among smaller businesses, there's more urgency for certain retailers, like jewelry shops, to have updated their technology in time for the October liability shift, than, say, a neighborhood deli that has low-value transactions and repeat customers.
"We want all merchants to move to EMV as quickly as possible because it adds to security ... but most card fraud occurs at electronic stores, (and) high-end luxury retailers where criminals want to use counterfeit cards,'' Ericksen says. "If you're a local coffee shop or nail salon, that's not typically the place we see a lot of counterfeit fraud.''
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>>> The next Greece may be in the U.S.
June 30, 2015
By Ellie Ismailidou
Markets reporter
http://www.marketwatch.com/story/these-lurking-debts-may-turn-us-cities-states-into-greece-2015-06-30?siteid=yhoof2
When Chicago Public Schools announced on June 24 that it would borrow $1 billion to make a $600 million-plus pension payment due June 30 an eerie feeling spread across bond investors and taxpayers alike.
It was the same feeling that gripped investors when Moody’s Investors Service downgraded Chicago’s credit rating to junk based almost entirely on the city’s pension problems.
The fear was that elevated pension costs, in cities like Chicago, might push these public entities into insolvency, wiping out much of the holdings of municipal-bond investors.
Once a sleepy corner of the municipal bond market — often not even properly reflected on cities’ balance sheets — public pensions have recently turned into the biggest headache for taxpayers and municipal-bond investors, threatening to bring down the finances of U.S. cities and states.
In some places, like Puerto Rico, Illinois, New Jersey and Chicago, entire balance sheets of cities or states hang in the balance.
Detroit, as well as three Californian cities — Vallejo, Stockton and San Bernardino — had to declare bankruptcy because of their overwhelming pension costs.
In those cases, the courtroom turned into a brutal battlefield pitting bond investors trying to save the money they invested in those cities’ municipal bonds on one side. And on the other side have been public employees trying to save the dwindling pensions that were promised to them.
Recent cases have shown that bond investors are clearly losing this battle.
In the bankruptcies of Detroit, Vallejo, Stockton and San Bernardino, bondholders have faced losses of up to 99% of their holdings, according to a Moody’s report dated May 18. Meanwhile all three California cities chose to preserve full pensions for their employees, while Detroit only cut pensions by approximately 18%.
Read: Puerto Rico poses bigger threat to U.S. investors than Greece
As the following chart shows, bond values have taken haircuts that far exceeded those of pension benefits:
Part of the reason bondholders have been taking it on the chin is the process of so-called “Chapter 9 bankruptcies.” A Chapter 9 is the type of bankruptcy in the Federal bankruptcy code regulating the bankruptcy of cities and other municipal governments.
The way Chapter 9 works, a city has to present an outline of its assets and liabilities to a bankruptcy court and propose a plan, known as a “plan of debt adjustment,” essentially saying how much it will pay each creditor, such as bondholders, pensioners and employees.
But unlike other bankruptcies, where creditors can also put forward plans — including the proposal to liquidate assets — in a Chapter 9 bankruptcy, the city council is in control of the process and the judge can only determine whether the plan is “fair and equitable,” explains Ty Schoback, a municipal bond analyst at Columbia Threadneedle Investments.
This practically means that once the bankruptcy begins, creditors find themselves “at the mercy of the city’s proposed treatment,” Schoback added.
Pension supremacy
Though some have pointed to political ties between unions and governing officials for the favorable treatment of pensions, the legal reality may be far more complex.
In many states, public pensions are protected by state constitutions or statutory law, and as a result are afforded many privileges, according to a Center for Retirement Research report.
In legal circles, this has come to be known as “pension supremacy” and it is a real headache for bond investors.
In Chicago, the state’s constitution dictates that pension benefits for current workers “shall not be diminished or impaired.” New York carries a similar clause, while Hawaii, Louisiana, and Michigan have constitutional provisions that have been interpreted as protecting all pension benefits earned to date.
<<<
>>> Wall Street is on the verge of saying 'recession'
Business Insider
By Myles Udland
http://finance.yahoo.com/news/wall-street-verge-saying-recession-115500985.html
Wall Street has almost said it.
In a note to clients Monday morning, Deutsche Bank's Jim Reid comes within inches of saying the word "recession" to describe the US economy's fate during the first half of the year.
Here's Reid:
It's not infeasible that the US economy will have shrunk in H1 2015. This is perhaps not the most likely scenario but with Q1 likely to be revised down to around -1.0% and with Atlanta Fed GDPNow forecasting +0.7% for Q2 then it's a distinct possibility. The street is still around 2.5% for Q2 but we probably need some decent hard data soon to justify it.
After the initial reading on gross domestic product showed the US economy grew just 0.2% in the first quarter, subsequent data has led Wall Street economists to take their outlooks for future Q1 revisions well into negative territory. Current estimates from Bloomberg show Wall Street thinks the economy contracted by 0.8% to start 2015.
The second estimate on first-quarter GDP is set for release on May 29.
And now with the Atlanta Fed's GDPNow tracker — which was spot-on in predicting first-quarter GDP — showing such a tepid bounce back in the second quarter, the economy appears to be teetering on the edge of a recession. A recession is defined as two consecutive quarters of negative growth.
Last week after the worse-than-expected retail sales report, we highlighted comments from one bond trader who said the economy appeared headed toward recession.
And consumer confidence data released Friday indicated that Americans were starting to lose faith in an economic rebound in the second quarter.
Wall Street is still looking for GDP to grow by about 2.5% in the second quarter, an expectation that appears to be drifting out of touch with recent data.
Here's the latest discrepancy between Wall Street and the Atlanta Fed, and clearly something will have to give: either the data gets better or Wall Street cuts expectations.
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>>> The Fed is trying to avoid a 'bond cliff' that could disrupt markets and the economic recovery
Jonathan Spicer and Ann Saphir, Reuters
May 7, 2015
http://www.businessinsider.com/r-wary-of-bond-cliff-fed-plans-cautious-cuts-to-portfolio-2015-5
NEW YORK/SAN FRANCISCO (Reuters) - The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some $500 billion in bonds expire and risk disrupting markets and the U.S. economic recovery.
Though it ended a stimulative asset-purchase program last October, the Fed is still buying mortgage and Treasury bonds to replenish its $4.5-trillion portfolio as holdings mature. The central bank has said it will keep reinvesting until some time after it begins raising interest rates later this year.
Asked publicly and privately about the longer-term strategy, Fed policymakers say they are in no rush to shrink the portfolio, suggesting they will seek to avoid a "cliff" — a disruptive end to reinvestments that might come if bonds are simply allowed to run off through maturity or prepayment.
Economic analysis shows that shifting the end of reinvestments by several months in either direction would have "essentially no effect on the economic outlook," San Francisco Fed President John Williams told reporters last Friday.
"My view is this would happen organically," he added. But to avoid confusing investors with too many changes at once, he said, the Fed should give investors time to get used to rate increases before allowing the balance sheet to shrink. "You want enough separation in time just so that, once we get the (rate) normalization process going ... then this would be a decision that would be of second-order."
Six years of crisis-era purchases meant to boost economic growth quintupled the size of the Fed's balance sheet. The Fed predicts it will take until 2020 to shrink the portfolio back to normal.
The central bank can always sell bonds, but it said in September it will rely primarily on run-off to reduce holdings in a "gradual and predictable manner."
janet yellen federal reserveREUTERS/Kevin LamarqueChair of the Federal Reserve Janet Yellen listens to remarks during an open session meeting of the Financial Stability Oversight Council in the Cash Room of the Treasury in Washington December 18, 2014.
MANAGED DECLINE
St. Louis Fed President James Bullard told Reuters this year he wants to manage the rate of decline, a strategy that many bond investors expect. Simon Potter, the New York Fed official whose team manages the portfolio, said last month the central bank had an option to reduce the level of reinvestments gradually, rather than ending them all at once.
More than $200 billion of the Fed's Treasuries are set to expire in 2016, after very little matured this year. Among its mortgage-backed securities (MBS), which are harder to evaluate due to prepayments and amortizations, analysts estimate up to $300 billion could run off the balance sheet next year.
While some investors talk of a looming "balance sheet cliff," many Fed officials are more focused on when and how aggressively to raise interest rates, rather than on managing the reduction of holdings.
Simply allowing assets to roll off "is likely to be satisfactory," said Charles Evans, head of the Chicago Fed. "I think it's going to be at some point after we are comfortable in our liftoff strategy."
Cleveland Fed President Loretta Mester told reporters last week that "there's been no determination about what the appropriate timing would be."
According to a March survey by the New York Fed, primary dealers expect the portfolio to shrink about six months after the Fed hikes rates, or sometime in the first quarter of 2016.
But policymakers could delay that for fear of slowing the economy given consumer confidence remains fragile and some Americans still struggle to get loans. Before that, rate hikes could also be delayed if the state of the economy called for it.
Donald Kohn, a former Fed vice president, predicted in a note to Potomac Research clients that the Fed would keep reinvesting proceeds from maturing bonds until it hikes rates to 1 percent or more. That could be well into the second half of next year, according to the Fed's March forecasts.
Once the balance sheet starts to shrink, some analysts are predicting the Fed would keep reinvesting proceeds from half or even two-thirds of the roughly $40 billion in bonds expected to naturally run off each month, depending on the state of the economy.
"This means that the Fed will be a large and active participant in the bond market for the next few years," said Roberto Perli, a former Fed official who is now partner at research firm Cornerstone Macro.
Reliable demand from the central bank has helped bond markets stay near record highs, making it cheap for Americans to take on mortgages and other loans. A 30-year fixed-rate mortgage remains low at 3.9 percent, according to Bankrate.
The Fed is by far the top holder of agency mortgage bonds, with about a third of the market at $1.7 trillion, said Andrew Szczurowski, vice president and fund manager at Eaton Vance.
"The Fed has handcuffed itself and must be very careful when trying to exit the market," he said, "because the last thing it wants is for spreads to blow out on MBS and mortgage rates to rise substantially."
Read more: http://www.businessinsider.com/r-wary-of-bond-cliff-fed-plans-cautious-cuts-to-portfolio-2015-5#ixzz3a1ppVaNa
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>>> FactSet Research Systems Inc. provides integrated financial information and analytical applications to investment community in the United States, Europe, and the Asia Pacific. The company combines content regarding companies and securities from various markets into a single online platform of information and analytics for portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers, and fixed income professionals. Its applications provide users access to company analysis, multi-company comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alpha testing, portfolio optimization and simulation, and real-time news and quotes, as well as tools to value and analyze fixed income securities and portfolios. FactSet Research Systems Inc. also offers various solutions for investment managers, including portfolio analysis, equity analysis, economics and market analysis, quant and risk analysis, fixed income analysis, and research management solutions. The company?s solutions for banking and brokerage professionals comprise creating models and presentations in Microsoft office, company and industry analytics, filings, idea screening, deal analytics, people intelligence, and wireless access. It also provides customized solutions to professionals involved in hedge funds, private equity, sell-side research, equity sales, trading, consulting, and investor relations, as well as for law firms and academic institutions. FactSet Research Systems Inc. was founded in 1978 and is headquartered in Norwalk, Connecticut. <<<
Currencies - charts -
http://www.finviz.com/futures_charts.ashx?t=CURRENCIES&p=w1
>>> Fiserv, Inc., together with its subsidiaries, provides financial services technology worldwide. The company?s Payments and Industry Products segment offers electronic bill payment and presentment, card-based transaction processing and network services, ACH transaction processing, account-to-account transfer products, and person-to-person payments; Internet and mobile banking systems; and related services, including document and payment card production and distribution, check processing and imaging, source capture systems, and lending and risk management products and services. This segment also provides investment account processing services for separately managed accounts, card and print personalization services, and fraud and risk management products and services. Its Financial Institution Services segment offers account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services, and other products and services that support various types of financial transactions to banks, thrifts, and credit unions. The company also provides consumer and business payments solutions, such as account-to-account transfer, account opening and funding, data aggregation, small business invoicing and payments, and person-to-person payments services. It serves banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants, and government agencies. Fiserv, Inc. was founded in 1984 and is headquartered in Brookfield, Wisconsin <<<
>>> Fed mulls policy exit, eyes end of asset purchases
By Howard Schneider, Michael Flaherty and Jonathan Spicer
http://finance.yahoo.com/news/fed-advances-discussion-exit-strategy-180516287.html
WASHINGTON (Reuters) - The Federal Reserve has begun detailing how it plans to ease the U.S. economy out of an era of loose monetary policy, indicating it will end its asset purchases in October and appearing near agreement on a plan to manage interest rates in the future, according to minutes of the last Fed policy meeting.
The minutes from the June 17-18 meeting indicate the Fed envisions using overnight repurchase agreements in tandem with the interest it pays banks on excess reserves to set a ceiling and floor for its target interest rate.
Though no decisions have been announced, the discussion has become detailed enough for Fed officials to contemplate the proper spread between the two - mentioned in the minutes as 20 basis points.
The minutes showed the Fed participants also "generally agreed" that monthly bond purchases would end in October, with a final reduction of $15 billion in monthly purchases of U.S. Treasuries and mortgage-backed securities.
Fed officials expressed overall confidence that moderate economic growth will continue and unemployment and inflation will gradually move towards the central bank's targets. If anything, there was concern recent low volatility in financial markets showed investors "were not factoring in sufficient uncertainty."
Analysts found little in the minutes to suggest the Fed will move forward its first interest rate increase, currently expected in the middle of next year.
But there was ample discussion about how the central bank should exit from policies put in place to fight the 2007-2009 financial crisis.
According to the minutes, there continues to be division over when the Fed should stop reinvesting proceeds of the $4.2 trillion in assets it purchased to support financial markets.
Ending reinvestment will put the central bank's balance sheet on a declining path, and some members argue that should not take place until interest rates have been increased.
In addition, the minutes indicated the reinvestment decision may not be an all-or-nothing choice: the central bank may try to "smooth the decline in the balance sheet," perhaps by letting some maturities expire each month and reinvesting the proceeds of others.
The Fed’s exit strategy is complicated because its stimulus programs flooded the financial system with $2.6 trillion that has ended up back at the Fed as excess bank reserves. With that much money on hand, banks have little need to borrow from each other in the federal funds market - stifling an important interest rate tool.
The New York branch of the U.S. central bank has been testing the reverse repo facility since September as a way to help control short-term interest rates, and has seen strong demand from money market funds and other bidders.
In reverse repos, the Fed borrows funds overnight from banks, large money market mutual funds and others. The tool is designed to mop up excess cash in the financial system which could keep market rates too low if left in circulation
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>>> 10 things you should know about Social Security
Every week the government takes money out of your paycheck, with plans to return it to you when you're retired. If that's all you know about Social Security, read on.
By Rachel L. Sheedy
Kiplinger
http://money.msn.com/retirement/10-things-you-should-know-about-social-security
Know your Social Security
For many Americans, Social Security benefits are the bedrock of retirement income. Yet future retirees could find themselves on shaky ground. The Social Security Board of Trustees, in its latest annual report, estimated that the retirement program would only be able to pay out 77 percent of scheduled benefits starting in 2033.
You can't control how the government might fix that problem. But you can educate yourself about Social Security to ensure that you claim the maximum amount of benefits to which you are entitled. Here are ten essentials you need to know.
It's an age thing
Your age when you collect Social Security has a big impact on the amount of money you ultimately get from the program. The key age to know is your full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction of as much as 25 percent of your benefit.
Besides avoiding a haircut, waiting until full retirement age to take benefits can open up a variety of claiming strategies for married couples. (More on those strategies later.) Age also comes into play with kids: Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven't graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent's Social Security benefit.
How benefits are factored
To be eligible for Social Security benefits, you must earn at least 40 "credits." You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security. In 2014, you must earn $1,200 to get one Social Security work credit and $4,800 to get the maximum four credits for the year.
Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your benefit by replacing those zero years, say, by working longer, even if it's just part-time. But don't worry -- no low-earning year will replace a higher-earning year. The benefit isn't based on 35 consecutive years of work, but the highest-earning 35 years. So if you decide to phase into retirement by going part-time, you won't affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.
There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2014, the maximum monthly benefit is $2,642. You can estimate your own benefit by using Social Security's online Retirement Estimator.
COLA isn't just a soft drink
One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. For example, in 2009, beneficiaries received a generous COLA of 5.8 percent. But retirees learned a hard lesson in 2010 and 2011, when prices stagnated as a result of the recession. There was no COLA in either of those years. For 2012, the COLA came back at 3.6 percent; for 2013, the COLA was 1.7 percent, and for 2014, it is 1.5 percent. The COLA for the following year is announced in October.
The extra benefit of being a spouse
Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what's called a spousal benefit, worth up to 50 percent of the other spouse's benefit. Put simply, if your benefit is worth $2,000 but your spouse's is only worth $500, your spouse can switch to a spousal benefit worth $1,000 -- bringing in $500 more in income per month.
The calculation changes, however, if benefits are claimed before full retirement age. If you claim your spousal benefit before your full retirement age, you won't get the full 50 percent. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
Note that you cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.
Income for survivors
If your spouse dies before you, you can take a so-called survivor benefit. If you are at full retirement age, that benefit is worth 100 percent of what your spouse was receiving at the time of his or her death (or 100 percent of what your spouse would have been eligible to receive if he or she hadn't yet taken benefits). A widow or widower can start taking a survivor benefit at age 60, but the benefit will be reduced because it's taken before full retirement age.
If you remarry before age 60, you cannot get a survivor benefit. But if you remarry after age 60, you may be eligible to receive a survivor benefit based on your former spouse's earnings record. Eligible children can also receive a survivor benefit, worth up to 75 percent of the deceased's benefit.
Divorce the spouse, not the benefit
What if you were married, but your spouse is now an ex-spouse? Just because you're divorced doesn't mean you've lost the ability to get a benefit based on your former spouse's earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years and you are 62 or older.
Like a regular spousal benefit, you can get up to 50 percent of an ex-spouse's benefit -- less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex's record has no effect on his or her benefit or the benefit of your ex's new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex's record if you have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex has died first, and like any survivor benefit, it will be worth 100 percent of what the ex-spouse received. If you remarry after age 60, you will still be eligible for the survivor benefit.
It can pay to delay
Once you hit full retirement age, you can choose to wait to take your benefit. There's a big bonus to delaying your claim -- your benefit will grow by 8 percent a year up until age 70. Any cost-of-living adjustments will be included, too, so you don't forgo those by waiting.
While a spousal benefit doesn't include delayed retirement credits, the survivor benefit does. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher benefit in the event he dies before her. That extra 32 percent of income could make a big difference for a widow who has lost her husband's stream of Social Security income.
One option for a spouse who is delaying his benefit but still wants to bring some Social Security income into the household is to restrict his application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife's benefit while his own benefit continues to grow. When he's 70, he can switch to his own, higher benefit. Exes at full retirement age can use the same strategy -- they can apply to restrict their application.
File and then suspend
Here's a Social Security claiming strategy that's perfectly legal and potentially lucrative. Let's say a husband decides he wants to delay taking his benefit until age 70 to maximize the amount of his monthly check. But he wants his wife to be able to take a spousal benefit, because it would be higher than her own benefit.
To make that happen, the husband, who must be at full retirement age, can file for his benefits and then immediately suspend them. Because he has applied for benefits, his wife can now take a spousal benefit based on his record. And because he suspended his own benefit, his benefit will earn delayed retirement credits for each year he waits until age 70.
Uncle Sam wants his take
Most people know that you pay tax into the Social Security Trust Fund, but did you know that you may also have to pay tax on your Social Security benefits once you start receiving them? Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven't been increased since then.
As a result, it doesn't take a lot of income for your benefits to be pinched by Uncle Sam. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50 percent of their benefits. Higher earners may have to pay income tax on up to 85 percent of their benefits
Passing the earnings test
Bringing in too much money can cost you if you take Social Security benefits early while you are still working. With what is commonly known as the earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2014 is $15,480. Once you are past full retirement age, the earnings test disappears and you can make as much money as you want with no impact on benefits.
But the good news is that any benefits forfeited because earnings exceed the limits are not lost forever. At full retirement age, the Social Security Administration will refigure your benefits going forward to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year of benefits to the earnings test, at age 66 your benefits will be recomputed -- and increased -- as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits will be 20 percent rather than 25 percent.
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>>> What Austria's Gold Audit Means For You
May. 29, 2014
http://seekingalpha.com/article/2243603-what-austrias-gold-audit-means-for-you
Summary
•Buy gold - physical gold - while the price is still relatively cheap. Store it. Check on it occasionally. And do not let it go.
•Austria is now the latest country to step up and say, "Hey, what's up with our gold? Is it still where it's supposed to be?"
•Austria owns some 280 tons of gold, with four of every five bars residing somewhere in London with the British central bank.
I own a few ounces of gold here and there, and though I'm sure it's safe, I always like to check on it -- just to make sure it's still where I know it should be. Seems reasonable, no? Which is why Austria is now the latest country to step up and say, "Hey, what's up with our gold? Is it still where it's supposed to be?"
Among weak thinkers, such an exercise is a pointless waste of time and resources. Of course the gold is where it should be -- in Austria's case, in vaults managed by the Bank of England. To suggest otherwise is a paranoid conspiracy theory. Then again, it was conspiracy theory for years to suggest the gold market was being manipulated at the highest levels -- and lo and behold, Barclays turns up having to pay fines this year in Britain for having jimmied with the gold market. Conspiracy theory is now conspiracy fact.
And so it is that the nascent efforts by Austria to account for its national gold adds fuel to the growing global worry that, just maybe, all the world's gold isn't as safe and secure as the weak thinkers presume it to be. And that has ramifications on you and me and our personal prosperity.
Austria owns some 280 tons of gold, with four of every five bars residing -- in theory -- somewhere in London with the British central bank. Austria last audited its London holdings in 2007. For the last couple of years, the country's Freedom Party (think: Tea Partiers with a German accent) have demanded repatriation of the gold or, at the very least, greater transparency from the country's central bank.
So, studious Austrian central bankers will soon trundle off to London to audit Austria's gold -- which, parenthetically, tells you that either the Freedom Party has greater powers of persuasion than the Tea Party and other Republicans who have unsuccessfully fought the Federal Reserve for decades to audit America's gold, or the Austrian central bank realizes that it serves the people and the government. How very novel.
They will, undoubtedly, find gold in the British vaults, and they will officiously report their findings back in the motherland. And the weak-thinkers will chirp and bellow about the waste of time and resources expended when, of course, the gold was there all along. They will not, of course, realize the inner workings of the gold market at the central bank level -- meaning, they will not realize that the central banks are active in the subterranean world of "gold leasing," in which the banks lend the gold they hold to other financial institutions for a small charge.
Think of it as a giant Ponzi scheme sanctioned by global governments. Bureaucrats would never cotton to such a disreputable term, but if it quacks like a duck and walks like a duck... To wit: Central banks lend out their gold to bullion banks for about 1% of the gold's value, and the bullion banks promise to return the gold by a certain date. The bullion banks then sell the gold to you and use that money to buy Treasury paper to earn 2% or 3%, thereby creating a nice, easy profit on the spread. It's the golden carry trade.
The central banks, being in charge of the party, continue to list the leased gold as an asset on their balance sheet, even though the gold no longer exists as a physical commodity the bank can put its hands on immediately. And therein lies the huge flaw in the system that Austria's auditing desires highlight: How can you and a central bank own the same piece of gold?
In a Crisis, You Beat the Central Banks
The obvious reality is that such a situation cannot exist in the tangible world of trees and rocks and gold bars that you and I can feel and see. It can only exist in an ephemeral world of financial gerrymandering tied to paper assets. Luckily, you, as the gold buyer, own the real asset. The central bank owns a piece of paper -- a claim to recoup from a bullion bank a piece of gold that the bullion bank no longer owns.
So, puzzle me this: What happens if, in a crisis of some sort that we can or cannot predict, a bullion bank runs into massive financial trouble and cannot buy back and return the gold it has leased? Well, we've suddenly got some very large balls in the air that are soon crashing to the ground in very unpleasant ways.
In a real crisis like we saw in 2007-08 -- let's say one tied to the dollar -- countries could demand that the Federal Reserve and the Bank of England return their gold. But the gold doesn't exist. It's in my safe and your safe and millions of private safes around the world, sold to us by bullion banks that leased the gold from the central banks. All the central banks have are worthless pieces of paper that tell them they once owned an asset.
Luckily, you, as the gold buyer, would see the value of your gold soar in that crisis as the central banks rushed to buy gold to meet repatriation demands. And if even they shot down repatriation demands as a way to manage the little snafu they've gotten themselves into, gold would still soar because the rest of the world would realize, "Houston, we have a problem…"
Gold: It Will Save Your Lifestyle
On some level, that's exactly what Austria's Freedom Party is saying. It wants the country's gold back amid the Wiener Schnitzel and Sachertortes because it fears a global crisis could expose the fact that central bank vaults in the West hold more (ultimately worthless) paper gold than they do physical gold. In a crisis, everyone wants their safest and strongest assets nearby.
And the Austrians are far from alone in their worry. Public pressure is growing on governments all over the world as people like me and you rise up to say, "Hey, what's up with our gold? Is it still where it's supposed to be?" The Germans want their gold back from the U.S., though the Federal Reserve is, quite oddly, dragging its feet on that request. Venezuela, Ecuador, Mexico, Romania, Azerbaijan, Libya and Iran are seeking repatriation as well. And like the Austrians, people in the Netherlands and Switzerland -- not to mention the U.S. -- want an audit of their countries' gold holdings.
But perhaps the Australians sum up this issue most profoundly in a petition that calls for the repatriation of their nation's gold for fears of "counter-party risks associated with holding national assets in financially distressed countries" such as the U.S. and the U.K. And to be clear, that counter-party risk is exactly the scenario I laid out above. Call it conspiracy theory all you want. At some point, however, you should be prepared for conspiracy fact.
A crisis is going to expose the fact that the emperor has no gold. In that world, the dollars that are in your wallet dive precipitously -- and gold soars to unimagined heights. Buy gold -- physical gold -- while the price is still relatively cheap. Store it. Check on it occasionally. And do not let it go. One day, in the not-too-distant future, it will save your lifestyle.
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>>> Don't fall into these 6 Social Security traps
http://money.msn.com/retirement/dont-fall-into-these-6-social-security-traps
Social Security rules can be difficult to navigate, but you've got to master them to maximize your retirement income.
If you're looking forward to turning age 62 so you can begin collecting Social Security benefits and live on Easy Street, you might get caught off guard. Some of the Social Security rules can be frighteningly complex. Because it will likely represent a large portion of your retirement income, it's important to understand how the government program works.
For instance, there are limits on how much you can earn while collecting benefits, and if you exceed those limits, your Social Security benefits will get cut substantially. That's just one of the snares that could trip you up.
Make sure you plan appropriately to avoid these six Social Security traps.
Trap No. 1: Social Security may be taxable
If your earnings exceed a certain level, up to 85 percent of Social Security benefits may be taxable. Even income sources that are normally tax-exempt, such as income from municipal bonds, must be factored into the total income equation for the purpose of computing tax on Social Security benefits.
Eric Levenhagen, CPA and Certified Tax Coach with ProWise Tax & Accounting, says to find out whether any of your Social Security benefits are taxable, "Look at your total taxable income plus half of your Social Security benefit. Make sure you add back any tax-exempt interest income."
When your taxable income, tax-free income and half of your Social Security benefit exceed $25,000 ($32,000 for married couples filing jointly), that's when you're in the zone to pay taxes on Social Security income.
Another unexpected income source that could impact taxes on Social Security: proceeds from a Roth conversion.
If you're thinking about doing a Roth conversion, do so before receiving Social Security benefits, says Steve Weisman, an attorney and college professor at Bentley University. "A lot of people considering converting a traditional (individual retirement account) into a Roth IRA should be aware that if they do that, they will end up paying income tax on the conversion, which will also be included for determining whether Social Security benefits are taxable," he says.
Trap No. 2: Must take required minimum distributions
Required minimum distributions, or RMDs, must generally be made from tax-deferred retirement accounts, including traditional IRAs, after a person reaches age 70 1/2. The distributions are treated as ordinary income and may push a taxpayer above the threshold where Social Security benefits become taxable.
"This is a double-edged sword," says Weisman. "If you are over 70 1/2, you are required to begin taking distributions from IRAs (except Roth IRAs) and other retirement accounts."
"Here again, you take half of the Social Security benefits plus all other income to determine whether Social Security benefits are taxable. RMDs will be included and drive that up," says Levenhagen.
You can't avoid required minimum distributions, but you can avoid being surprised at tax time.
Trap No. 3: Some workers don't get Social Security
Most people assume Social Security is available to seniors throughout the U.S., but not every type of work will count toward earning Social Security benefits. Many federal employees, certain railroad workers, and employees of some state and local governments are not covered by Social Security.
"Some of my clients have participated in retirement programs offered by employers that don't pay into Social Security," says Charles Millington, president at Millington Financial Advisors LLC in Naperville, Ill. "If your employer does not participate in Social Security, then you should be covered under the retirement program offered by your employer."
However, certain positions within a state government may be covered by Social Security.
Find out whether your employer participates in Social Security or not and if not, whether your position may be covered by Social Security. Make sure you understand where your retirement benefits will be coming from.
Trap No. 4: Early benefits could be a big mistake
If you opt to take Social Security as soon as you are eligible, you may be doing yourself an injustice.
"If you delay taking benefits until age 70, you will see as much as an 8 percent increase in benefits for each year you delay," says Steve Gaito, Certified Financial Planner professional and director of My Retirement Education Center. "In addition to receiving a higher benefit, the annual cost-of-living adjustment will be based on the higher number."
"It's hard to find that kind of rate of return on regular investments, so it's good to delay if you can," says Weisman.
Of course, life expectancy plays a part in the decision of when to begin drawing benefits. "You generally know how healthy you are and what your family medical history is," says Ryan Leib, vice president of Keystone Wealth Management. "We advise clients to determine whether they think they will live longer than age 77. If so, delaying until age 70 will net you more in benefits than opting to start collecting benefits early."
If you're able to live off other funds and delay taking Social Security, you should seriously consider doing so. "Delaying taking Social Security until age 70 could mean the difference between cat food and caviar in retirement," says Leib.
Trap No. 5: Windfall elimination provision
If you work for multiple employers in your career, including both employers that don't withhold Social Security taxes from your salary (for example, a government agency) and employers that do, the pension you receive based on the noncovered work may reduce your Social Security benefits.
"Many people are not aware that their actual Social Security benefit may be lower than the amount shown on their statements or online because the windfall elimination provision reduction does not occur until the person applies for their benefits and (the Social Security Administration) finds out they are entitled to a pension," says Charles Scott, president of Pelleton Capital Management in Scottsdale, Ariz.
When Is the Best Time to Take Social Security?
Social Security applies a formula to determine the reduction. In 2014, the maximum WEP reduction is $408. There is a limit to the WEP reduction for people with very small pensions.
If you have worked for both noncovered and covered employers, don't let the windfall elimination provision catch you by surprise.
Trap No. 6: Limits on benefits while working
You are allowed to collect Social Security and earn wages from your employer. However, if your wages exceed $15,480 in 2014, your Social Security benefits will be reduced by $1 for every $2 you earn above that level.
During the year in which you reach full retirement age -- which ranges from age 65 to 67, depending on your birth year -- you can earn up to $41,400 before $1 of your Social Security benefits will be deducted for every $3 you earn above that threshold. However, the money isn't lost forever. You will be entitled to a credit, so your benefits will increase beginning the month you reach full retirement age.
At full retirement age, no income restrictions apply. "There is no penalty for additional income earned," says Gaito.
If you plan on working beyond age 62 and anticipate earning more than $15,480 per year, strongly consider putting off Social Security benefits.
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>>> Dark markets may be more harmful than high-frequency trading
By John McCrank
http://finance.yahoo.com/news/dark-markets-may-more-harmful-044748628.html
NEW YORK (Reuters) - Fears that high-speed traders have been rigging the U.S. stock market went mainstream last week thanks to allegations in a book by financial author Michael Lewis, but there may be a more serious threat to investors: the increasing amount of trading that happens outside of exchanges.
Some former regulators and academics say so much trading is now happening away from exchanges that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is. And this problem could cost investors far more money than any shenanigans related to high frequency trading.
When the average investor, or even a big portfolio manager, tries to buy or sell shares now, the trade is often matched up with another order by a dealer in a so-called "dark pool," or another alternative to exchanges.
Those whose trade never makes it to an exchange can benefit as the broker avoids paying an exchange trading fee, taking cost out of the process. Investors with large orders can also more easily disguise what they are doing, reducing the danger that others will hear what they are doing and take advantage of them.
But the rise of "off-exchange trading" is terrible for the broader market because it reduces price transparency a lot, critics of the system say. The problem is these venues price their transactions off of the published prices on the exchanges - and if those prices lack integrity then "dark pool" pricing will itself be skewed.
Around 40 percent of all U.S. stock trades, including almost all orders from "mom and pop" investors, now happen "off exchange," up from around 16 percent six years ago.
This trend is "a real concern," John Ramsay, former head of the U.S. Securities and Exchange Commission's (SEC) Trading and Markets division, said on the sidelines of a conference in February. "We have academic data now that suggests that, yes, in fact there is a point beyond which the level of dark trading for particular securities can really erode market quality."
Given the $21.4 trillion worth of U.S. stocks that were traded in 2012, even a small mispricing can move the needle by tens of billions of dollars.
Lewis' new book - "Flash Boys: A Wall Street Revolt" - says that high speed traders bilk that kind of money from investors every year. He focuses on how high-frequency trading firms use ultra- fast telecom links, microwave towers and special access to exchanges to gain an edge over other traders.
The U.S. Justice Department is investigating high-speed trading for possible insider trading, Attorney General Eric Holder told lawmakers on Friday. Other regulators and the FBI have also confirmed they are looking into potential wrongdoing by high-frequency stock traders.
But whether or not high-speed trading is sinister, revenues for these firms have been declining for years: in 2013, they were about $1 billion, after peaking at around $5 billion in 2009, according to estimates by Rosenblatt Securities. If, as Lewis says, these traders are doing nothing more than ripping off the rest of the market, it's a shrinking problem.
Meanwhile, as the revenue from high frequency trading has waned, trading outside of public exchanges has been on the rise, threatening to roll back decades of progress towards more transparent markets.
EXCHANGES ARE LAST RESORT
A brokerage has several ways to fill customers' orders. It can match buy and sell orders from its own customers, known as "internalizing," or sell its orders to another broker that can do the same.
Brokers also send trades to "dark pools," which are similar to exchanges, except the fees are lower and they are anonymous, with orders going unreported until after they have been executed. And finally, they can send trades to exchanges, where they will have to pay higher fees.
"The exchanges have basically become the liquidity venue of last resort," said Manoj Narang, chief executive of HFT firm and technology vendor Tradeworx.
Around 45 dark pools and as many as 200 internalizers compete with 13 public exchanges in the U.S.
Top internalizers include units of KCG Holdings (KCG), Citadel, UBS (UBSN.VX), and Citigroup (NYS:C). Dark pool operators include Credit Suisse (CSGN.VX) and Morgan Stanley (MS). All of the firms declined to comment, or did not respond to requests for comment for this story.
With the incentive to use the public market eroding, many traders increasingly see exchanges, which are often described as "lit" markets because of the pricing transparency, as battlegrounds for high frequency traders, said Rhodri Preece, of the CFA institute.
The result is an increasingly splintered market.
"So much of the U.S. equity order flow is in now in the dark, or siphoned off, that it never hits the lit exchanges, and there is just a lot less in the way of trading opportunities," said Mark Gorton, CEO of high frequency trading firm Tower Research Capital LLC.
In an attempt to win back some of the retail orders, exchanges such as IntercontinentalExchange Group's (ICE) New York Stock Exchange, Nasdaq OMX Group (NDAQ), and BATS Global Markets, have allowed brokerages to place dark pool-style orders on their platforms, with the trade hidden until after it is executed. NYSE, Nasdaq, and BATS declined to comment.
There is no doubt that trading costs on U.S. markets are low, and that retail investors get a better deal than they did two decades ago. But U.S. and global trading transaction costs have actually been rising for the past two years, according to a Credit Suisse report on February 20. That may suggest the benefits from off-exchange trading are no longer accruing to investors as much as they previously did.
TRADE SECRECY
A major concern with off-exchange trading is that brokers who internalize trades and offer dark pools do not provide any data to the market before the trade is executed. On a stock exchange, when an order is sent in, the price of the stock is adjusted and everyone with a data feed sees it.
Dark pools only report data after a trade has occurred. At that stage, information about the trade has little influence on the price.
The pools were originally created for institutions to trade large blocks of stock without creating a large impact in the market. If an order of 1 million shares was tracked, people on the other side of the trade could quickly jack up prices and the original investor could easily pay more than expected.
But much of the trading isn't like that now - the average size of orders in dark pools has shrunk to around 200 shares, similar to levels on public exchanges.
"There are potential costs from this trend of having more and more trading being traded away from exchanges," said the CFA's Preece.
IEX, a new trading platform heralded in Lewis's "Flash Boys" as a fairer place to trade, aims to become an exchange once it gains more volume, but is currently a dark pool. Its average order size is around 750 shares.
"If the shift becomes too egregious to off-exchange markets, then there are no lit exchanges to price against," said Brad Katsuyama, CEO of IEX. "I don't know if we are necessarily at the imbalance yet," he said.
Preece released a study on off-exchange trading in November that showed that once more than half of the trading volume in a particular security is done on dark venues, the ability to properly price that security becomes difficult. The price discovery process can begin to erode when off-exchange trading in a security surpasses as little as 10 percent, according to a study by Carole Comerton-Forde and Talis Putnins of the University of Melbourne.
Regulators in Canada and Australia have taken steps to curb the growth of dark trading in recent years by requiring, for instance, that off-exchange trades be of a minimum size or have a significantly better price than can be found on an exchange. Authorities in Europe and Hong Kong are eying similar rules.
"Observing some of the trends in U.S. markets and elsewhere and seeing that dark trading activity in Canada was slowly growing we felt that we wanted to put some very important principles in place," said Wendy Rudd, head of market regulation at the Investment Industry Regulatory Organization of Canada.
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>>> Alerus Financial Group
http://money.msn.com/inside-the-ticker/9-stocks-ready-to-ride-an-energy-wave
Headquarters: Grand Forks, N.D.
52-week price range: $33.50-$51.63
Price-earnings ratio: 11 (based on 2013 earnings)
Market capitalization: $226.6 million
Projected earnings growth: NA
Workers are migrating to North Dakota by the tens of thousands to fill fracking jobs. That's creating booming business for the state's banks, many of which are experiencing double-digit-percentage growth in both deposits and loans, says Carr.
Although the banks headquartered in North Dakota tend to be tiny and privately owned, Alerus Financial Group (ALRS) is an exception. Its stock trades infrequently on the over-the-counter bulletin board. The bank, with $1.4 billion in assets, says refinancing activity dried up in the last half of 2013 due to rising interest rates.
But Alerus still managed to earn record profits of $20.3 million, or $4.42 per share, up 13.4 percent from 2012. The stock sells for about 1.8 times tangible book value — nearly the same as the average price-to-tangible-book-value ratio for the typical small bank. But few banks are generating double-digit-percentage earnings growth like Alerus.
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>>> More Wall Street economists see rate hike in first half of 2015: Reuters poll
April 4, 2014
By Richard Leong
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140404&id=17499058
(Reuters) - More Wall Street economists now believe the Federal Reserve will raise interest rates in the first half of 2015, as evidence builds that the U.S. economy has regained some momentum lost during an unusually rough winter, a survey showed on Friday.
Eight of 18 U.S. primary dealers said they expected the U.S. central bank to increase its policy rate by the end of June next year, according to a poll conducted by Reuters among the Wall Street's top 22 firms that do business directly with the Fed.
A Reuters poll done three weeks earlier showed only four primary dealers anticipated a rate hike by the first half of 2015 despite comments from Fed Chair Janet Yellen that suggested increases might come sooner.
Friday's solid March jobs report concluded a busy week of economic data that indicated the economy has thawed along with much of the country, where shoppers were reluctant to leave their homes and companies kept a lid on payrolls.
U.S. employers hired 192,000 workers last month, fewer than the 200,000 projected by economists polled by Reuters, the U.S. Labor Department said. It upwardly adjusted its January and February payrolls figures by a combined 37,000. Another key job measure, the monthly unemployment rate, held at 6.7 percent. Economists had expected a fall to 6.6 percent.
"The Fed will be very happy with this type of jobs report," said Jacob Oubina, senior economist at RBC Capital Markets in New York.
Last month, the Fed as expected scrapped its use of a 6.5 percent household unemployment rate as a barrier before raising interest rates. The jobless rate is currently just 6.7 percent and is likely to drop through 6.5 percent before long.
Instead, the Fed will rely on a number of labor-market indicators, inflation figures and "readings on financial developments" to determine when to increase rates.
Ten of the 17 Wall Street firms expected the first rate move would be an increase to 0.50 percent from the current zero to 0.25 percent range, which has been in effect since December 2008.
The rest of the primary dealers said they anticipated the Fed would eliminate the near-zero target range prior to actually raising rates by a quarter point.
Short-term interest rates futures rallied on the jobs figures, which were good but not better than expected. The federal funds contract for April 2015 delivery implies traders scaled back their expectations of a rate hike a year from now to 42 percent from 50 percent late on Thursday, according to CME FedWatch, which calculates traders' view of changes in the Fed's rate policy.
While traders speculate on the timing of the first Fed rate increase, which would be the first one since June 2006, economists at major Wall Street firms reckoned the central bank will end its third round of quantitative easing by year-end.
While the overall March payrolls report was positive, some analysts pointed out the naggingly high level of part-time workers and sluggish wage growth as worrisome factors that support the view the labor recovery is still fragile. This should keep Fed policy-makers from making any rapid changes in their current timing in paring stimulus and in raising borrowing costs, economists said.
These factors "suggest the Fed need not be in a hurry to tighten policy," JPMorgan economist Michael Feroli wrote in a research note.
Since December, the Fed has reduced its monthly purchases, with current plans for $55 billion in bond purchases in April, down from $85 billion in December.
Twelve of 16 primary dealers polled expected the central bank to stop reinvesting the proceeds from maturing bonds it owns by the end of 2015. The other four forecast the Fed will end its reinvestment in first quarter of 2016.
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>>> What About The Dollar - Russia, Iran Announce $20 Billion Oil-For-Goods Deal
Zero Hedge
April 3, 2014
http://www.infowars.com/what-about-the-dollar-russia-iran-announce-20-billion-oil-for-goods-deal/
Spot what is missing in the just blasted headline from Bloomberg:
IRAN, RUSSIA SAID TO SEAL $20B OIL-FOR-GOODS DEAL: REUTERS
If you said the complete absence of US Dollars anywhere in the funds flow you are correct. Which is precisely what we have been warning would happen the more the West and/or JPMorgan pushed Russia into a USD-free corner.
Image: Vladimir Putin (Wiki Commons).
Once again, from our yesterday comment on the JPM Russian blockade: “what JPM may have just done is launch a preemptive strike which would have the equivalent culmination of a SWIFT blockade of Russia, the same way Iran was neutralized from the Petrodollar and was promptly forced to begin transacting in Rubles, Yuan and, of course, gold in exchange for goods and services either imported or exported. One wonders: is JPM truly that intent in preserving its “pristine” reputation of not transacting with “evil Russians”, that it will gladly light the fuse that takes away Russia’s choice whether or not to depart the petrodollar voluntarily, and makes it a compulsory outcome, which incidentally will merely accelerate the formalization of the Eurasian axis of China, Russia and India?”
In other words, Russia seems perfectly happy to telegraph that it is just as willing to use barter (and “heaven forbid” gold) and shortly other “regional” currencies, as it is to use the US Dollar, hardly the intended outcome of the western blocakde, which appears to have just backfired and further impacted the untouchable status of the Petrodollar.
More from Reuters:
Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports in defiance of Western sanctions, people familiar with the negotiations told Reuters.
In January Reuters reported Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.
The White House has said such a deal would raise “serious concerns” and would be inconsistent with the nuclear talks between world powers and Iran.
A Russian source said Moscow had “prepared all documents from its side”, adding that completion of a deal was awaiting agreement on what oil price to lock in.
The source said the two sides were looking at a barter arrangement that would see Iranian oil being exchanged for industrial goods including metals and food, but said there was no military equipment involved. The source added that the deal was expected to reach $15 to $20 billion in total and would be done in stages with an initial $6 billion to $8 billion tranche.
Surely an “expert assessment” is in order:
“The deal would ease further pressure on Iran’s battered energy sector and at least partially restore Iran’s access to oil customers with Russian help,” said Mark Dubowitz of Foundation for Defense of Democracies, a U.S. think-tank.
“If Washington can’t stop this deal, it could serve as a signal to other countries that the United States won’t risk major diplomatic disputes at the expense of the sanctions regime,” he added.
You don’t say: another epic geopolitical debacle resulting from what was originally intended to be a demonstration of strength and instead is rapidly turning out into a terminal confirmation of weakness.
Also, when did the “Foundation for Defense of Petrodollar” have the last word replaced with “Democracies”?
Finally, those curious what may happen next, only not to Iran but to Russia, are encouraged to read “From Petrodollar To Petrogold: The US Is Now Trying To Cut Off Iran’s Access To Gold.”
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>>> Fed should start rate hikes in first quarter 2015, Bullard says
March 27, 2014 .
By Tara Joseph and Michael Flaherty
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140327&id=17469766
HONG KONG (Reuters) - The Federal Reserve, which has kept short-term U.S. interest rates near zero since late 2008, should start raising them early next year with the aim of returning them to normal by the end of 2016, a top Fed official told Reuters on Thursday.
"Mine is in the first quarter of 2015, as far as liftoff for the funds rate," St. Louis Federal Reserve Bank President James Bullard told Reuters Insider television, when asked for his view on when the U.S. central bank should make its first rate hike since 2006.
"You have to keep in mind I tend to be a more optimistic member of the committee," he said. "I have a probably, a somewhat stronger forecast and a view about policy that suggests that maybe we should get up a bit faster than what some of the other members have."
Bullard said he believes that by the end of 2016 the Fed should be targeting a "normal" short-term policy rate of 4 percent to 4.25 percent.
By then, he told Reuters, the economy's growth and the labor market will probably have returned to normal, and inflation will have risen back up to the Fed's 2-percent target.
That view marks Bullard as the most hawkish of Fed officials as policymakers weigh the delicate decision of when and how quickly to raise short-term borrowing costs.
Interest rate projections released by the Fed last week showed only one policymaker felt the overnight federal funds rate should be at 4.25 percent by the end of 2016, while just one other felt it should be at 4 percent. The Philadelphia Fed has already said its president, Charles Plosser, feels it should be at 4 percent.
Bullard does not vote on the Fed's policy-setting panel this year, but he takes part in policy discussions at the Fed's regular meetings in Washington. He will not rotate into a voting seat until 2016.
Most other Fed policymakers see rates rising no higher than 3 percent by the end of 2016, largely because the economy in their view has been so damaged by the financial crisis and the 2007-2009 recession that it will continue to need support after the labor market and inflation return to near normal.
The Fed has bought trillions of dollars in Treasuries and mortgage-backed securities to boost the economy and reduce unemployment, which rose as high as 10 percent in the aftermath of the recession.
Now that the jobless rate has fallen to 6.7 percent, the Fed has begun dialing down its massive bond-buying program. Last week policymakers said they would trim their monthly purchases to $55 billion from $65 billion, and reiterated plans that put it on track to wind down the program before the end of the year.
But the Fed has also said it will keep rates low for a "considerable time" after it ends the bond buying.
Last week, Fed Chair Janet Yellen roiled markets by suggesting rate rises could come around six months after the bond-buying program ends.
Bullard's view suggests he is pushing for an even earlier rate hike than Yellen or many of his other colleagues.
"I think the thing that's helping us on the pace of removing accommodation is, inflation is pretty low," Bullard said. Inflation should rise back toward 2 percent this year, he said, laying the groundwork for interest-rate rises next year.
The U.S. central bank publishes the views of its policymakers on the appropriate rate path, but does not identify who is making each individual projection. There are currently 16 active policymakers at the Fed.
Markets have proved sensitive to those projections, with traders moving forward their expectations for a first Fed rate hike after last week's released showed some officials believed monetary policy should be tightened slightly more aggressively than they had felt in December.
Traders of short-term U.S. rate futures are currently are making nearly even odds of a first Fed rate hike in April 2015, with better-than-even chance of a rate hike in June 2015.
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>>> Kremlin: If The US Tries To Hurt Russia's Economy, Russia Will Target The Dollar
March 15, 2014
http://www.testosteronepit.com/home/2014/3/15/kremlin-if-the-us-tries-to-hurt-russias-economy-russia-will.html
Another warning shot was fired before an all-out assault on the dollar system begins. This time, an official shot: Alexey Ulyukaev, Russia’s Minister of Economic Development and former Deputy Chairman of the Central Bank, fired it. It was a major escalation, Valentin Mândrasescu, editor of The Voice of Russia’s Reality Check, told me from Moscow.
Last time, it was Sergei Glazyev, an advisor to Vladimir Putin who’d fired the shot. But he wasn’t a government official. “Anonymous sources” at the Kremlin claimed he wasn’t speaking for the government. As Mândrasescu reported in his excellent article, From Now On, No Compromises Are Possible For Russia:
From the economic point of view, everyone should get ready for tough actions from Moscow. Sergei Glazyev, the most hardline of Putin’s advisors, sketched the retaliation strategy: Drop the dollar, sell US Treasuries, encourage Russian companies to default on their dollar-denominated debts, and create an alternative currency system (reference currency) with the BRICS and hydrocarbon producers like Venezuela and Iran.
Unlike radical-sounding Glazyev, Ulyukaev is part of Dmitry Medvedev’s Cabinet. And as former Deputy Chairman of the Bank of Russia, he doesn’t take currencies lightly. He told Rossia-24 news channel about possible retaliatory measures if Washington adds economic sanctions to the political sanctions. Moscow wouldn’t worry too much about political sanctions, he said, but if Washington tries to hurt Russia’s economy, Moscow would retaliate by targeting the US dollar.
Some of it is already happening
Washington’s decision to release a minuscule 5 million barrels of oil from the Strategic Petroleum Reserve caused the price of oil to tank – a direct attack on the main revenue source of the Russian government, and a sign that Washington is willing to hit where it hurts the most [read a trader’s lament.... Commodity Markets Will Be Used As A Weapon Against The Putin Regime, Starting Now].
Russia instantly retaliated, it seems. Suddenly, there was a mysterious mega-plunge of $104.5 billion in US Treasuries held in custody by the Federal Reserve during the reporting week ended March 12. It brought the balance down to $2.86 trillion. These securities are owned by foreign countries. As of the US Treasury’s December statement, the most recent available, the Fed held $138.6 billion in Treasuries that belonged to Russia – down by $22.9 billion from a year earlier. The mega-plunge of $104.5 billion? No data is available yet to confirm these securities belonged to Russia. And if they did, it’s unlikely that Russia dumped them on the market, but it could have transferred them to another banking center, such as Luxemburg, to get them out of reach of the US government, and be able to dump them at an opportune moment.
Getting out from under the dollar
Russia has been palavering with other countries about initiating alternatives to the dollar. Formal plans emerged from the Kremlin last May on how Russia wanted the BRICS to dismantle the dollar system. So now it was Ulyukaev, an official heavy-weight, who said that Russia would work on increasing the volume of international trade denominated in national currencies, thus bypassing the dollar (translation by Mândrasescu):
“Why should we have dollar contracts with China, India, Turkey?” he said. “Why do we need this? We must have contracts in national currencies. And this applies to energy and other spheres.” The focus would be on Russian oil and gas companies. “They must be braver in signing contracts in rubles and the currencies of partner-countries,” he said. “I think now there is an additional impetus to finally finish this job.”
And the “currency reserve policy” would need some adjustment with maximum focus on “local currencies”; it was the normal way, he said. In Mândrasescu’s analysis, Ulyukaev was outlining an attack on the petrodollar system and the enormous advantages it confers on the US, with the goal of creating parallel petro-currencies.
Media blackout in the US
The warning, issued officially and publicly by a Cabinet member, to target the dollar, has been vigorously ignored by the mainstream media in the US. It’s a touchy subject here. The dollar reigns supreme. Its status as the sole world reserve currency, which has provided the US with enormous economic advantages, remains unquestionable forevermore. Or so wishes the Fed, which has done such a wonderful job of managing the dollar for the last 100 years that it has lost most of its value, though it’s still a heck of a lot better than the ruble.
“I have a suspicion the Western media don't want to report on this,” Mândrasescu said. “It could be a bit unpleasant for the S&P 500 and the nanobots trading the US stock market.” Better keep them in the dark.
It took a while. But it had to come, the public warning shot – after some ferocious lobbying behind closed doors. No one in Germany is allowed to get in the way of the sacrosanct exporters. Read.... German Exporters Fire Warning Shot About Russia “Sanction-Spiral,” Banks At Risk
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>>> Cardtronics, Inc. provides automated consumer financial services through its network of automated teller machines (ATMs) and multi-function financial services kiosks. As of February 7, 2013, the company owned and operated approximately 62,800 retail ATMs in the United States and internationally. It offers cash dispensing, bank account balance inquiry, and money transfer services, as well as other consumer financial services, including bill payments, check cashing, and remote deposit capture services. The company also provides various forms of managed services solutions, such as monitoring, maintenance, cash management, customer service, and transaction processing services to operate ATMs and financial services kiosks for its merchant customers. In addition, it partners with national financial institutions to brand its ATMs and financial services kiosks with their logos. Further, it offers surcharge-free ATM access to customers of participating financial institutions; and owns and operates an electronic funds transfer transaction processing platform that provides transaction processing services to its network of ATMs and financial services kiosks, as well as other ATMs under managed services arrangements. The company was formerly known as Cardtronics Group, Inc. and changed its name to Cardtronics, Inc. in January 2004. Cardtronics, Inc. was founded in 1989 and is headquartered in Houston, Texas. <<<
>>> Fiserv, Inc., together with its subsidiaries, provides financial services technology worldwide. The company?s Payments and Industry Products segment offers electronic bill payment and presentment, card-based transaction processing and network services, ACH transaction processing, account-to-account transfer products, and person-to-person payments; Internet and mobile banking systems; and related services, including document and payment card production and distribution, check processing and imaging, source capture systems, and lending and risk management products and services. This segment also provides investment account processing services for separately managed accounts, card and print personalization services, and fraud and risk management products and services. Its Financial Institution Services segment offers account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services, and other products and services that support various types of financial transactions to banks, thrifts, and credit unions. The company also provides consumer and business payments solutions, such as account-to-account transfer, account opening and funding, data aggregation, small business invoicing and payments, and person-to-person payments services. It serves banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants, and government agencies. Fiserv, Inc. was founded in 1984 and is headquartered in Brookfield, Wisconsin. <<<
>>> Visa: A Decent Quarter
Feb. 4, 2014
http://seekingalpha.com/article/1990501-visa-a-decent-quarter?source=yahoo
Visa (V) is a global payments technology company that provides secure and reliable electronic payments infrastructure and support services for the delivery of Visa-branded payment products, including credit, debit, and prepaid cards. Recently, the company came out with its quarterly results and its performance beat analysts' expectations.
The following are the results and my analysis of the results. First a look at the results.
Results:
For the quarter, the company's revenues stood at $3.2 billion, as compared to $2.9 billion during the same period last year. The growth in the revenues was powered by Services revenues that grew by 9.2%, Data processing revenues that grew by 13.36%, and International transaction revenues that grew by 10.7%, partly offset by 8.32% growth in client incentives that the company pays on long-term customer contracts.
Q1 - 2014
Q1 - 2013
% change
Operating Revenues
Service revenues
1,419
1,300
9.15%
Data processing revenues
1,264
1,115
13.36%
International transaction revenues
891
805
10.68%
Other revenues
180
179
0.56%
Client incentives
-599
-553
8.32%
Total operating revenues
3,155
2,846
10.86%
•Key business metrics:
The number of transactions processed by the company grew by 13.5% (including billable transactions) to 17.9 billion. Transactions excluding the billable transactions (processed by VisaNet system) grew by 13% to 16 billion. Payment volume (including cash) grew by 8% to touch $1.75 trillion. Excluding cash, payment volume grew by 10% to $1.1 trillion. The growth in the payment volumes and number of transactions reflect the effects of increased worldwide adaptation of electronic payment systems and a slow-moving global economic recovery.
The growth in payment volume was slower than the growth in the number of transactions, which means that the payment volume per transaction is going down. Payment volume is the primary driver for the service revenues, and the number of processed transactions is the primary driver for the data processing revenues. That is why, the data processing revenues showed more growth than the services revenue, and the trend is likely to continue in the future.
•Operating expenses:
The company kept its operating expenses well under control, as the expenses grew by just 3.06%. Marketing costs and professional fees declined by 3.6% and 14.7% respectively. Network and processing, and Depreciation and amortization, expenses increased 20% and 16.3% respectively. Operating income grew by 15.4% due to decent revenue growth and tight control on the operating expenses. However, due to higher tax payout net income grew by just 8.8%.
Operating Expenses
Q1 - 2014
Q1 - 2013
% change
Personnel
470
454
3.52%
Marketing
186
193
-3.63%
Network and processing
132
110
20.00%
Professional fees
75
88
-14.77%
Depreciation and amortization
107
92
16.30%
General and administrative
108
106
1.89%
Litigation provision
-
3
Total operating expenses
1,078
1,046
3.06%
Operating income
2,077
1,800
15.39%
Non-operating income
6
1
500.00%
Income before income taxes
2,083
1,801
15.66%
Income tax provision
676
508
33.07%
Net income
1,407
1,293
8.82%
Guidance:
The company once again stood by its FY 2014 guidance, which means the company expects a low double-digit increase in the revenue. However, during the second and third quarters the company expects higher marketing expenses. As mentioned by the company:
"Winter Olympics rapidly approaching and World Cup soon to follow, we expect a significant uptick in marketing spend in Q2 and Q3 versus our spend in Q1, followed by a downshift in Q4."
Investor return:
The company declared a quarterly dividend of 40 cents per share. During the quarter, the company repurchased 5 million shares using $1.1 billion of cash on hand. As of December 31, 2013, the company's latest repurchase program had remaining authorized funds of $4.2 billion. Going forward the company is expected to continue with its dividend payout, and repurchase program.
Conclusion
The company is the world's largest processor of credit and debit card payments, and possesses an unmatched payment processing infrastructure.
The stock price of the company showed a significant rise during the last one year. This is the type of performance that slightly beats the analysts' expectations, and was necessary to justify such a rise.
The growth showed by the company, in the revenues as well as in the profit, is an excellent achievement. The growth (11%) in the U.S. market was not unexpected as the U.S. retail sales grew 4% (year over year) during the period. The things that I like most about the results are the growth in the international revenues, which grew 12% despite sluggish economic conditions in some major markets, and growth in the operating margins that improved by 259 bps to touch 65.83%. The improvement in the margins clearly reflects that the company is leveraging its existing infrastructure to good effect.
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>>> 5 moves to survive the 2014 bond meltdown
Time to prepare your portfolio as the Fed pulls back on buying and interest rates rise.
By Jim Woods
http://money.msn.com/top-stocks/post--5-moves-to-survive-the-2014-bond-meltdown
Do you own U.S. government Treasury bonds in your portfolio? Millions of Americans do -- and that's a big problem.
Because the U.S. economy is the largest, and by comparison, most stable government entity in existence, Treasury bonds have been sought after as a place to park money when global markets are in turmoil. Of course, there's been plenty of turmoil in the global markets over the past five years, and midway through 2013 we saw the first inkling of what could be the next massive bond market meltdown.
Last May, the Federal Reserve began dropping hints that it would start pulling back the reins on its unprecedented $85-billion-per-month bond-buying scheme. That caused a mini-panic in the bond market, and the result was a big selloff in long-term Treasury bonds that threw a big scare into those who thought of the bond market as a "safe" place to park assets.
Frighteningly, just the prospect of the biggest buyer of bonds (the Fed) finally pulling back on its purchases caused long-term bonds to plunge nearly 16% in just five months. In January, that prospect will become reality, as the Fed already has committed to reducing its bond-buying binge by $10 billion per month.
Now I ask you: Can you afford to lose another 15%, 20%, or even 50% or more when interest rates surge and bond values plummet the next time around?
Here are five ways to avoid wiping out your wealth before the next bond meltdown.
Understand when the bond bubble will burst
The first step to avoiding a bond market meltdown is to identify when it begins. That's not the easiest task, but here is one key metric to watch that will telegraph this move: interest rates.
Specifically, interest rates on long-term Treasury bonds such as the benchmark 10-Year Treasury note. These rates, set by the buying and selling of bonds in the secondary market, will begin a sharp rise long before any official action is taken by the Federal Reserve to raise the Fed Funds Rate. On Dec. 26, rates on the 10-year spiked to a new 52-week high of 3%. The breaching of this key level means we could see rates spike even further very, very quickly.
Now, a lot of investors I speak with are under the misconception that it won't be until the Fed takes action that the bond bubble will begin to burst. This notion is flat-out wrong. You see, the equity and bond markets are forward-looking mechanisms. That means that markets will act in front, and in anticipation of, any official policy action. When the smart money, i.e. the fast money on Wall Street, begins selling bonds, yields will begin to really rise -- and that will be your cue that a bond meltdown is heating up.
Determine exposure to the riskiest bonds
Once you've identified the bond meltdown (ideally before any meltdown takes place), you need to figure out precisely what your level of exposure is to bonds. While this step may sound simple, you would be surprised to find out how many investors hold Treasury bonds in mutual funds, 401k's, IRAs, pensions, and other retirement accounts that they really didn’t even know they had.
If you have any kind of an income-oriented mutual fund, or any kind of fund that boasts of having a blend of stocks and bonds, then you likely have more exposure to Treasury bonds and other bonds than you are aware of. The more exposure you find out you have to the riskiest bonds, i.e. those that have the longest-dated maturities, the better equipped you’ll be to make sure you minimize that exposure before the bubble bursts.
Reduce duration in your bond holdings
After you've determined your overall exposure to bonds, you'll need to move to curtail your exposure to the riskiest, long-dated maturity bonds such as the kind of long-term Treasury bonds found in an exchange-traded fund (ETF) such as the iShares Barclays 20+ Year Treasury Bond (TLT +1.19%).
The reason: the long end of the yield curve is the most susceptible to interest rate risk. So, if bonds begin to sell, yields will begin to spike and bond prices will begin to fall -- and the biggest damage will occur in long-term, 20-plus year Treasury bonds. Similar pain also is likely in 10-year Treasury notes, which are widely held by many investors, and many bond mutual funds as well as many growth and income funds.
By reducing duration in your bond holdings, you’ll be in a much better position to prevail during the next bond market meltdown.
Hedge your bets
If bond values start to melt down again as I suspect they will, one way to take advantage of that trend is to own investments designed to do well when bond prices falter. Two ways to do this are with ETFs such as the ProShares Short 20+ Year Treasury ETF (TBF -1.17%), and its more aggressive and leveraged big brother, the ProShares UltraShort 20+ Year Treasury ETF (TBT -2.42%).
Both of these funds are designed to deliver the inverse price performance of the 20+ year Treasury bond segment, but with TBF it's a one-for-one proposition. TBT employs leverage, and as such it's designed to move twice the inverse of Treasury bond prices. As you can see by the price charts here of TBF and TBT, both funds surged dramatically from May through September, as smart investors rotated money into these funds as bonds were being sold off.
These hedged positions are a great way for either more conservative investors (TBF), or more aggressive traders (TBT) to take advantage of periods where bonds are out of favor -- and these funds will really give your portfolio an edge during the next bond market meltdown.
Diversify with dividend stocks
If you own bonds, you are likely in the market for income. Yet during a bond market meltdown, you’re going to be losing principal, and that's going to take a big whack out of your overall wealth. To avoid this, you'll want to own other asset classes, and one of the best asset classes to own is stable dividend-paying stocks.
Here we are talking about well-known names, well-capitalized and cash-rich companies with a competitive advantage in their respective sector, and companies that make the kinds of products that will continue to sell no matter what the conditions are in the global economy.
These would be the corporate giants that pay solid dividends, and that have a track record of paying and increasing dividends each year. These are the companies that also pay an attractive dividend yield, usually in the 3% to 5% range. These companies also stand to profit from a flight-to-quality away from Treasurys and into stocks once the bond meltdown takes place.
An exchange traded fund that fits this bill is the iShares DJ Select Dividend Index Fund (DVY +0.67%). This fund holds the biggest and best dividend-paying stocks in the market today. Shares of DVY performed beautifully in 2013, with a total return of nearly 25%. Once bonds begin the inevitable, i.e. their next big meltdown, look for capital to flee and find its way into the likes of DVY -- and then just relax and collect your profits.
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>>> How Uncle Sam pinches your portfolio
http://money.msn.com/tax-planning/how-uncle-sam-pinches-your-portfolio
Making educated decisions about your savings and investments could save you money by avoiding common taxes.
"…nothing can be said to be certain, except death and taxes." - Benjamin Franklin
The founding father's famous axiom is as true today as the day he wrote it, which means investors need to understand what the government takes.
The federal government taxes not only investment income - dividends, interest, rent on real estate, etc. - but also realized capital gains. The taxman is smart, too; investors cannot escape by investing indirectly through mutual funds, exchange-traded funds, REITs or limited partnerships. For tax purposes, these entities are transparent. The tax character of their distributions flows through to investors in proportion to their economic interest, and investors are still liable for tax on capital gains when they sell.
Tax on dividends
Companies pay dividends out of after-tax profits, which means the taxman has already taken a cut. That's why shareholders get a break - a preferential tax rate of 15 percent on "qualified dividends" if the company is domiciled in the U.S. or in a country that has a double-taxation treaty with the U.S. acceptable to the IRS. Non-qualified dividends - paid by other foreign companies or entities that receive non-qualified income (a dividend paid from interest on bonds held by a mutual fund, for example) - are taxed at regular income tax rates, which are typically higher. In 2013, that's a sliding scale up to 39.6 percent, plus an additional 3.8 percent surtax for high-income taxpayers ($200,000 for singles, $250,000 for married couples).
Shareholders benefit from the preferential tax rate only if they have held shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. In addition, any days on which the recipient's risk of loss is diminished (through a put option, a sale of the same stock short against the box, or the sale of most in-the-money call options, for example) do not count toward the minimum holding period.
Case no. 1: An investor who pays federal income tax at a marginal 28 percent rate and receives a qualified $500 dividend on a stock owned in a taxable account for several years owes $75 in tax. If the dividend was non-qualified, or the investor did not meet the minimum holding period, the tax would be $140. A top-rate taxpayer (income tax at 39.6 percent plus the 3.8 percent healthcare surtax) would owe $217 tax on a non-qualified dividend.
Investors can reduce the tax bite if they hold assets, like foreign stocks and taxable bond mutual funds, in a tax-deferred account like an IRA or 401k and keep domestic stocks in their regular brokerage account.
Tax on interest
The federal government treats most interest as ordinary income subject to tax at whatever marginal rate the investor pays. Even zero-coupon bonds don't escape. Although investors do not receive any cash until maturity, they must pay tax on the annual interest accrual on these securities, calculated at the yield to maturity at the date of issuance.
The exception? Interest on bonds issued by U.S. states and municipalities, most of which is exempt from federal income tax. Some municipal bonds exempt from regular federal income tax are still subject to the alternative minimum tax, however. Investors should check the federal tax status of any municipal bond before they buy.
Investors may get a break from state income taxes on interest, too. U.S. Treasury securities are exempt from state income taxes, while most states do not tax interest on municipal bonds issued by in-state entities.
Case no. 2: An investor who pays federal income tax at a marginal 33 percent rate and receives $1,000 semi-annual interest on $40,000 principal amount of a 5 percent corporate bond owes $330 in tax, leaving $670. If the same investor receives $800 interest on $40,000 principal amount of a 4 percent tax-exempt municipal bond, no federal tax is due, leaving the $800 intact. Even a top-rate taxpayer would owe neither federal income tax nor the healthcare surtax. Investors subject to higher tax brackets often prefer to hold municipal bonds rather than other bonds in their taxable accounts. Even though municipalities pay lower nominal interest rates than corporations of equivalent credit quality, the after-tax return to these investors is usually higher on tax-exempt bonds.
Tax on capital gains
Uncle Sam's levy on realized capital gains depends on how long an investor held the security. The tax rate on long-term (more than one year) gains is 15 percent, except for high-income taxpayers (in 2013, $400,000 for singles, $450,000 for married couples) who must pay 20 percent. High-rate taxpayers will typically pay the healthcare surtax as well, for an all-in rate of 23.8 percent.
Just like the holding period for qualified dividends, days do not count if the investor has diminished the risk using options or short sales (see above).
Short-term (less than one year of valid holding period) capital gains are taxed at regular income tax rates.
Case no. 3: An investor in the 25 percent tax bracket sells 100 shares of XYZ stock purchased at $50 per share for $80 per share. If he or she owned the stock for more than one year, the tax owed would be $450 (15 percent of (80 - 50) x 100), compared to $750 tax if the holding period is less than one year. In identical circumstances, a top-rate taxpayer would owe $1,302 on a short-term capital gain vs. $450 on a long-term gain.
Tax losses and wash sales
Investors may offset capital gains against capital losses realized either in the same tax year or carried forward from previous years. Individuals may deduct up to $3,000 of net capital losses against other taxable income each year, too, while any losses in excess of the allowance are available until either offset against gains in future years or amortized against the annual allowance.
Investors can minimize their capital gains tax liability by harvesting tax losses. If one or more stocks in a portfolio drops below an investor's cost basis, the investor can sell and realize a capital loss for tax purposes, which will be available to offset capital gains either in the same or a future year.
There's a catch, however. The IRS treats the sale and repurchase of a "substantially identical" security within 30 days as a "wash sale", for which the capital loss is disallowed in the current tax year. The loss increases the tax basis of the new position instead, deferring the tax consequence until the stock is sold in a transaction that isn't a wash sale. A substantially identical security includes the same stock, in-the-money call options or short put options on the same stock, but not stock in another company in the same industry.
Case no. 4: An investor in the 35 percent tax bracket sells 100 shares of XYZ stock purchased at $60 per share for $40 per share, realizing a $2,000 loss, and 100 shares of ABC stock purchased at $30 per share for $100 per share, realizing a $7,000 gain. Tax is owed on the $5,000 net gain. The rate depends on the holding period for ABC - $750 for a long-term gain, or $1,750 for a short-term gain. If the investor buys back 100 shares of XYZ within 30 days of the original sale, the capital loss on the wash sale is disallowed and the investor owes tax on the full $7,000 gain - $1,050 for a long-term gain, or $2,450 for a short-term gain.
The bottom line: Taxes matter
Taxes have a significant impact on the net return to investors. Detailed tax rules are available on the IRS website for dividends and for capital gains and wash sales. While careful asset placement and tax-loss harvesting can reduce the tax burden, everyone's tax circumstances are unique. Investors should consult their own financial and tax advisors to determine the optimum strategy consistent with their investment objectives.
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>>> Bitcoin price plunges as China clampdown escalates
http://www.nbcnews.com/business/bitcoin-price-plunges-china-clampdown-escalates-2D11765766?ocid=msnhp&pos=7
12-18-13
Matt Clinch, CNBC.com
The price of bitcoin, a form of digital currency, has tumbled since late November as China has cracked down on its use.
The price of bitcoin has plummeted by 50 percent since record highs in late November, with selling accelerating on Wednesday after reports that the People's Bank of China (PBoC) has ordered third-party payment providers to stop using the virtual currency.
The price of a bitcoin fell to below $600 after stabilizing near $800 for the last couple of weeks after a price slump from $1,200 in late November. At 8 a.m. London time on Wednesday the currency was trading at $555 on major exchange Mt Gox and $550 on CoinDesk's index, which measures a basket of prices around the world.
China's central bank has ordered third-party payment agencies - which provide clearing services for bitcoin exchanges - to stop any "custody, trading and other services" related to the virtual currency, according to a report Tuesday by Yicai.com. The Chinese website - which is affiliated with the China Business Network TV station - added that platforms were told to end working relationships with virtual currency exchanges before Chinese New Year which commences at the end of January.
Zhou Jinhuang, the deputy director of payment clearance at the People's Bank of China is reported to have chaired the closed-door meeting on Monday when more than 10 third-party payment platforms were given the news. Attendees included a representative from Alipay, which is China's leading third-party online payment solution, according to its website.
BTC China, the world's largest bitcoin exchange, according to Bitcoinity.org, stopped accepting deposits in Chinese yuan on Wednesday due to the clampdown. Bobby Lee, the CEO of BTC China told CNBC that he had received notice from his third-party payment processor on Wednesday.
"They essentially have cut us off from allowing customer deposits into BTC China's bitcoin exchange," he said. "Customers don't have to worry, the deposits are still here, the withdrawals will still be allowed. So there's no need to panic on that."
Lee added that he believes the recent clampdown is not due to government officials in the country fearing that bitcoin is helping customers to move yuan out of China. "Bitcoin exchanges are legal...so our business model is still valid but we're under some pressure in terms of being able to work with third-party payment companies. So we're looking for alternatives," he said.
BTC China only deals with bitcoin yuan trades due to the strict currency controls in the country. Lee said that his company did not have any near-term plans to look at other currencies. Zennon Kapron, founder of Shanghai-based financial consultancy group Kapronasia, agrees with Lee that the clampdown wasn't necessarily due to fears of capital outflows.
"The wealthy in China have always found ways, ether legally or illegally, to move their money out of the country," he told CNBC via telephone. He said that hints from the central bank that bitcoin exchanges were still legal meant there were "mixed messages" from the government. Chinese curbs may have hit the price of bitcoin hard but Kapron believes that the U.S. still plays a major role in the industry and it remains to be seen how U.S. authorities will regulate the digital currency.
As well as the news from China, the U.S. Treasury Department also offered a warning on bitcoin on Wednesday. The Treasury's Financial Crimes Enforcement Network (FinCEN) has sent "industry outreach" letters to about a dozen firms, according to Reuters, which highlights that businesses linked with bitcoin may have to comply with federal law and regulation as money transmitters.
Bitcoin is a "virtual" currency that allows users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining. Some 12 million bitcoins are believed to be in circulation, with a cap of 21 million — meaning no more bitcoins can be created after that point.
The initial fall in price in early December coincided with a statement released on the website of China's central bank which warned of the risks that the crypto currency posed. It warned that Chinese financial institutions should not trade the digital currency saying that while it does not yet pose a threat to China's financial system, it carries risks.
Its surge to over $1,000 in November was attributed partly to increased interest from Chinese users as well as favorable comments by regulatory officials at a U.S. Senate hearing in November. Former Federal Reserve Vice Chairman Alan Blinder has been quoted as saying that the crypto currency shows "promise".
BTC China exchange is now believed to have the highest number of registered users and received $5 million in November from institutional investors Lightspeed China Partners and Lightspeed Venture Partners.
Chinese search engine Baidu announced in October that it had started to accept bitcoin for its security service. This came after Chinese state television company CCTV broadcast a documentary detailing the digital currency in the summer. Many analysts see that as a key point at which interest in bitcoin increased.
Downloads of bitcoin wallets surged in China in the days following the documentary, according to statistics from SourceForge, rising to second place in the global ranking behind the United States. Bitcoincharts.com has data that shows the Chinese yuan is the second most traded currency pair with bitcoin after the U.S. dollar.
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>>> Should the U.S. force citizens to save?
December 17, 2013
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20131217&id=17201625
By Allison Schrager
Dec 17 (Reuters) - Americans aren't saving enough to retire. This gap poses a problem for everyone, not just people who will face near-poverty when they can't work anymore. Does that merit forcing people to save more?
Retirement in America is supposed to be financed by three sources: Social Security, employer pensions, and additional saving. Social Security in America makes up the foundation and serves two roles: it's a forced saving plan by making everyone contribute 12.4 percent (the employer and employee contribution) of their income (up to the first $113,700 they earn) in exchange for the promise of income in retirement. It's also social insurance because the lower your income, the larger your benefit will be relative to what you paid in. But for most people, it is not intended to finance all of retirement.
The problem is the other two sources are falling short. Employer pensions, for those who had them in the private sector, have been replaced by private accounts like a 401(k) plan. With these accounts, the individual is left to save enough and bear investment risk. Alas, most people don't contribute enough. That's apparent with baby boomers, the first generation to have these accounts for decades, who are nearing retirement with meager savings. According to the Survey of Consumer Finances collected by the Federal Reserve Board, the median value of financial assets (non-housing saving) of working Americans between age 55 to 65 was just $67,000 in 2010. That means many people will retire almost entirely dependent on Social Security and take a big cut in their living standard.
A big drop in consumption is not only a problem for the individual. Collectively it creates a drop in demand, which can devastate economic growth. Plus without any wealth, more retirees will qualify for Medicaid, in addition to Medicare, to finance end-of-life care. Projections of elder healthcare costs assume seniors will for pay the expenses Medicare doesn't cover, especially long-term care. But if people run out of money, the burden falls on the state.
Does that justify forcing people to save more? Some, like economist Teresa Ghilarducci and Senator Elizabeth Warren reckon so. It is not a new idea. Countries like Australia and Chile already force their citizens to contribute to retirement accounts. I've written before how they, and other countries, finance retirement. We know from their experience that forced saving changes the government's role in our lives and, potentially, its relationship with financial markets.
For instance, the government would have to decide how much people should save and how they should invest. It's been estimated that Americans should be saving at least 10 percent to 15 percent of their income. But that may not be realistic for many families living paycheck to paycheck. Ghilarducci proposes a more modest 5 percent contribution. Under her plan new savings would go into an account administered by the federal government. It would also invest everyone's savings and credit their account a 3 percent return each year. The government would make all the investment decisions and bear the investment risk. This has the advantage of being simple and predictable for American savers. But it also turns the federal government into a large asset manager and player in financial markets. It would explicitly own securities other than government treasuries. That has the potential to create an uncountable number of conflicts and unintended consequences.
Instead the government could lean on the private sector to avoid these conflicts. In both Australia and Chile private managers administer the forced saving accounts. People can pick their manager, who also presents them with a menu of investment options. The government may regulate characteristics of the investment options, in terms of fees or risk, but the manager selects the actual investment choices. Their experience suggests America could mandate saving within the employer-based pension account structure it already has.
Senator Warren takes a more progressive approach by expanding Social Security instead of individual accounts. Her plan entails more redistribution. Low earners have little income to spare and fewer forms of saving. There exists a case for more redistribution through forced saving. Under Warren's plan all income above $113,400 would be subject to an additional 12.4 percent tax. In exchange for the new tax, higher earners will receive a small increase in their Social Security benefit (much smaller than the return they currently get from their payroll tax) while lower earners will see a larger relative increase without paying more.
This is not strictly more saving because the new tax revenue would go toward current retirees and not be saved in the economy. But in some sense it is saving, in that many people will put aside some of their income in exchange for an income stream, going to someone else, in the future. Still, Warren's plan alters the character of Social Security. It makes it much less forced saving and protection from poverty and much more welfare for the middle class. Some redistribution may be desirable, but doesn't need to be so radical. Instead the government could subsidize the saving of lower- and middle-income earners by either adding to their accounts or through tax credits.
Given America's recent experience with healthcare - the problems with the mandate to buy insurance and reluctance of politicians to be candid about the redistribution required for it to work - forced saving seems unlikely to happen here. Another, potentially more palatable, alternative to forced saving is nudging. That is what Britain has adopted. The British government requires firms to automatically enroll their employees in a pension account and put 8 percent of their salary into it. But people can opt out of the account if they wish.
Nudging - defaulting people into a saving plan - has been proven extremely effective at increasing participation in pension accounts. Depending on where you set the default saving rate, it can increase the amount people save, too. More nudging increases saving, but still retains an element of personal freedom. Leaving some discretion to the individual is important because everyone has different saving needs at various points in their lives. How much you should save depends on many factors like your health or employment status, income variability, or whether you have children. Some discretion allows people to adjust their finances to suit their needs; forced saving may be too blunt a tool.
Part of a free society is letting people make bad decisions if they wish, provided there is some support to keep them from falling through the cracks. The current scope of Social Security, coupled with Medicaid, does a reasonable job at keeping retirees out of abject poverty. But a comfortable retirement requires more saving, and there a little nudge would be helpful.
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