retirement interruptus: That Was The Week That Was

Gold, silver and oil down on May 2nd Monday news of bin Laden’s death. The dollar also gained on the news of the terrorist’s death but for the previous week….

The dollar continues its slide and Alessio de Longis, who oversees the Oppenheimer Currency Opportunities Fund said, ‘…(it) just doesn’t have anything positive going for it. While other countries pay higher rate of interest the U.S. of A. has maintained a low interest philosophy. Partly to avoid paying higher rates to those that loan us money and partly to stimulate American business the dollar has been in a hole and some countries are planning on taking advantage – namely China. The Beijing government has been hinting that it may diversify their $3 trillion of currency reserves away from the dollar. This would, of course, reduce a substantial source of recent dollar buying.
According to Miller Tabak since The Ben Bernanke took office on February 1, 2006 the dollar’s purchasing power has fallen 11% and its down 21% in the past decade and 82% since the U.S. got off the gold standard in 1971. I’m betting the average person didn’t get 11% increase in pay the past 5 years.
Funny he didn’t look dead. Insurer John Hancock has been accused by California authorities of withholding benefits from widows and other beneficiaries by allegedly failing to determine if their customer was dead. Seems when a person either stops communicating with the company by either ceasing premium payments or responding to inquiries Hancock simply used existing cash in the policy to keep it in force until they had siphoned all the money out and then lapsed the policy. Hancock is based in Boston and is owned by ManuLife out of Canada. Other companies may have been doing the same and this is going to be a huge black eye for the industry….nah, it’s the insurance business! And you only thought banks acted this way. Wait…more…next-
Dummying it Down. Primerica, Inc.,had a banner year recruiting life insurance agents in 2010 some 230,000 folks signed up to sell Primerica products. Problem was that 80% of those recruited couldn’t pass the state licensing exam so Primerica is solving the problem by lobbying to dummy down the exam. In five years about 900,000 were lead to water through the company licensing program; about 43 times more than the entire sales force of NY Life. Usually insurance companies have some sort of criteria before hiring but Primerica will hire anyone as long as they don’t have a criminal record. The company sells primarily term life using part-time agents. And if that isn’t enough bad news in the insurance sector….there’s more!
States are investigating whether these same life insurers are not just running cash through deceased policies and then cancelling them when they should be turning those assets to the state(s) as abandon property. Without identifying if an insured is indeed dead the company practice stinks to high heaven and tens of millions of dollars are at stake. Insurance companies want to hold onto the cash value policies until they become valueless while the states want to hold the policy as property and then claim it for their own. There is greed written all over this cat fight.
The natural way of things may take the place of harsher methods of culling government down to manageable size. Seems state workers are retiring early to get current retirement benefits rather than hang around and get reduced pensions. The states with the highest retirement rates in 2011 over 2010 are: New Jersey-60%, Wisconsin-79%, Texas-54%, New York-65%.
Home ownership is on the wane, according to anyone who picks up a newspaper. The biggest reason given is that people do not see ownership as a good investment. (Investment is the last thing people consider when buying a home!)
Bloomberg BusinessWeek April 25-May 1 reported on the Goldman Rules, actual rules written by the investment bank Goldman Sachs that employees must follow or suffer the wrath of…whomever. Here are a few: Don’t call it a recommendation; We are always watching you; Honest, we are always watching you; We only Trust you with things we don’t care about, and finally; Talk slowly to stupid people.
Monday markets mixed, oil down a smidge and gold up. Mark Hulbert wondered if a weak dollar contributed to the rise in gold and vicey versay and the conclusion: Other factors impact gold’s rise and fall and only about one-third of the time does gold’s rise follow a weak dollar.
Do you know what your mutual fund is buying? The Commodities Futures Trading Commission is attempting to increase oversight of the growing number of mutual funds that invest in commodities and currencies through offshore subsidiaries.
Funds are fighting oversight stating that as long as fund companies make their subsidiaries’ books and records available they should not fall under the jurisdiction of CFTC. They also argue that no evidence or allegation of harm to investors.
Hedge Fund managers were big supporters of the Dems in 2008. Now those same managers are supporting the GOP. Whispers are that they are reacting to the President’s populist attacks on Wall Street. O.k., it’s not a whisper. Investment folks just plain poed at being a target and then shelling out good money for the Dems to be reelected and the abuse to continue.
Tuesday saw markets soar triple digits and both gold and oil saw modest increases. Excitement was subdued. The Dow hit a 3 year high and the Nasdaq was 12 points off a 10-year high. Still the explanations for the triple digit day were described as an increase in positive consumer sentiment and that the economy seems to be ‘chugging’ away without fear of inflation, a real nice place to be.’ Eric Thorne, senior v.p. at Bryn Mawr Trust said, ‘equities are coming back to be the asset class of choice.’
Ford helped boost markets with a huge day, outperforming analysts expectations. What did I tell you last week? Still the stock didn’t pop as some hoped. Cold water was splashed on the automaker’s results stating that the stellar performance was unsustainable. Barclay Capital estimates that Ford’s auto biz may have at the end of 2o12 $10 billion of cash. The next logical step may be a dividend payment (watch the stock pop!) to investors in the next 12 months.
Commodities may be heading for a freefall. Word from Brett Arends in his commentary wrote that with all the speculative bullishness the commodity market may be due for a huge pullback. Everything from cotton, copper to coffee and oil may see a serious price slump. The reason is prices raced higher too fast and many are at historic highs. Reason number 2 is that price gains rarely occur without plenty of volatility along the way. Still, long term, commodities may provide an inflation cushion for investors. Expect sugar to get more expensive by Christmas.
Wednesday The Ben Bernanke spoke and said the Fed will stop its buying of Treasuries in June, 2011. Interest rates will not change for the foreseeable future and he said he was confident that the recovery was sustainable. He said a lot of other things like job creation was abysmal, inflation expectations were ‘well anchored’, whatever the hell that means; and the Fed won’t make any moves for at least two more meetings. The markets loved the pep talk and rallied 96 points on the Dow with gold and oil adding numbers. Traders give a 30% chance of a rate hike in 2011. And, naturally, the dollar fell.
Japan crisis may cause an increase in the price of coal.
Inflation expectations may be well anchored but when consumer product giants Proctor & Gamble, Unilever and Colgate-Palmolive report earnings they’ll also be discussing price hikes on their premium products. So-long price wars and now shareholders want the companies to start making serious money. With commodity prices escalating the only answer is to hike prices.
Oh, yeah, in a previous blog, in a not so innocent time did we ever believe that David Sokol, the former heir apparent to lead Berkshire Hathaway once Warren Buffett was gone, ever make a simple mistake when he bought stock in Lubrizol ahead of Berkshire’s purchase. A committee at Berkshire Hathaway pinned the controversy on Sokol, tossing him under the bus. You can bet that Sokol will be talking to investment regulators real soon, if not already. Can David say, ‘bye-bye Lubrizol gains?’
Silver speculation? I bought it at $17 and it went backwards while gold went on a tear. I sold and came back at $28 and it did the same thing. At $40 I was tempted but backed away and now at $50, at a price where the Hunt Brother’s tried to corner the market, the price of silver seems to be in Mania City. While the metal is soaring the mining stocks are starting to go down, according to MarketWatch’s Howard Gold. He reports that silver contracts this past week are more that 50% higher than in November. One veteran trader think that something is going to derail the silver express and when that happens some investors will be buying the ultra short ETF in silver ZSL.
Both the Fed and Treasury say they want a strong dollar but their actions are louder as the mighty buck has fallen. A weak dollar makes commodities more expensive and no one at the Fed or Treasury seems to be indicating a change. One thing that could change their minds if foreign investors shun the dollar. But, that doesn’t seem to be a problem as investors are buying on the seeming knowledge that a bundle will eventually be made when the dollar strengthens.
Friday last was the Royal Wedding and a wrap of the month as all indices were in the green. Oil and Gold were also up and silver flat. For the month the Dow was up 4%, its highest close since May, 2008. The Dow is less than 10% from its record close set in October, 2007. Bob Doll, chief equity strategist for fundamental equities at BlackRock, Inc., said, in spite of numerous headwinds the economic recovery in the U.S. is over. ‘We’re in expansion mode.’ From your lips, Bobby, to God’s ear…
Here’s a Jeopardy Question: What major U.S. company trades at 7.1 times expected 2012 earnings, excluding cash, and investors have only gotten a total return over the past 10-years, including dividends, of negative 0.2%. (Hint, one of the founder’s name is Bill)
Facebook growing faster than projected several months back and may be ready for IPO spring 2012 according to the wise people reporting at WSJ Monday.
Finally: FDIC closed 4 more banks Friday bringing the total year to date of 34. Community Central Bank in Mount Clemens, a few miles from where I live, was closed, bringing the total in Michigan to two for 2011.