Hard Assets Alliance IRA
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    Daily Digest – March 8

    by Davos

    Sunday, March 8, 2009, 5:12 PM

  • The Biggest Asset Class You Never Heard Of 
  • World’s biggest banks to meet in London: report
  • Trump venture folds, leaving buyers strapped
  • Stark’s hottest job: Janitor
  • Geithner – Would Have Made a Good Diplomat
  • Fridson Says Junk Debt Is ‘Extraordinary Opportunity’ (Update2)
  • H+ Magazine: HaCKinG tHe eConomy
  • FSN News Hour 1-3
  • A Look Inside the Numbers
  • Homeless man has website that tells his story and takes donations (H/T Zombie210)
  • BNP’s Fortis assets takeover back on track (H/T Zombi210)
  • Minnesota Bank Asks Why It Pays for Wall Street Greed (H/T CM)
  • Auto Dealers Plead for U.S. Help as Hundreds May Fail in 2009 (H/T CM)
  • Lloyds Cedes Control to Government, Insures Assets (H/T CM)
  • Goldman, others get AIG payouts: report (H/T CM)
  • Washington plans for big bank failure (H/T CM)
  • Failing at Harvard: Ivy Cash King Tumbles (H/T CM)


The Biggest Asset Class You Never Heard Of 

Your opportunity to invest in stable value funds outside the 401(k)/defined contribution world has probably gone away, but given that there is more than $350 billion invested in stable value funds and not much written on them from a third-party point of view, I’ll describe them in more detail.

Stable value funds are unique in a regulatory sense because as defined contribution plan assets, they are regulated by the Department of Labor, not the SEC. With the stable value mutual funds, the SEC has direct oversight. Why should the DOL differ in how it regulates vs. the SEC?

World’s biggest banks to meet in London: report

Chief executives of leading banks from Japan, Europe and the United States will meet in London to discuss regulation of the financial sector, according to a report.
The British government will host the talks on March 24, ahead of an April summit of Group of 20 leaders, the Nikkei economic daily said, without naming sources.

Invitations have been sent to the chiefs of leading institutions including US-based JPMorgan Chase and Co. and British bank HSBC, it said.

From Japan, Mitsubishi UFJ Financial Group president Nobuo Kuroyanagi will attend the meeting, it said.

No confirmation of the report was available from the Japanese bank on Saturday.

Leaders of the Group of 20 developed and developing nations are to get together in London on April 2.

Supervision of financial institutions is expected to be high on the agenda.

Trump venture folds, leaving buyers strapped

SAN DIEGO (AP) – Stephen and Linda Drake cast aside concerns about owning property in Mexico because they believed in Donald Trump.
The Southern California couple paid $250,000 down payment on a 19th-floor oceanfront condo in Trump Ocean Resort Baja in 2006 before the first construction crew arrived.

But admiration for the celebrity developer and star of "The Apprentice" has now turned into anger and disbelief as Trump’s luxury hotel-condo plan collapsed, leaving little more than a hole in the ground and investors out of their deposits, which totaled $32.2 million.

"I can’t even stand to see Trump’s face on TV," says Linda Drake, a psychologist, whose husband is a commercial airline pilot and financial adviser.

Investors were told last month their money was spent and they won’t get a penny back. A single mother in suburban Los Angeles lost $200,000 and won’t be able to send her sons to private universities. A Los Angeles-area businessman lost a deposit of more than $1 million on four Trump units, including two penthouses.

The project’s collapse comes at a delicate time for Trump, whose casino company, Trump Entertainment Resorts Inc., filed for bankruptcy protection last month. He also is embroiled in a lawsuit to avoid paying debt on the struggling Trump International Hotel & Tower in Chicago.

Trump and his children heavily promoted the northern tip of Mexico’s Baja California coast. He sold 188 units for $122 million the first day they went on a sale at a lavish event in a downtown San Diego hotel in December 2006.

"I went out and saw this site, and I was blown away by it," Ivanka Trump told The Associated Press in June 2007. "From the minute I saw it, it was a deal I had to do."

Stark’s hottest job: Janitor

How hungry are people for work in today’s sinking economy?

Nearly 700 people have applied for a single job as a school custodian.

Perry Local Schools have an open position – full time with benefits – at Edison Junior High School after its afternoon janitor retired. It pays $15 to $16 an hour.

The job opened last Saturday, and district officials say the stack of applications continues to expand daily.

So much so, the deadline to apply for the position was moved from yesterday to 3:30 p.m. Monday to give potential hires more time.

Many of those who have applied say they lost their previous job due to budget cutbacks by their former employer.

"A lot of people have their stories when they come in. It’s heart-wrenching," said Superintendent John Richard.


Dane Steed, 51, forged blades at Heinemann Saw Co. in Canton for nearly four years until last month.

He and several co-workers were let go because of a lack of work available. He put his name in the mix for Perry custodian post.

"Times are bad," the Plain Township man said.

Steed said he has previous custodial experience at a school district and hopes he can retire at Edison.

"I don’t want to be doing this again," Steed said.

Donna Croston, 49, of Plain Township, spent nine years on the assembly line at the Hoover Co. in North Canton before it closed last winter.

Prior to Hoover, she lost another factory job because the plant shut down.

For her, the custodial position at Edison represents more than a paycheck.

"There’s a lot of people out there like me that are looking for stability," Croston said Friday.

Her two brothers are custodians for North Canton schools.

"They all love their jobs. They’ve never been laid off," Croston said.


The growing pile of applications will be narrowed.

"This is like a needle in the haystack, but I might get lucky," Croston said.

Barry Mason, business manager for Perry Local schools, said he will narrow the field to 30 to 50 applicants for an interview.

Among the qualities that he’ll consider for the next custodian, he said, include:

• Enjoys student interaction, even if the position is for after-school hours. So if you don’t like children, your chances are slim.

• Plans to stay in the position for long time. An applicant who sees this position as a short-term solution until the economy improves could be out.

Geithner – Would Have Made a Good Diplomat

Fridson Says Junk Debt Is ‘Extraordinary Opportunity’ (Update2) 

March 6 (Bloomberg) — High-yield bonds offer an "extraordinary opportunity" that won’t be repeated for "many years," even as corporate defaults rise, according to Martin Fridson, chief executive officer of Fridson Investment Advisors.

While many investors are waiting for prices to stop falling, "the market will rush up very quickly and it will become very hard to get the low price anyway," Fridson said at a briefing in Hong Kong today. "Even if you get in a little early, you’ll probably do as well as those who get in at the bottom."

U.S. high-yield debt gave investors a 13.2 percent return in the two months to Jan. 31, second only to the 13.9 percent they earned in February and March 1991, according to a Merrill Lynch & Co. index that tracks 1,730 bonds. High-yield, or junk, debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

Junk-grade companies worldwide defaulted on 5.2 percent of their bonds in February, up from 4.8 percent in January, Moody’s said yesterday. The default rate will rise to 22.5 percent in Europe and 13.8 percent in the U.S. by the end of this year, according to the New York-based risk assessor.

The amount investors get back from defaulted debt may be as low as 15 cents on the dollar in this credit crisis, compared with an average of about 25 cents during downturns since 1977, Fridson told reporters today.

‘Great Debacle’

FSN News Hour 1-3

A Look Inside the Numbers

Compromised workers – a more accurate measurement?

Perhaps a more useful measure is the degree to which incomes and earnings have been compromised. To get a reasonable representation of this, we can take the total amount of individuals on unemployment and add to that the number of individuals who are working part-time for economic reasons. This does not include people who choose to work part-time, but have to. When you add these two groups together, you come up with almost 23 million Americans or nearly 15% of the workforce. Compare this with the BLS advertised 8.1% rate and you see a very different picture.

Homeless man has website that tells his story and takes donations (H/T Zombie210)

During regular webcasts, dozens of visitors to http://www.pimpthisbum.com/ ask questions about Edwards’ life and his slow fall from office manager with a home, a car, and a future to an outcast short of hope and with little prospect of help.

BNP’s Fortis assets takeover back on track (H/T Zombi210)

BRUSSELS (AFP) – French bank BNP Paribas sought on Saturday to save its troubled takeover of choice Belgian assets from Fortis with a new carve-up to appease the stricken financial group’s angry shareholders.

But BNP Paribas decided not to walk away from the deal only after securing guarantees from the Belgian government to cover some of the losses in case the acquisition sours.

The Belgian government and the French banking group had given themselves until midnight on Friday to revise the deal after minority shareholders’ in the Fortis Holding company rejected an earlier agreement.

However, the new deal does not end the uncertainty over Fortis’ fate with a lawyer who has represented minority shareholders saying that it offered no reason for them to approve it.

"Compared to the previous deal, there’s absolutely nothing favourable for the shareholders," lawyer Mischael Modrikamen told Belgian public radio RTBF.

"I absolutely don’t see at this point any objective reason whatsoever to call on shareholders to vote yes to this new deal."

After marathon talks, the Belgian government announced in the early hours of Saturday morning that a new deal had been reached, although it too will have to win the approval of Fortis Holding’s shareholders.

"For us, this agreement is profitable to savers, shareholders, workers and the state," the Belga news agency quoted Prime Minister Herman Van Rompuy as saying.

Under the new deal, BNP would still buy 75 percent of Fortis Bank, the Belgian banking business of the group, from the Belgian state, which would retain a 25 percent interest.

However, the French bank would buy 25 percent of Fortis’ Belgian insurance operations from the holding company instead of only 10 percent as foreseen under the earlier agreement.

If Fortis Bank continues to have difficulties, BNP secured a guarantee from the Belgian government to cover up to 1.5 billion euros in losses and infuse the Belgian bank with up to two billion euros.

Minnesota Bank Asks Why It Pays for Wall Street Greed (H/T CM)

March 6 (Bloomberg) — TCF Financial Corp., the Wayzata, Minnesota-based bank that never made a subprime loan and hasn’t lost money since 1995, is asking why it should help clean up the mess made by Wall Street.

"I’m kind of bitter," said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.’s fund that guarantees bank deposits. "We pay for the excesses of our competitor over and over again."

TCF is among more than 8,300 banks and lenders insured by the FDIC facing increased fees and a one-time "emergency" charge designed to raise $27 billion this year for the agency’s depleted coffers. Community banks may take a 10 percent to 20 percent hit to 2009 earnings even if the FDIC halves that charge, said Camden Fine, president of the Independent Community Bankers of America.

Community lenders "are feeling like they are paying for the incompetence and greed of Wall Street," Fine said this week in an interview.

Auto Dealers Plead for U.S. Help as Hundreds May Fail in 2009 (H/T CM)

March 7 (Bloomberg) — The National Automobile Dealers Association appealed to President Barack Obama’s car industry task force for help in cutting financing costs for retailers.

The 90-minute discussion with U.S. Treasury auto advisers Steven Rattner and Ronald Bloom didn’t elicit any commitment for aid, NADA Chairman John McEleney said yesterday in an interview. The 19,700-member association expects 1,200 U.S. dealers to close this year, he said.

"We certainly did not receive a commitment and nor did we expect to," McEleney said. "We had a very helpful discussion. We spent about one-third of our time discussing that topic."

The group convened "cabinet-level members of the Presidential Task Force on the Auto Industry to discuss the status of restructuring plans from Chrysler LLC and General Motors Corp.," the Treasury said in an e-mailed statement.

Owners of dealerships this week criticized the $1 trillion Term Asset-Backed Securities Loan Facility for failing to meet their most pressing need: financing to buy cars from automakers. Car sellers are complaining they don’t qualify under the program that covers only AAA-rated debt.

"Our floor traffic is off 40 percent, but our business is off 60 percent to 70 percent because people can’t get financing," said Gordon Stewart, a Detroit-based Chevrolet dealer for 29 years. "I’ve never seen anything like this. I’ve been calling it a depression since last January and it’s only gotten worse."

Lloyds Cedes Control to Government, Insures Assets (H/T CM)

March 7 (Bloomberg) — Lloyds Banking Group Plc, Britain’s biggest mortgage lender, will cede control to Prime Minister Gordon Brown’s government in return for state guarantees covering 260 billion pounds ($367 billion) of risky assets.

The government’s stake will rise to as much as 75 percent, making Lloyds the fourth U.K. bank to slip into state control since the run on Northern Rock Plc in September 2007. Brown is using that leverage to force banks to increase lending to homeowners and businesses and spur an economy that is facing its worst recession since World War II.

"In order to get British banks lending again the government needed to take them over," said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a "sell" rating on Lloyds stock. "It is likely to be at least three of four years before the banks return to the private sector."

Lloyds will pay more for asset protection than Royal Bank of Scotland Plc, the first lender to enter the program, because of the deteriorating quality of loans acquired when it bought HBOS Plc in a government-brokered deal. London-based Lloyds will pay 15.6 billion pounds, or 5.2 percent of the insured assets, in the form of non-voting shares, the bank said in a statement. RBS last month paid 2 percent.

About 83 percent of the assets Lloyds is insuring came from HBOS, the bank said.

The HBOS loan book "is more toxic than anyone ever dreamed," said Alan Beaney, who helps manage $2 billion, including Lloyds stock, at Principal Investment Management in Sevenoaks, England. "As a Lloyds shareholder you are very annoyed because you had a bank that did not need the government very much and now you have inherited a rubbish bank."

Goldman, others get AIG payouts: report (H/T CM)

NEW YORK (Reuters) – Such firms as Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) were among the financial institutions that received payouts from American International Group Inc (AIG.N) since the Federal Reserve first began to aid AIG, according to the Wall Street Journal.

Citing a confidential document and people familiar with the matter, the Journal said AIG paid at least two dozen U.S. and foreign financial institutions about $50 billion.

Goldman received about $6 billion, as did Germany’s Deutsche Bank AG (DBKGn.DE).

Washington plans for big bank failure (H/T CM)

NEW YORK (Fortune) — The government is bracing for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans’ bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill — the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho — wouldn’t change the status of individual bank accounts, which through the end of this year are insured up to $250,000.

Failing at Harvard: Ivy Cash King Tumbles (H/T CM)

Stocks were tumbling last fall as the new school year began, but at Harvard University, it was as if the boom had never ended.

Workers were digging across the river from Harvard’s Cambridge, Mass., home, the start of a grand expansion that was to eventually almost double the size of the university. Budgets were plump, and students from middle class families were getting big tuition breaks under an ambitious new financial aid program.

The lavish spending was made possible by the earnings from Harvard’s $36.9 billion endowment, the world’s largest. That pot was supposed to be good for $1.4 billion in annual earnings.

Behind the scenes, though, a different story was unfolding.

In a glassed-walled conference room overlooking downtown Boston, traders at Harvard Management Co., the subsidiary that invests the school’s money, were fielding questions from their new boss, Jane Mendillo, about exotic financial instruments that were suddenly backfiring.

Harvard had derivatives that gave it exposure to $7.2 billion in commodities and foreign stocks. With prices of both crashing, the university was getting margin calls–demands from counterparties (among them, JPMorgan Chase and Goldman Sachs) for more collateral. Another bunch of derivatives burdened Harvard with a multibillion-dollar bet on interest rates that went against it.

It would have been nice to have cash on hand to meet margin calls, but Harvard had next to none. That was because these supremely self-confident money managers were more than fully invested. As of June 30, they had, thanks to the fancy derivatives, a 105% long position in risky assets. The effect is akin to putting every last dollar of your portfolio to work and then borrowing another 5% to buy more stocks.

Desperate for cash, Harvard Management went to outside money managers begging for a return of money it had expected to keep parked away for a long time. It tried to sell off illiquid stakes in private equity partnerships but couldn’t get a decent price. It unloaded two-thirds of a $2.9 billion stock portfolio into a falling market.

Now, in the last phase of the cash-raising panic, the university is borrowing money, much like a homeowner who takes out a second mortgage in order to pay off credit card bills. Since December, Harvard has raised $2.5 billion by selling IOUs in the bond market. Roughly a third of these Harvard bonds are tax exempt and carry interest rates of 3.2% to 5.8%. The rest are taxable, with rates of 5% to 6.5%.


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