"E-Gold charged with money laundering" -- from SecurityFocus blog

This looks pretty bad. Interestingly, it is an example of how removed from big moneycenter towns (alleged) internet crime can be, in this case, those financial hotspots, Satellite Beach and Melbourne, Florida. And the (again,) alleged criminal mastermind, an oncologist? Well, it is Florida. If the charges are true, and the story looks pretty damning, this may take something of a bite out of money laundering. Be careful, very careful, when moving money online. There still is value in dealing with established, universally-known, trusted businesses.



E-Gold charged with money laundering

Grantham's 'All asset classes everywhere bubble'. It's Ridiculous!

What's ridiculous about it? Well. let's start with a rather bizarre quote from TSC writer Brett Arends: "As Grantham points out, a bubble needs two things: excellent fundamentals and easy money." I am sorry, but bubbles involve extremes of valuation, not excellent fundamentals.

Arends again, describing Grantham's thinking: "Grantham concludes that every asset class is expensive today compared with historic averages...." US large-cap growth-oriented stocks are not so expensive.

There is a bit of discussion of whether high current earnings are good support for high stock prices, and Grantham just is not impressed. But those earnings are what they are. They are reflective of the current economy.

"The bursting of [this] bubble will be across all countries and all assets, with the probable exception of high-grade bonds," Grantham warned. "Since no similar global event has occurred before, the stresses to the system are likely to be unexpected." Surely it is a risky world. And there is a part of all of us which strives to be prudent. But prudence is only truly so if it based upon reality. Grantham just has not made his case.



Jeremy Grantham: All the World's a Bubble

Morningstar: 12b-1 Fees Must Go

Kudos to Morningstar for this! As they note, it really is this simple. Investors are very poorly served under the present 12b-1 fee situation.



Morningstar.com - Memo to SEC: 12b-1 Fees Must Go

Unease at Fidelity? - WSJ

One thing which sort of quietly astonished me, several months ago, when I last looked, was the paucity of Fidelity funds coming up at Morningstar when I screened for "Fidelity" and "5 stars". After counting out the plethoras of share classes and marketing variations, there just were not as many as I would have expected. They do have some! But given the presence Fidelity has in the industry, and the huge number of funds Fidelity operates -- I refuse to count my way through all those share classes, etc. -- and the immense amounts of money they manage, where were the standout funds? Where are the category killers? When you review Morningstar's "Analyst Picks", at this date you see eleven Fidelity funds, six of which are bond funds. What does that say?

Fidelity obviously has the resources, commitment, decent people, and the brainpower to be a performance leader -- and they are indeed committed to active management, even though they have some good indexed funds and ETFs. But if they cannot make active fund management work, and I mean really work, for the investors, then can it work for any firm with mega-gazillions under management? And if it cannot work, then is active management, at least with monster mutual funds, a false premise, or even as one financial advisor has rather unkindly labeled it, "a hoax"? That is, not at all just speaking of Fidelity, but for any firm with such massive funds to invest?

Now just for the record, I am not the one who referred to active management as a "hoax". That's chutzpah, to put it politely!

"For the third time in two years, Fidelity Investments announced a major shift at the top of its core money-management unit, signaling what analysts see as continuing unease with the mutual-fund giant's investment and asset-gathering performance."



Fidelity Again Shifts Course In Fund Unit - WSJ.com - $subscription only

MarketWatch: "Hedge funds have lost 'alpha,' Merrill director says"

Managing Director Heiko Ebens says, "Alpha has essentially disappeared", from hedge funds as an industry. Alpha is academic finance jargon for returns of a comparably risky investment beyond those of an appropriate market benchmark, or index. in other words, a manager with good results adds alpha, but a poor one generates "negative alpha".

"Ebens argued on Tuesday, in front of a stonily silent audience, [emphasis added] that most hedge fund returns come from the broader markets and can be replicated by indexes constructed, coincidentally, by Merrill...."

"Ebens touched on a sensitive subject for the hedge fund industry. As assets have ballooned and more managers have entered the business, some argue that increased competition for a finite number of trading opportunities has dented returns. If that's true, the high fees levied by hedge fund managers may no longer be worth paying."

Indeed! Read the article.



No 'alpha,' Merrill director tells hedge fund conference

What was Wrong about Imus' Downfall

Everyone else has said a few words or more than a few, so I will also. Public communications, of every respectable kind, even including blogs like this one, can only prosper when people conduct themselves appropriately.

Imus should have left the airwaves, and the tube. But not because of a Soros-funded "media monitor", as discussed in the WSJ previously. That was reprehensible, and stupid to boot, even from their perspective.

Imus, and Stern for that matter, should never have even been marketable. His trashy, mean, just low style should have kept him on low-wattage AM stations, if even there. Our society has serious values and civility problems. I happened to tune in MSNBC for a few minutes on the day he verbally savaged Ms. Contessa Brewer on the air. If a single gentleman had been present, Imus should have been punched in the nose. He deserved a punch in the nose that day. On camera, just the way he insulted her. But there were apparently no gentlemen present, just his hangers-on. He'll do fine financially. There's no need to worry about him. There is small chance for him to become decent, however. So good riddance to him, at least for a time.



Finding a Replacement For Imus Won't Be Easy - WSJ.com

The Correction has been Corrected!

So, if the market has made back the ground lost due to the "correction" -- I despise that word -- does that mean that the correction was incorrect? Mark Hulbert discusses it.



February-March correction now completely overcome - MarketWatch

SEC to 'Review' 12b-1 Fees -- MarketWatch's Robert Schroeder

So, may I ask, once you've invested in a mutual fund, by what logic should you be made to pay toward the fund's ongoing marketing and 'distribution' costs? That's what a 12b-1 fee is supposed to be. And why aren't those costs just part of the business expenses of the fund company? Actually a 12b-1 fee is sort of a "trail", an ongoing, never-ending commission adding to your broker's profits, and reducing your account value. The SEC should stamp 12b-1 fees out of existence.

"Funds collected $11 billion in 12b-1 fees last year".



'High time' for fund-fee review: SEC's Cox - MarketWatch

MarketWatch: 'Pollyanna', 'Americans refuse to confront dark side of retirement'

How about you?

A few of Mr. Powell's points:

"More than seven in 10 Americans are either 'very confident' or 'somewhat confident' " [regarding the adequacy of their retirement funding.]

"Yet almost half of workers have less than $25,000" [saved, excluding home or defined pensions]. This stinks. Your pension, if it comes in and stays reliably funded, may not be as much you think it will be. Are you married,and planning to get the 'pays as long as either of us is still alive' option, the amount you get will be reduced by perhaps a fourth. A fourth. the alternative is worse. Don't, please don't (guys) shaft the wife of your youth by taking the single-life option. (Individual circumstances might alter this. I'm talking about the normal case here.) If you do that, then die first, then she is without that ongoing money.

Your social security will only pay in full if you wait until you are 66 or even older. Take it earlier and they cut the payment. Work between then and your 66th birthday or whenever the magic date is for you and they take back a lot. And what you do get from Social Security likely will be "means-tested" at some point. That means you may get less. In other words, if you are not simply destitute, you might get to assist Uncle Sam to reduce his staggering budgetary pressures by getting even less.

The message for those of you in this situation is that you should get very, very serious now about providing for your retirement years. And watch out for the financial services pros who want to cure your apprehension by selling you some cure-all, heavily commissioned wonder annuity. Poor performance, excessive salesman compensation and wretchedly bad disclosure of ongoing costs will not make your situation better. The best solution is learning how to invest well, or, failing that, get some low-fee competent advice. And then you make the very best use of your remaining years in the workforce to get yourself back into the game.



Sunny Americans refuse to confront dark side of retirement - MarketWatch

Bloomberg: "GM Weighs Plans to Cut Union Health Costs...."

Rarely will I blog on single-company issues, but GM is in a way representative of what is left of America's manufacturing industry, and by extension, our economy. If they can do this, perhaps there is hope for the company.

If not, if the unions will drag the company and their own pensions and their own healthcare down to a sad end, then I'd say recalculate the pension obligations and the state of their funding, using conservative investment performance assumptions, and the resulting unfunded liability with all the other baggage the company bears, ought to be a sufficient basis to place the company in a Chapter 11 reorganization. Dump the whole pension plan on the PBGC, like the airlines did, and renegotiate with the unions. If they won't get real, move the company to Tennessee and the rest of the South. Or put the plants in Mexico. Let Michigan finish rusting away, if they won't get real. Do like Honda and the rest of the Japanese. Or sell the dadgum company to Daimler Benz!



Bloomberg.com: Exclusive

Bloomberg: "Heebner Says Home Prices May Fall 20% Amid Bad Loans"

Crucial words in the quote, missing from sensationalistic headline: "... in some markets, he said."

Big difference! Seriously, even if the prediction is correct, wouldn't it just be a case of reversion to the mean? Really now, home price shot up so much, so fast, well, wouldn't you expect some likelihood of this? Remember all the articles about the "real estate bubble"? Bubbles pop.



Bloomberg.com: Worldwide

And Trading Isn't Investing Either, Mr. Hoenig

Whenever someone can articulate a rational basis for thinking you can come out ahead by trading, other than wishful thinking, I'll consider it something more than gambling. Technical analysis? Not acceptable, not rational, as there is no objective research support whatsoever.Did you get that, technical analysis is not rational. Fundamental analysis? For short-term trading? Market noise overwhelms whatever merit there might be. In the slightly longer run? Twenty thousand other guys got in before you. You're in danger of being the patsy, the mark, at the poker table. Careful investors win, as markets always have moved up over time. Market returns are good, very good, and available. Some turtles run rather well, it seems.



Investing Isn't Gambling, Though Both Carry Risk (McDonald's) | SmartMoney.com

How Not to Invest! "Econ Prof loses $134 million" & falsifies reports to clients....

A timely loss of memory: "According to a suit filed by the Securities and Exchange Commission last week, the reports that investors received were false and the money invested — about $134 million — is almost all gone. As SEC investigators attempted to question Parish, he claimed to be suffering from amnesia and checked himself into a hospital".

Please, please, please, people, do not ever invest in as gullible a fashion as this man's poor clients. You want to see regular statements from a known third-party asset custodian, or maybe audited numbers in some very few cases. If it just seems too good to be true, it probably isn't. You want to know where the alleged trading is taking place.

From Inside Higher Ed, via Michael Stastny's Mahalanobis Alpha Omega blog

Long-Term Investing Keeps Its Old-Fashioned Shine: Chet Currier, of Bloomberg News

One of the biggest problems with all of the financial media is the dysfunctional short-term fixation reflected in a huge percentage of the words written. This article is an exception. Kudos to Mr. Currier and Bloomberg for it.

Short-term thinking will get you taxed more heavily, subjected to huge risks that, remarkably, get smaller with a longer-term focus, and generally affected by numerous other problems such as performance-chasing, etc. Read the article. He's correct, as I see it. Don't know how to invest with a long term focus? Don't feel bad. CNBC and all the other financial MSM is just not about doing that. Exceptions exist, but you have to search them out. Like maybe this blog. At least that's my hope.



Bloomberg.com: Opinion

Bloomberg: "Merrill Rule Decision Will Force Key Disclosure" -- John F. Wasik

More on the decision. Wasik writes: "When you venture into the murky waters of financial advisers, do you know who is a trained planner representing your best interest and who is a salesman?"

The one representing your best interest is, in other words, a fiduciary. The one who is a salesman is a broker.



Bloomberg.com: Opinion

Bloomberg's Mysak on the Lazard Scandal -- 'Fiduciary Duties Violated', 'kickback scheme'

Mr. Mysak says this one will provide more reading in the days to come.

None of this kind of thing would happen if people could find a way to settle for a good honest profit. "We can get more..." the first step on the road to fiduciary disaster.



Bloomberg.com: Lazard Scandal of 1990s Tells Tale

Europe tops US in stock market value -- FT

Whoa. Say what??

Fraid so. OK, well I have been saying that Americans should be investing more overseas. It's not a growth thing, it's a currency thing. The Euro's gains vs. the dollar have been responsible. That's a tailwind for the European portion of your portfolio, if the vehicle you use is unhedged. It's low-hanging fruit. A no-brainer. Enough cliches? If the large-cap growth portion of the US market does well, as may happen given its relative pricing, the US could pull ahead for a time, and beyond that, it's too murky for me to speculate further. Yet the thesis looks good, despite what you are about to read.

But.

You know, sometimes the last paragraph or two of a story turns the whole thing on its head. Here are the last two paragraphs from FT:

"Europe trails the US on the indices of market capitalisation compiled by FTSE and MSCI and which are used by fund managers as benchmarks."

"However, these have a reduced or no weighting to shares that cannot be freely traded such as holdings of governments or controlling family shareholders. Europe has more companies with such stakes."

Cute.



FT.com / Markets / UK - Europe tops US in stock market value

Appeals Court Strikes Down SEC’s ‘Broker-Dealer Rule’, aka 'The Merrill Rule'

This is really, really important. Brokerage services, which may involve "incidental" advice, are the service of buying and selling. You can spin that, you can invent new names for the same old deal, you can work hard to keep the client willing to pay, but it still is buying and selling. Brokers are not, repeat, NOT fiduciaries. A fiduciary advisor places your interests ahead of getting a big commission or his own needs. He makes a good living because enough clients are wise enough to find him. The built-in conflicts of interest for a commission or "fee-in-lieu-of-commission" (wrap account) industry dictate that it is that way. Investment advisory services are a completely distinct thing. It's about time. The Financial Planning Association is happy. The big brokerages are going to have to change some things and perhaps change some thinking. it will be interesting to see how they spin it to the public. it's about the public, really, not the advisors and the brokers. People should be able to know what they are paying for: Trading, or advice. Of course, an appeal by the brokers to the US Supreme Court is possible, and would stave off implementation. Whether that would be well received by the investing public is open to question.

Quiz: Do you know what type of arrangement you have with your broker or investment advisor? Are you clear on the difference between paying for investment advisory services and say, a wrap account? a low-fee advisor will typically charge you less than the typical charge for a wrap account, or for a separately-managed account ("SMA") deal, two types of deals pitched often by brokers.



UPDATED BREAKING NEWS: Appeals Court Strikes Down SEC’s ‘Broker-Dealer Rule’: Financial Planning Association wins lawsuit to nix Merrill Rule and subject all fee-based accounts to regulation by the Advisers Act of 1940.

"Iran, The New South Africa"

It is a little unusual for me to link to a post over at Captain's Quarters, as this is an investing blog, not a political one, and the intersection of the two realms is not an everyday occurrence, but this is an unusual story, and he's on it.

If large American institutional investors, like public pension funds, begin to divest themselves of investments in companies doing business with Iran, that could have interesting effects. In a few cases, it might lead some foreign companies to stop looking for new business with Iran. It could. it could ratchet up the pressure on Iran's economy, which is already in pretty bad shape. If that happens, and if that then leads to regime change in Iran, what's not to like about that? Usually, this sort of socially-conscious investing concept had been the province of liberal groups, such as those who pushed for divestment of South African companies and boycotts of diamonds, etc., before the end of apartheid. This is a bit of a new twist, it seems.



Captain's Quarters: Iran, the New South Africa