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Author: ROB VARNON
Date: December 16, 2008
Publication: Connecticut Post
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Trading in People's United Financial could be heavier than normal in the next couple of days, thanks to the company's new position on the Standard & Poor's 500 Index.
Last week's arrest of Wall Street legend Bernie Madoff has area nonprofits and investors scrambling to see if they are among those losing money in an alleged $50 billion Ponzi scheme.
Some reported good news, like the Hole in the Wall Gang Camp and the Stamford-based Jewish Community Endowment Foundation, which said they had no exposure to the scandal, but did check. Others were not so lucky.
In a news release Friday, the New York-based fund manager Fairfield Greenwich Group called the news shocking and appalling. FGG said it is trying to determine the extent of its losses, but noted it had invested $7.5 billion with Madoff, which is more than half the total assets under its management.
Friday, The Wall Street Journal quoted Sandra Manzke, chief executive officer of Darien-based Maxam Capital Management, as saying her business would shut down as a result of losses related to Madoff's investments. She did not return a call for comment Monday, but on her company Web site, Manzke posted a letter encouraging investors to demand more regulation of hedge fund managers.
"None of my clients were affected, but I got a few calls on Friday from friends who were," said Paul Schatz, president of Woodbridge-based Heritage Capital. Those friends, none of whom are from Connecticut, were looking for help, and Schatz said he had to tell them it doesn't look good. By the time a Ponzi scheme is uncovered, there usually isn't any money left to get back, Schatz
said.
Monday afternoon, a judge signed an order saying Madoff's investors need the protection of the Securities Investor Protection Act. Judge Louis Stanton also directed that proceedings to liquidate the assets of Bernard L. Madoff Investment Securities be moved to bankruptcy court. The order was signed after the Securities Investor Protection Corp. submitted papers asking for the protection for investors.
The U.S. Securities and Exchange Commission has already won approval from a federal court to place Madoff's firm into the hands of a receiver as it tries to pinpoint how many clients are affected. According to the SEC, "in substance, Madoff communicated to the senior employees that he had for years been paying returns to certain investors out of the principal received from other, different, investors."
A call to Madoff Investment Securities on Monday was answered by a recording asking investors to be patient as the problem was sorted out.
Schatz said this scandal creates even more impetus for regulatory changes.
"All the flags were there and people did lodge complaints," Schatz said, but for some reason, either because of Madoff's reputation or friendships, no one found out about the scheme until it was too late. Because of a failure to act on complaints, Schatz said he expects a major shakeup of the SEC and more rules to be implemented to govern hedge funds, though Madoff wasn't running a hedge fund.
Hedge funds, and funds of funds, appear to have invested a great deal with Madoff, who also took in money from nonprofits, pension funds -- including that of the town of Fairfield -- and individual investors.
"It's unbelievable," was the reaction by Schatz and several other experts in securities, of Madoff's ability to hide this fraud for what appears to have been years.
Richard Slavin, principal and chair of Bridgeport-based Cohen and Wolf, P.C.'s securities group, agreed the SEC will have to answer some questions over its failures, while more regulations will probably be rolled out.
But looking at the alleged fraud, Slavin, who spent 11 years as a regulator, said it has all the hallmarks of a con job.
"He was so clean and trustworthy," and Madoff got the right people involved in the fund to make it seem more secure, Slavin said.
"He got the best guys in the big cities," Slavin said. "People who raised money for philanthropy."
John Griswold, executive director of the Commonfund of Wilton, said investors shouldn't kick themselves too hard for not spotting this.
"Fraud is usually perpetrated by very smart people, who are insiders," he said.
The Commonfund helps nonprofits place investments with money managers. It provides some research and education for schools, hospitals and other organizations with endowments. Griswold said they do not believe any of their managers invested with Madoff; they have been checking since the news broke late Thursday.
A common mistake among investors is to trust people, he said, and that's what appears to have happened here, because Madoff reportedly wouldn't tell investors where he was putting their money.
Madoff also appears to have invited people to invest in the fund, or at the least created a sense this was a special opportunity for a chosen set of investors.
He operated through country clubs and friends, according to a variety of reports.
"When you don't have information of any sort, that's usually a pretty big red flag," Griswold said. "Knowing someone who knows somebody isn't a substitute for due diligence."
The Associated Press contributed to this report.
What is a Ponzi scheme? Ponzi schemes are pyramid schemes, which use new money coming in to pay existing members, that are sold as investments. The scam is named for Charles Ponzi, who ran the Boston-based Securities Exchange Co. in the 1920s. A good source of information about Ponzi can be found in former Bridgeport Post reporter Mitchell Zuckoff's book, "Ponzi's Scheme: The True Story of a Financial Legend."
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Author: PAM DAWKINS
Date: November 10, 2008
Publication: Connecticut Post
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Trading in People's United Financial could be heavier than normal in the next couple of days, thanks to the company's new position on the Standard & Poor's 500 Index.
Beginning Wednesday, Bridgeport-based People's will replace the information technology company Unisys Corp. on the index, which tracks 500 leading U.S. companies across a variety of industries.
S&P bases its choices on a number of guidelines, including market capitalization, financial viability and liquidity. The market value of an S&P 500 company is generally around $4 billion or more, it has been profitable for the last four quarters and at least half the stock is in public hands, according to David M. Blitzer, managing director and chairman of the Index committee.
Unisys has been shrinking and the committee is getting a little concerned the company, like many others, could disappear, he said Monday. This, he added, is not intended as an investment recommendation.
The committee looks at the size of the company being replaced and the state of the market as a whole when deciding on a replacement, he said, and maintains a list of a dozen or so businesses that could be added to the list.
"It's a whole range of different issues that would come into play ...," Blitzer said, adding the replacement doesn't have to be from the same industry. The committee tracks upcoming mergers and other corporate news, so knows what to expect from the next six to eight months and takes that into consideration when adding to the Index.
On average, the committee changes the Index 30 times a year, but market turmoil in the past few months has pushed the pace off the average.
"People don't like a lot of turnover [on the Index]," Blitzer said.
By people, read mutual fund managers.
Many mutual funds are tied to the S&P 500 Index, meaning they are invested in the named companies. These managers must buy and sell their holdings to keep in line with the Index, which is why there could be higher trading volume in People's shares.
The committee announced the most recent change to the Index on Friday.
Monday, People's shares rose $1.05 to close at $17.70 in trading on the Nasdaq. More than 13.7 million shares changed hands, according to Yahoo! Finance, compared to an average volume of 3.9 million shares.
"Performance-wise, it means absolutely nothing," other than the typical short-term boost, said Paul Schatz, president and founder of investment advisor Heritage Capital in Woodbridge. "In general, it will raise visibility a little bit," which means more analysts will follow a company.
But that higher profile, and added scrutiny, can be a double-edged sword, he added.
"In good times, there's a multiplier effect, and in bad times, there's a multiplier effect," he said.
Schatz said he wasn't surprised S&P added a bank to the Index; the financial industry has lost, or will lose, six behemoths, as Fannie Mae, Freddie Mac, AIG, Merrill Lynch, Bear Stearns and Lehman Brothers either disappear or lose value. Schatz generally is pretty positive about regional banks and expects People's shares to rise 20 percent to 50 percent in the next six to 12 months.
"They're not cleaning up a complete disaster on their balance sheet, like so many others," he said.
Last month, People's reported net income of $46 million, or 14 cents per share, for the third quarter of 2008, down from $57.6 million, or 20 cents per share, in the comparable 2007 quarter, but up slightly from the $43 million earned in the second quarter of 2008.
"We're certainly very happy that we're included," but it won't really change anything in the long run, said Jared Shaw, People's senior vice president of investor relations.
"Fundamentally, we still need to make sure that we're doing the right things in running the company."
The Index, one of several from S&P, can be traced back to the 1920s, but has listed 500 stocks since 1957, Blitzer said. The financial publishing company developed the index partly as a market analysis tool but also as a promotional device, he said.
Vanguard started what is now the oldest S&P 500-tracking mutual fund in 1976.
Other companies on the S&P 500 include AT&T, Aetna, Bank of America, General Electric Co., Hartford Financial Services Group, Norwalk-based IMS Health Inc., Pitney Bowes, Danbury-based Praxair, United Technologies Corp., Wachovia and Norwalk-based Xerox Corp.
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Author: Angela Carter
Date: October 4, 2008
Publication: New Haven Register
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An announcement Friday from the government that the national economy shed 159,000 jobs in September was not met with surprise, but with predictions the picture will get worse in the coming months.
September marked the ninth straight month of job losses this year, according to the U.S. Department of Labor, for a total of 760,000 disappearing so far.
Interactive Map: State-by-State Unemployment
“Am I surprised? No. That’s obviously showing an acceleration,” said Peter Gioia, vice president and economist for the Connecticut Business & Industry Association.
Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven, said the September statistics do not yet reflect the jobs lost on Wall Street as major financial firms have either folded, sold off affiliated units or have been bought by other institutions.
“We’re still in the midst of an economic downturn that stands to get worse before it gets better,” Klepper-Smith said.
Also, the nation’s unemployment rate spiked to 6.1 percent, up from 4.7 percent a year ago.
“These unemployment numbers are staggering,” U.S. Rep. Rosa L. DeLauro, D-Conn., said in a statement
The Labor Department’s report showed losses across many sectors, with the largest cut, 51,000 jobs, in manufacturing. Retailers shed 40,000 jobs, construction companies let go of 35,000 and financial services lost 17,000. The cumulative losses overwhelmed employment gains by the government, in education, health and elsewhere.
Gioia said the state continues to have a net increase in jobs, but according to a recent credit availability survey among CBIA member companies, confidence among businesses is sinking.
Pressure is growing on U.S. Federal Reserve Chairman Ben Bernanke to do an about-face and lower a key interest rate in a bid to revive the economy. Many now think that will happen at the Fed’s next meeting Oct. 28-29 or even earlier. The hope riding on such a move would be to spur nervous consumers and businesses to spend more freely again.
“I think these numbers force their hand,” said Paul Schatz, wealth manager and founder of Heritage Capital LLC in Woodbridge. Schatz said the bailout approved by Congress and signed by President Bush Friday stopped the economy from heading into a tailspin but more measures will need to be taken going forward, he said.
Klepper-Smith said cutting the federal funds interest rate would hurt seniors who live on fixed incomes and already are earning paltry returns on investments and certificates of deposit. The Associated Press contributed to this story.
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Author: Angela Carter
Date: September 30, 2008
Publication: New Haven Register
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On the heels of a failed vote on a government-sponsored bailout plan and the steepest ever, one-day tumble in the Dow Jones industrials, the business cycle closes another month and the year’s third quarter today.
In the troubled financial sector, hedge fund investors today hit a liquidation deadline.
"There are three cross-currents here," said Paul Schatz, founder and wealth manager at Heritage Capital LLC in Woodbridge. "It’s not a great recipe. To me, the clear takeaway in all of this is the lack of a clear understanding that Wall Street’s mess will become Main Street’s mess. No one wants to bail out Wall Street, but this problem is also about the small business owner that’s not going to be able to make payroll."
The U.S. House of Representatives on Monday shot down legislation authorizing a $700 billion rescue plan for the nation’s financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive into recession without it.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies’ balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy that is already sputtering.
The stock market responded with a 777 point fall in the Dow, a 106 point plunge in the Standard & Poor’s 500 index and the Nasdaq plummeted 199 points. Still, in percentage terms, the decline remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Great Depression.
Credit markets froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.
"If they don’t pass a bill, we’re at serious risk of a modern-day Depression. This isn’t just about rich people getting bailed out. This is about America getting bailed out," Schatz said.
The plan’s defeat leaves questions about what comes next and whether taxpayers would be paying too much for toxic mortgage-backed securities that could fail to yield a return.
"There is no evidence the real estate market is anywhere near a bottom," said Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven and economic adviser to Gov. M. Jodi Rell. "It took a long time to get into this problem. It’s going to take some time to get out. I don’t think this turns on a dime."
Its proponents warn that the nation’s fragile economy could nosedive into a depression.
U.S. Reps. Christopher Murphy, D-2, Rosa L. DeLauro, D-3, John Larson, D-1, and Christopher Shays, R-4, backed the plan. Murphy called it the hardest vote he has cast since going to Washington nearly two years ago.
"But I simply cannot allow my constituents’ retirement and jobs to be put at risk by Congress refusing to act," he said. "This legislation, though far from perfect, is a completely different bill than the three-page proposal initiated by the president."
Freshman U.S. Rep. Joseph Courtney, D-2, opposed it.
"I cannot in good conscience vote to borrow $700 billion in taxpayer money for a plan that does not stem the downward spiral in the real estate market, nor invest in economic stimulus that will help struggling middle class families," he said. "Lastly, the final round of negotiations undermined congressional efforts to limit CEO compensation and to pay for this measure responsibly."
Klepper-Smith said the terms of the bailout failed to get to the core of a recovery: confidence on the part of consumers, businesses and investors.
Confidence will return only with responsible leadership over time and the development of trust, he said, adding that the bill could create unintended problems down the road, such as weakening the dollar, rising budget deficits and pushing energy prices higher.
"The socialization of private sector debt sets a bad precedence," Klepper-Smith said. "Let the market forces determine who the winners are and who the losers are."
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Author: Rob Varnon
Date: September 16, 2008
Publication: Connecticut Post
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Lost jobs, reduced spending and tax revenues are the most immediate fears facing Connecticut following the economic tremor that brought down Lehman Brothers and Wall Street Monday.
Lehman, after a weekend of trying to find a buyer for the investment banking firm, filed for Chapter 11 bankruptcy, the biggest such filing in history, with assets of $639 billion and debts of $613 billion.
In the wake of Lehman's possible demise -- and news that Bank of America will buy financially strapped Merrill Lynch for $50 billion, the Dow Jones industrial average fell 504.48 to close at 10,917.51.
In a press release, Lehman Brothers said it is looking to sell off assets and will file a motion to keep working and pay employees.
"It's a very sad situation," said Peter Gioia, a vice president and economist of the Connecticut Business & Industry Association. Like many local experts, Gioia said the real hardship will be faced by families of Lehman employees who will be hunting for jobs in a tough market for their kinds of skills. The hurt will creep into local economies, where restaurants and retailers could see a drop in customers who are trying to save money to make more basic payments, like mortgages and heat.
Lehman has about 25,000 employees, and it's unclear how many live in Connecticut. The financial and insurance sector in Connecticut has been fairly stable during the past year, according to the state Department of Labor. In July 2008
there were 123,100 Connecticut workers in the financial and insurance services compared to 123,500 in July 2007. This figure represents people who work in the state, not those who might live here and work in New York City.
A job loss or reduction in pay can have dramatic effects on the local economy, Gioia said, but this problem goes beyond the financial sector employees, it reaches into just about every household and will wreak havoc with state and municipal budgets.
Connecticut's pension fund for state employees has investments of more than $50 million in Lehman through direct and debt stakes that will be affected by this filing, according to the state treasurer.
The state also takes in a large amount of income tax revenue linked to Wall Street bonuses, which are not going to be anywhere near what they were last year.
According to the New York state comptroller, New York City-based securities firms paid out $33.2 billion in bonuses in 2007. Connecticut, like New York and New Jersey, benefited from these bonuses.
"This is not going to be pretty in the long run," Gioia said.
The situation was so extraordinary, Gov. M. Jodi Rell took time away from a conference in Maine with New England governors and premiers of Canadian provinces, to hold a conference call with the commissioners of banking, insurance and economic and community development. She and her commissioners declared Connecticut-based banks and insurance companies "sound."
Rell ordered her state commissioners to closely monitor the impact of the financial turbulence on state jobs and revenues.
"The enormity of this situation, in light of the tens of thousands of jobs impacted and the historic blue chip companies involved, is unprecedented," Rell said in a statement issued Monday from her Capitol office.
Rell called on Congress and President Bush to act quickly "to redesign the federal regulatory structure for the financial industry."
Speaker of the House James A. Amann, D-Milford, said Monday that not only does much of the state's income tax revenue come from southwestern Connecticut, but many residents are employed on Wall Street and in the battered banking industry.
"It's only 2 percent of the banking market that's affected, so people shouldn't be panicking," Amann said in a phone interview. He said it could take another year to 15 months to ride out the current economic effects.
Attorney General Richard Blumenthal said Monday that his office still has an active investigation into Merrill Lynch's business practices, but Bank of America seems set to absorb its potential losses and liabilities in the nationwide real-estate meltdown.
"I think the effect on Connecticut, in strictly legal terms, is likely to be small, from what we can see at this point," Blumenthal said, adding that the state is not investigating Lehman Brothers.
"This is not the end of the world," said Paul Schatz, president and founder of the Woodbridge-based financial advising firm Heritage Capital. "We'll fix this .. it's just going to take years."
But this is clearly a "once-in-a generation change in the Wall Street landscape," according to Schatz
There are now only two major independent investment banks left on Wall Street, Goldman Sachs and Morgan Stanley. That's going to probably limit the availability of money for companies looking to go public, he said.
The problems in the credit market are going to continue for a while as banks remain stingy and more bad news comes out on the credit card and auto loan fronts, he said. Schatz expects at least another 100 or more banks to fail across the nation.
"Access to capital has been shut off," Schatz said, because banks want to reduce their leverage exposure not write more loans.
M. Jay Forgotson, chief executive officer of BNC Group Inc., said it's not as dire a situation for people who rely on community banks like his. He said he's pleased with Bank of New Canaan and The Bank of Fairfield's position, and both are able to continue to loan money.
But Forgotson said anecdotally, more and more businesses and customers are late on making loan payments.
This situation, with tightening credit could further depress housing prices, he and Schatz agreed.
Schatz said someone who has kids getting ready for college probably should avoid this kind of market, and instead should look to put their money in treasury notes.
Gioia, Schatz and Forgotson all said the prospects for getting a private sector loan to pay for college is going to be more difficult in coming years.
Erin Chiarro, director of financial aid at Fairfield University, said private sector banks, which were giving out loans to help cover the gap in federal loans or student scholarships are becoming more tight with credit for certain colleges.
He said each school has a default rate based on student loans and the higher the rate, the less likely a private bank will float a loan to a student attending that school.
Fairfield University has a very low rate, as do many other private schools, he said. He advised anyone facing trouble to contact his or her school's financial aid department.
While the situation looks tough, many experts say there is opportunity for people who have the stomach to take chances.
"It's an opportunity of a lifetime," Forgotson said on real estate and some securities, "Unfortunately, it's at the expense of a lot of people who were devastated.
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Author: Angela Carter
Date: September 16, 2008
Publication: New Haven Register
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Wall Street may be in New York City, but the descent of the mammoth investment firm Lehman Brothers Holdings Inc. into Chapter 11 bankruptcy protection Monday, along with Bank of America’s acquisition of the Merrill Lynch & Co. investment bank, will be felt in Connecticut, experts say.
The state’s Fairfield County area is linked to Metropolitan New York, with many of its residents commuting into the Big Apple to work. Due to layoffs, primarily in the financial sector, approximately 36,000 to 40,000 jobs have been lost, said Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven and economic adviser to Gov. M. Jodi Rell.
Expect job dislocations to continue, personal assets to deflate and consumer consumption to decline, all of which will lead to less revenue for the state from personal income taxes and sales and use taxes, Klepper-Smith said.
“There are too many questions and not enough answers right now,” he said. “For every investor in the stock market, this undermines confidence. Investors don’t feel good, businesses don’t feel good and consumers don’t feel good.”
The stock market went into a tailspin over Lehman’s bankruptcy filing and what amounted to a forced sale of faltering Merrill Lynch to Bank of America for $50 billion in stock. The Dow Jones industrials fell 504.48 points, or 4.42 percent, to 10,917.51.
From a historical perspective, Monday’s trading activity marked the worst point drop for the Dow since it lost 684.81 on Sept. 17, 2001, the first day of trading after the Sept. 11 terror attacks. It also was the sixth-largest point drop in the Dow, just behind the 508.00 it suffered in the October 1987 crash.
The Standard & Poor’s 500 index declined 59.00, or 4.71 percent, to 1,192.70, and the Nasdaq composite index fell 81.36, or 3.60 percent, to 2,179.91.
In an unexpected move, the insurance and financial services giant American International Group talked to the Federal Reserve Monday about securing an emergency line of credit. As investors flee, falling stock prices are forcing the company to sell assets.
“The only time worse than this was the 1930s. This is probably the worst crisis of our lifetime, and probably the second-worst in history,” said Paul Schatz, a wealth manager and founder of Heritage Capital LLC in Woodbridge.
The bear market has not yet bottomed out, so it has yet to see a turnaround, he said. Schatz lauded the federal government’s decision not to commit taxpayers’ dollars to rescue Lehman Brothers.
“Institutions must be allowed to fail in order for capitalism to survive,” Schatz said. “Certainly, this is the continuation of the lesson we should all learn from the housing crisis: There’s no free lunch.”
The swift developments that began over the weekend are the biggest yet in the 14-month-old credit crisis that stems from toxic, coast-to-coast subprime mortgages and home values that keep falling.
“There are no signs these (investment bank) write-downs are done,” Klepper-Smith said. “All we know is, we have these aftershocks reverberating.”
State Treasurer Denise Nappier issued a statement assuring taxpayers that despite the latest market upheavals, Connecticut’s $25 billion pension fund remains intact.
“As long-term investors with a well-diversifie d portfolio, we are well-positioned to weather this latest turbulence,” Nappier said.
“Like the rest of the country, we are experiencing some fall-off; however, we are faring better than many, and I remain confident we will come out ahead over the long term,” she said.
The state’s position in Merrill Lynch has been strengthened, due to the proposed takeover by Bank of America, Nappier said, adding that as of Friday, the book value of Connecticut’s equity stake stood at $38 million, and the book value of its debt position at $10 million.
Together, these investments represent two-tenths of 1 percent of total assets, she said. The state also holds $130 million of Merrill Lynch debt in other short-term portfolios.
Connecticut’s pension fund also has exposure to Lehman Brothers. The state holds an equity stake in Lehman Brothers with a book value of $19 million, and a debt stake with a book value of $33.3 million. “The outlook for these holdings has certainly been compromised due to the bankruptcy filing; however, the ultimate value remains to be determined,” Nappier said.
The investments in Lehman Brothers also represent two-tenths of 1 percent of total assets.
The governor said in a statement that she held a conference call Monday with the three commissioners of the state departments of Community and Economic Development, Insurance and Banking.
“They stated that Connecticut-based banks and insurance companies are sound at the current time and that these Connecticut businesses are in far better shape than their counterparts,” Rell said, adding that the commissioners were directed to closely monitor conditions.
Lehman Brothers stock price closed Monday at 21 cents per share, down $3.44; Bank of America shares closed at $26.55, down $7.19; Merrill Lynch closed at $17.06, up 1 cent; and AIG closed at $4.76, down $7.38. All are traded on the New York Stock Exchange.
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Author: Jeff Benjamin
Date: September 1, 2008
Publication: InvestmentNews.com
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After recent drop, long-term price scenarios for energy range from bleak to bright
As Gustav threatened last week to become the first major storm to disrupt oil and gas production in the Gulf of Mexico since 2005, market analysts, financial advisers and money managers hunkered down with the latest theories on where energy prices might go from here.
Despite the lack of a clear general consensus and forecasts ranging from dark to rosy, the recent downward trend in the price of oil has at least reintroduced the notion that energy prices can go down as well as up.
"I don't think anybody really has a good handle on what has driven this turnaround trend, but it seems to me that it's mainly a demand story right now," said Bill Cheney, an economist at John Hancock Financial Services Inc. in Boston.
"At the very least what this [recent decline in oil prices] has done is break the psychology that prices will inevitably go higher," he said.
Last week's modest oil price increase of a few dollars per barrel from the Aug. 15 low of $111 represented a logical market reaction to the Gustav threat, according to some analysts.
Storm front: Gustav only adds to the concern over oil and gas prices. Other observers, however, said the price of oil was poised for a short rally regardless of the storm, but that the general trend would continue downward.
The immediate impact of Gustav notwithstanding, the fact that the price of oil had fallen 22% from its July 11 high has re-ignited discussions over the realities of supply and demand, and shed fresh light on the impact of alternative energy and the weakening global economy.
"Ultimately, the price of oil will be just like any other commodity and it will adjust to the cost relative to any alternative," said Ron Altman, a partner and portfolio manager at MB Investment Partners Inc. in New York.
"We're going to see incremental exploration for oil or whatever comes out of the ground, and both political parties will jump on board," he added. "And the public is going to demand more fuel-efficient cars regardless of what the car makers say, because if they don't retool they'll be out of business."
All the increased focus on alternatives, combined with a rolling global economic recession, is quickly putting to rest those scary notions of oil at $200 per barrel, according to Mr. Altman.
"There are a lot of little pieces of evidence of changing patterns," he added. "And the equity and commodity markets are reflecting the collective wisdom of all of us."
The increase in the price of oil since Aug. 15 is nothing more than a short-term rally in the midst of a larger downward trend, according to Paul Schatz, president of Heritage Capital LLC in Woodbridge, Conn.
"I think oil would have rallied regardless of Gustav and I'm emphatic that the peak of July was the peak and that the Aug. 15 low was not the low," he said. "The price of oil could easily drop to double digits this year."
Mr. Schatz, who oversees $18 million for his clients, pays careful attention to the price of energy in relation to a variety of macroeconomic trends.
While he said the current oil rally could drive the price as high as $130 per barrel over the next few weeks, a longer-term trend toward the $80 range could derail any momentum toward alternative energy.
'MULTI-PRONGED APPROACH'
"As a population, we're so short-sighted that if oil hits $80, people will forget all about alternatives," he said. "That's why we need a multipronged approach, which means we need to throw everything at it, including the kitchen sink, right now."
The recent dip in oil prices did not surprise Clyde Harrison, president of Brookshire Raw Materials, a $50 million private commodities fund based in Chicago.
"This year everybody made sure they had enough supply, but then the demand fell off a cliff," he said. "I could see the price of oil dropping to $100, but we've still got less and less oil every year."
Longer-term, Mr. Harrison sees oil at $300 per barrel within 10 years, "unless we start doing serious things like building nuclear power plants and punching holes in the ground.
"Right now, we've got the Osama bin Laden energy plan," he said. "He would love for us not to drill, which is why we need everything, including wind, solar and nuclear power."
Diane Pearson: "I think the downturn was temporary." Others believe that while the supply and demand argument has merit, it has a limited and short-term impact on oil prices, according to Diane Pearson, a financial adviser with Legend Financial Advisors Inc. in Pittsburgh.
"I think the downturn was temporary and I would expect to see oil at $150 a barrel by this time next year," she said. "Consumption was down in the U.S., but consumption will continue to increase globally."
Ms. Pearson, whose firm oversees $370 million in client assets, said her clients are gaining exposure to the energy markets through investments in companies involved in the "entire production process."
The "range bound" theory, suggesting that any number of circumstances and events could drive oil in either direction over the near term, has led to a limited energy sector exposure for Darren Beck, a wealth manager at Pathway Financial Advisors LLC in Atlanta. The firm oversees $130 million in client assets.
"Right now you've got geopolitical risks related to Russia and Georgia arguing for an upside in the $130-a-barrel range, and you've got slowing global demand arguing for a downside range of around $100," he said. "We're keeping our exposure light in the portfolio right now because oil has had a pretty good run and the upside potential is not that great."
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Author: David Hoffman
Date: August 11, 2008
Publication: InvestmentNews.com
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The U.S. stock market is outperforming the global stock market for the first time this decade, with asset managers adjusting their portfolios to take advantage of the trend.
"Our emerging market exposure has come down," said Robert Turner, chairman and chief investment officer of Turner Investment Partners Inc. of Berwyn, Pa.
At the same time, exposure to U.S. stocks has gone up, he said.
"We're either neutral or slightly below neutral in our international exposure," said Jack Ablin, chief investment officer of Harris Private Bank, a unit of Harris Bankcorp Inc. of Chicago. "That's a complete reversal from a year ago."
Financial advisers said they have no qualms with such activity.
The Standard & Poor's 500 stock index was down 11.10% year-to-date as of Aug. 6. It had a one-year return of -10.31%, a three-year annualized return of 3.67% and a five-year annualized return of 7.91%.
The MSCI EAFE, down 14.52% for the same period, had a one-year return of -11.02%, a three-year annualized return of 9.93% and a five-year annualized return of 15.49%.
Advisers differ on what they themselves have done.
Some, particularly active traders, began to cut their exposure to foreign markets at the end of last year, said Paul Schatz, president of Heritage Capital LLC, a Woodbridge, Conn.-based firm with $18 million under management.
That's when "cracks began to show" in overseas markets, said Mr. Schatz.
That doesn't mean, however, that these advisers are directing client assets to domestic stocks.
While overseas stock markets have given back more than domestic stock markets, investing in any market right now isn't appealing, said Tom Lydon, president of Global Trends Investments, a Newport Beach, Calif.-based firm that manages $75 million in assets.
"If you look at all global and domestic stocks, most are all still trading substantially below their 200-day average," said Mr. Lydon, a practitioner of momentum investing.
As a result, he has moved his clients' portfolios to 80% cash.
"We have very little exposure to stocks across the board," Mr. Lydon said.
Timing the market, however, can be tricky, said Don Martin, president of Mayflower Capital in Los Altos, Calif.
The market does appear to be in transition.
"U.S. stocks are some of the best values compared to other stocks," said Mr. Martin, who declined to detail his firm's assets under management.
But that doesn't mean he will tinker with his clients' asset-allocation mix.
Investors should remain "evenly" invested in markets, he said. If the U.S. market represents 40% of the global market, that is the percentage of U.S. stocks they should have, Mr. Martin said.
That is reasonable, said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co. LLC in Jersey City, N.J. "One of the things we always advise is not to leap from one asset class to another," he said.
But Mr. Ezrati said investors should brace themselves for overseas markets to take the lead over U.S. markets.
The U.S. economy has been in a much-documented funk for the past year and a half, owing to the housing collapse, multiple credit crises, soaring commodity prices and souring consumer sentiment, Mr. Turner said.
"But we think the worst of the funk may soon be over," he said.
At the same time, Europe and Asia are just beginning to head into their own slowdowns, said Ed Friedman, a senior economist at Moody's Economy.com in West Chester, Pa.
As a result, "we are more likely to recover more quickly than they do," he said.
Emerging-market stocks are expected to underperform U.S. stocks for a number of additional reasons, industry experts said.
One has to do with valuations, Mr. Ablin said.
In 2001 and 2002, the valuations of emerging-market stocks were half that of U.S. stocks, but now they trade at a premium to U.S. stocks, he said.
That's not sustainable, Mr. Ablin said.
It all bodes well for U.S. stocks, with some sectors benefiting more than others.
Health care and technology stocks in particular should do well, Mr. Turner said.
Health care stocks should thrive because valuations have gotten so cheap, and technology should prosper because, after years of underinvestment, technology spending is set to rise, he said.
Large-cap stocks should also shine, Mr. Turner said.
"Non-U.S. investors will come in and buy these stocks because these are global brands," he said. "They are the companies that are managing business well."
Large-cap stocks, however, aren't the leaders just yet.
SMALL-CAPS PREFERRED
It may turn out that large-caps will do well over the long term, but, for now, small-cap stocks are providing the best returns, Mr. Schatz said.
Mr. Ezrati did not share Mr. Turner's rosy outlook on health care stocks.
"We're very skeptical [of health care stocks], with the government getting more involved" in the health care industry, he said.
Still, health care stocks have performed badly over the last few years, so it is conceivable they could be a good valuation play, Mr. Ezrati said.
He likened the technology sector to the industrial sector.
"There was a time when making servers was something different," Mr. Ezrati said. "Now it's like cutting sheet metal."
But Mr. Ezrati believes industrials will do well in the future.
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Author: ROB VARNON (Bridgeport, CT)
Date: July 23, 2008
Publication: Connecticut Post
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Webster Financial Corp., the parent of Webster Bank, said Tuesday write downs related to poorly performing assets, not actual cash losses, led to a net loss of $28.9 million, or 56 cents per diluted share, in the second quarter.
James Smith, the company's chairman and chief executive officer, said the bank is well positioned to not only weather a difficult economy, but also take advantage of opportunities as they arise.
Excluding these charges, Smith said, the operating income for the bank in the second quarter 2008 was a positive 42 cents per share.
For the second quarter 2007, Webster reported net income of $24.4 million, or 47 cents per diluted share.
Smith said the bank has taken steps to create "a fortressed balance sheet."
To that end, Webster increased the provisions for credit losses to $25 million in the quarter and during the three-month period raised $225 million by issuing convertible preferred stock.
The bank's board of directors announced a 30-cent dividend payable on Aug. 18 to owners of common shares on or before Aug. 4.
The report disappointed some analysts, including Collyn Gilbert of Stifel, Nicolaus & Co. Inc., who said Webster has not met her earnings projections since September 2005.
"It's the same thing," she said of this earnings report. "They need to demonstrate some positive performance and operations."
Gilbert said there always seems to be something in the way of Webster having a break-out quarter where analysts can truly see this
bank perform to potential.
In comparison to other Northeast banks, Gilbert said, Webster's performance is near the bottom. She cited Webster's decision to make loans outside its core New England market as one reason for it lagging performance. That's a move the Waterbury bank is still paying for in write-offs, she said.
Webster reported $53.1 million in impaired asset write downs and increased its provision for credit losses to $25 million.
Gilbert maintained a hold recommendation on Webster.
Shares of Webster closed up 79 cents to $18.39 in trading on the New York Stock Exchange. According to Webster, its non-performing assets increased $68.8 million, to $182.1 million in the quarter. The largest portion of this loss was from a commercial real estate development that turned sour and cost the bank $36.6 million. Total assets for the second quarter 2008 was $17.5 billion, compared to $17 billion in the second quarter 2007. It said core deposits increased $38 million from a year ago, representing a 58 percent jump.
Webster has also begun implementing its OneWebster initiative to trim costs and maximize earnings.
In January, the bank asked all employees to develop ideas to cut costs and enhance revenue; they produced 3,500 of them, Smith said. The bank reviewed 2,500 and began implementing some of the more than 800 ideas it selected to roll out, which should lead to approximately $40 million in annual savings. For example, Webster did not have a centralized purchasing system for office supplies, so each group within the company was ordering its own supplies. There will be about 96 job eliminations, Smith said, but those will come over the next two years.
Webster's actions stand in stark contrast to banking giant Wachovia.
Wachovia Bank, which reported a net loss of $8.86 billion on Tuesday, said it will cut about 10,750 of its approximately 120,000 jobs.
Paul Schatz, president of Woodbridge-based Heritage Capital, said Webster is among the "Ws" he's avoiding right now; he's not buying Webster, Wachovia or Washington Mutual, Schatz said.
"The banking system is not in great shape," Schatz said, and the Ws are in particularly bad positions. He said he expects them to be acquired. Schatz was clear that his opinion is limited to these businesses' stock performance.
Schatz said the banks to watch right now are the ones that weren't buying insurance and mortgage lenders during the boom, but were sitting back and socking away capital for this day.
"JPMorgan is going to own the world," Schatz said, alluding to the bank's large war chest and its moves in this down economy, which included buying up Bear Sterns.
Smith, however, said the ideas OneWebster adopted weren't just about saving money, but will also allow the bank to expand its market share.
The bank is looking to roll out a number of new products to capture a wider market. Employees identified several areas where the bank could expand services, including a "Second Chance Checking Account."
Smith said that will provide a no-frills checking account to people who would not otherwise be financially qualified to open an account. The bank has not set a date for introducing this product.
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Author: Adam Shell
Date: July 21, 2008
Publication: USA TODAY
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NEW YORK — An emergency order by Wall Street regulators to combat "bear raids" on vulnerable financial stocks, launched by traders that profit when stocks go down, goes into effect Monday.
But the rule's main intent — to help stem quick, steep stock declines that create financial panic — actually kicked in right after the Securities and Exchange Commission announced investor protections on Tuesday night.
Wall Street pros credit the ruling, which makes it harder to engage in a trading technique known as "naked" short selling, with helping fuel a 534-point three-day rally on the Dow Jones industrials and a 21% gain for the S&P 500 financial sector.
The SEC crackdown targets short sellers, who hope to make money by selling borrowed shares and buying them back at lower prices. A naked short sale occurs when the trader does the trade without actually borrowing the shares, which can intensify the downward pressure on a stock.
The SEC order requires short sellers to take possession of the stock. Previously, a short seller could simply ask a broker to locate the shares, which made it easier and faster to profit in a falling market.
FIND MORE STORIES IN: Wall Street | Securities and Exchange Commission | Dow Jones | Freddie Mac | Fannie Mae | Bear Stearns | Todd Clark
The SEC's move is designed to combat what critics say are the rumors, market manipulation and runs on stocks similar to the events that led to the demise of investment bank Bear Stearns in mid-March.
"The SEC essentially took much of the gunpowder away from the bears," says Paul Schatz, president of Heritage Capital.
It also likely prompted traders involved in naked short selling to reverse their bets by buying back shares — pushing stocks up sharply in the process — ahead of today's official enforcement of the SEC's order, says Todd Clark, trader at Nollenberger Capital. Falling oil prices and better-than-expected profit news from banks also helped stocks.
The order will be in effect until July 29 and involves 19 financial firms, including Freddie Mac and Fannie Mae. Both stocks came under heavy assault from short sellers early last week after the government said it would backstop the two mortgage giants if necessary. Freddie shares rose 75% in the three days ended Friday, but are still down 86% from their 52-week high. Fannie rebounded 90% but remains 81% off its high within the past year.
"The action aims to stop unlawful manipulation through naked short selling," SEC Chairman Christopher Cox said last week.
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Author: Pam Dawkins
Date: July 11, 2008
Publication: Connecticut Post (Bridgeport, CT)
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The day before announcing second-quarter earnings, General Electric Co. said a spinoff is its "primary focus" for its century-old appliance, lighting and electrical distribution businesses.
A spinoff would create a new, publicly traded company, with existing GE shareholders receiving a piece of the new business.
"They're among our oldest businesses," spokesman Jeffrey DeMarrais said Thursday. Together, they accounted for about 6 percent of Fairfield-based GE's 2007 revenues of $173 billion, he said; segment profits were about $1 billion.
"This is another step in transitioning the portfolio," DeMarrais said, referring to the company's previous decisions to sell off certain businesses, such as plastics, while acquiring others in higher-growth industries. Since 2003, DeMarrais said, the company has sold $50 billion in assets, and bought $80 billion. Infrastructure, he said, continues to be "an incredibly performing unit" for GE; health care is also a growth segment.
Jeff Immelt, GE's chairman and chief executive officer, talked about the possible spinoff in an April discussion with analysts, he added.
In a news release, Immelt described a spinoff as the "fastest, most efficient step we could take in completing the transformation of our Industrial portfolio This is consistent with the strategy we have been executing to transform the GE portfolio for long-term growth and makes sense for GE shareholders."
DeMarrais said the company will make a decision about the spinoff in 2009, but added GE isn't ruling out a sale.
The electrical distribution business includes circuit breakers and uninterruptable power supplies. Electric motors and generators, ranging from the tiny to those creating 100,000 horsepower, are also part of the segment.
GE introduced its light bulb in 1879; its appliance business, which DeMarrais said consisted of "a full line of heating and cooking devices," came out in 1907. The motors and electrical distribution products have been part of GE since 1892, DeMarrais said.
The segment's 55,000 employees — 32,000 in North America, 16,000 in Europe and 7,000 in Asia — represent approximately 17 percent of GE's total employment.
There are 350 consumer and industrial workers at a site in Plainville, the only state facility for the segment. In August 2007, GE announced plans to shut down the manufacturing portion of this plant in September 2008, laying off 57 production workers. Of those workers, DeMarrais said Thursday, 80 percent accepted early retirement and the rest will be laid off, with a severance package. "They're clearly testing the waters ahead of earnings," said Paul Schatz, president of Heritage Capital, about Thursday's announcement.
The company, Schatz said, doesn't want a repeat of April's surprise announcement of a drop in profits. For its first quarter, GE reported net earnings of $4.3 billion, down 6 percent from the first quarter of 2007. "I do not expect anything like we saw last time," Schatz said when asked what GE's earnings will show today. The chances of an upside surprise are better than a downside surprise, he added.
Schatz said he finds the focus on spinning off the businesses interesting.
"The landscape for spinoffs isn't that wonderful," he said, adding, "I don't believe GE needs to raise capital."
Schatz called the move "shortsighted," because in the next housing boom, the appliance and lighting businesses will benefit from years of pent-up demand.
Robert Cornell, an analyst with Lehman Brothers, said the appliance and lighting businesses were among the most profitable when GE sold to small stores and had pricing power. But these days, about five big retail chains control most U.S. sales. As a result, GE and other suppliers have lost their pricing power.
While the spinoff of the unit may put pressure on next year's earnings, "the potential upside is a refocused and vital company sooner, a scenario we endorse," Cornell wrote.
The announcement was not a surprise, and stems from GE's poor earnings in the first quarter, said Dean Dray of Goldman Sachs Group Inc. A spinoff avoids taxes associated with selling the appliance business, he said.
"We also believe GE could still pursue a sale of the standalone appliances, with today's announcement potentially creating a sense of urgency among potential bidders for this legacy consumer asset," Dray wrote in his report.
Dray said he does not consider the spinoff plan to be a catalyst for GE's stock. Weak credit and consumer markets and the effects of potential divestitures will likely keep earnings "flattish" through 2009, he wrote.
GE, Schatz said, is now a company that's in line with the market, not outperforming it.
"To me, when you buy GE, you're buying a proxy for the overall market," he said. "It's a fine, core holding [stock], but it's not going to be a world beater."
GE's shares closed up 45 cents to $27.64 in trading Thursday, near the low end of its 52-week average of between $26.15 and $42.15. |
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Author: Angela Carter, Register Staff
Date: June 26, 2008
Publication: New Haven Register
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The Federal Reserve answered one question Wednesday by leaving a key interest rate unchanged, but it remains to be seen whether the nation’s central bank will eventually raise rates to control inflation before the presidential election in November.
The Fed’s Federal Open Market Committee has the power to cut interest rates to spark consumer and business spending and economic growth, or to raise interest rates to ease inflation by slowing spending and growth.
The committee voted 9-1 against raising its federal funds rate, the interest rate that banks charge each other, which left it at 2 percent.
"It’s unusual and rare to do anything with rates before an election," said Paul Schatz, founder and president of Heritage Capital LLC in Woodbridge.
But Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said that if the European Central Bank raises rates, which would strengthen its currency, the euro, that could force the Fed’s hand earlier.
"There are foreign pressures to support the dollar," Gioia said.
The Wednesday decision marked the first time in 10 months that the Fed did not reduce rates at its regular meetings.
At its last meeting in April, the committee reduced rates by a quarter-point and signaled that the rate cuts could be coming to an end.
"This is an important meeting. It’s big news," Gioia said. "They’re much more concerned about inflation than growth right now."
In a short statement released Wednesday, the second day of the Fed meeting, committee members said overall economic activity continues to expand, but cited some inflationary pressures, including softening labor markets and stressed financial markets.
"Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters," the statement said. "The committee expects inflation to moderate later this year and next year."
Schatz said the Fed action had already been priced to the financial markets based on earlier signals in speeches by Fed Chairman Ben Bernanke. "That was welcome and expected," Schatz said.
The Fed has meetings coming up in August, September, October and December.
"The committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability," the Fed statement said.
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Author: ROB VARNON
Date: June 25, 2008
Publication: Connecticut Post (Bridgeport, CT)
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A local investment adviser sees an Italian company's $77.7 million acquisition of Bethel-based medical device materials maker Memry Corp. as the beginning of a long expected deluge of foreign investment in America.
In an all-cash deal, Milan, Italy-based SAES Getters Group will pay $2.51 per outstanding share for Memry. The deal, announced Tuesday, is expected to close in September, pending shareholder and regulatory approvals. Both boards have signed off on the deal.
Shares of Memry Corp. closed up 94 cents to $2.39 in Tuesday trading on the American Stock Exchange.
With a weak dollar and lots of value locked up in publicly traded American companies, Paul Schatz, president of Woodbridge-based investment adviser firm Heritage Capital, said: "We're going to get into a period like the '80s and '90s. Remember when Japan was buying everything?"
He said that sparked protectionist talk and he expects the same this time around when Middle Eastern companies, fat with oil money, and Europeans who have the advantage of a strong currency will be coming over in large numbers.
The flood could also be sparked because the dollar, according to Schatz, is starting to climb in value and the window of opportunity for bargain hunting might be closing.
One euro was worth $1.56 Tuesday. The dollar's low point was in April when one euro was worth more than $1.60. Schatz said he believes the dollar will pull back one more time before finishing the year near where it started (in the $1.40 per euro range) or a little stronger.
From Memry Corp.'s vantage, this was a deal to boost competitiveness and one of convenience.
Robert Belcher, Memry's chief executive officer, said the deal with SAES Getters Group will provide his company more financial baking to pursue larger clients and new technology. As a small publicly traded company, Memry found it was difficult to act upon opportunities — such as acquisitions — because of the drag on earnings created by regulatory requirements. "The cost of corporate compliance has gone through the ceiling," Belcher said. The company has also watched its customers consolidate, forcing Memry to try to keep up with sales to companies that are expanding operations.
In this environment, Belcher said, executives started to look at ways to compete and even considered taking the company private. But Belcher said the best value to shareholders was to sell the company.
Memry Corp., founded in Stamford, is now based in Bethel. It has more than 200 employees in Bethel and in the Dayville section of Killingly and in Menlo Park, Calif. Belcher said he does not expect any closings or job losses from the deal.
SAES is a 60-year-old Italian company with a reputation for investing in research, Belcher said. The Italian firm is looking to diversify, however, in light of changes in the television and computer monitor markets.
Belcher said SAES is moving into other highly technical manufacturing areas.
SAES makes vacuum tubes used for TV sets, lamp, monitors and industries that need vacuum-sealed devices to contain ultra pure gases.
Memry reported net income of $166,000 for the quarter ended March 31, compared to a net loss of $460,000 for the same period in 2007.
For its 2007 fiscal year ended June 30, 2007, Memry earned $51.7 million in revenues and reported $300,000 in net income. SAES noted Memry is substantially debt free.
While Schatz sees this as the beginning of a deluge of acquisitions, state Department of Economic and Community Development International Division Director Costas Lake said he still sees some hesitation out there. Lake said his office, which helps companies find partners, acquisitions or establish new businesses in the state, is working with a lot of foreign companies, but many remain cautious.
He could not reveal the names of any companies, but said they are based in Germany, Holland, France, Spain and China.
The Europeans especially seem to be concerned after being burnt in the U.S. housing crisis, he said.
Some Europeans lost lots of money when U.S. mortgage-backed securities went bad due to a large number of defaults.
While Lake said the mood is cautious, he agreed the window of opportunity might be closing for foreign investment because the dollar will probably rebound.
"It can't continue to be as weak as it is," he said. A devalued dollar would continue to drive up inflation here, the world's largest consumer market, which would slow spending and the world's economy.
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Author: STEVE HIGGINS
Date: May 12, 2008
Publication: Business New Haven (New Haven, CT)
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Amid soaring prices for oil and food, the credit crunch and the dollar's drop, the U.S. stock market has yanked investors around like a rag doll in recent months.
After closing at an all-time high of 14,164.53 on October 9, the Dow Jones industrial average plummeted to 11,740.15 by March 10. The volatility had started earlier, with a 415-point plunge February 27, 2007, followed by a 336-point gain September 18.
Economic growth has been sluggish enough to cause economists to argue whether a recession is occurring. While no consensus has emerged, the talk alone has investors on edge.
Most financial advisors say the average investor should not let such matters affect his or her long-term planning, since an effective financial blueprint takes into account cyclical threats such as inflation and recession, and even unpredictable crises such as the mortgage meltdown and the dollar's collapse.
But it may not be that simple for the person who is nearing retirement and might soon need to take income from investment vehicles that are temporarily depleted. So we asked a sampling of financial planners their advice for a mid-life businessperson who recently sold their company and therefore has cash to invest. Assuming the person's goal is a relatively safe retirement nest egg in the not-too-distant future, we asked where that hypothetical person should put the money.
Eric A. Tashlein, principal of Connecticut Capital Management Group in Milford, says many people who sell a long-held business tend to err on the conservative side when investing the proceeds, a tendency that may grow even stronger during volatile economic times.
The most important thing to remember is to stick to the basics, he says: Draw up a financial plan projecting income and taxes throughout your retirement, then develop an asset-allocation plan designed to generate returns based on your goals and risk tolerance.
"One advantage of a volatile market is the increased opportunity for tax management," Tashlein says. "We know that certain stocks are going to be down, so if we can create some losses to offset some of the gains during the year, it will reflect favorably on [the investor's] tax return."
Tashlein also points out that cutting-edge portfolio management specialists are moving away from the risks involved in trying to beat market indexes and embracing a new strategy designed to better control volatility and downside risks.
To illustrate, consider Stock A, which has an expected return of 20 percent but features a high expected volatility and represents four percent of a benchmark index such as the S&P 500. Stock B has a similar return expectation but at half the expected volatility, and it only represents 0.5 percent of an index.
Traditional investment managers would have to buy Stock A because they build portfolios to track the index, and it's a significant portion of the index. The new breed of risk control managers focus on minimizing risk and therefore would buy Stock B, even though it's less representative of the index.
As a result, the new portfolio would not conform as strictly to the makeup of an index, and therefore would be more difficult to characterize (i.e., tracking the large-cap or small-cap market segment) and would not lend itself as easily to a "report card" comparison at the end of the year. But it would pose less risk to the investor.
Many of the stocks in these new portfolios fall into the consumer durables sector (food, personal care, health care), which tend to hold up better during volatile times, Tashlein says.
"Of course, if you get back into a roaring bull market these stocks will lack some of the upside potential of other equities," he cautions. "But a growing number of investors are no longer concerned with shooting the lights out."
In fact, Tashlein says many investors are looking back at their returns - after expenses and taxes - over the last several years and seeking new advisors who are not trying to "beat the market." More people are realizing the benefits of a long-term outlook, he says.
Chris Getman, president of Soundview Capital Management Corp. in New Haven, says smart investing is the same in a troubled economy as in a "smooth sailing" economy - the key is to diversify and continually rebalance. The main variable is the age of the investor: Those closer to retirement should choose a somewhat more conservative investment mix, given the possibility of a down market hitting at just the time they start withdrawing assets.
Getman says his first question for the hypothetical business seller would be whether the person owns any real estate.
"Real estate is a very important part of our economy, and when equities go down you want to have something that could go up," he says. "Probably the easiest way to invest in real estate is to buy an exchanged-traded fund [that contains] REITs [real estate investment trusts]. It's an inexpensive and efficient way to get involved."
Getman says real estate should comprise ten to 15 percent of one's total portfolio.
The second step to effective diversification is to "have a good deal of international exposure," Getman says. "The world is changing and growing at a rapid rate internationally, not so much in the United States. Where was your car made? Your shoes? Your TV set? The world is shrinking and one should be exposed to global opportunities."
Getman recommends placing 25 percent of your portfolio in international markets, through exchange-traded funds, mutual funds or by hiring a financial advisor.
Third, since those investment will nearly all go to companies in established countries such as Japan, Great Britain and Germany, he advises placing another five percent of your portfolio in investment vehicles related to emerging countries such as India, China and Brazil.
Fourth, put ten percent of your assets into bonds, or up to 25 percent if you are aiming for a very conservative mix, he says. "I would recommend municipal bonds over corporate bonds because the yields are better," Getman adds.
Fifth, Getman recommends exposure to commodities - oil, coal, sugar, rice, wheat, silver, gold - "maybe ten percent" of the portfolio. "Developing markets are growing, and those countries need commodities," he says.
The rest of one's portfolio will contain U.S. equities, and most of those assets should be invested in large-cap stocks, with a small percentage invested in small-cap and large-cap companies. "The big blue-chip companies don't have as much risk," he says.
And finally, you should keep at least five percent of your investment assets in cash, perhaps in the form of money-market funds, and possibly more if you are over age 65, Getman says.
Paul Schatz, president of Heritage Capital, LLC in Woodbridge, says fear of a recession should have no effect on investment decisions, especially since recessions are usually over before the headlines begin reflecting any economic woes.
"Historically, recessions are rather short-lived and the financial markets usually react and take them into account before anyone knows the country is in one," he says. "The market will be in decline when the news headlines are still pretty good economically.
"When the market peaked in October and then sold off 10 percent pretty quickly, the headlines were positive," Schatz says. "Since the bottom [in January and again in March] the market has been rallying and the headlines have been gloomy.
"Worrying about recession is a loser's game," he adds. "By the time people realize there's a recession, the markets have already discounted it and are already on a different course."
Regarding other risks such as inflation, Schatz says guarding against inflation should always be a part of any financial plan. "It's the No. 1 risk you have to your secure retirement, because it eats away at the value of the asset you are holding," he says.
Yet even inflation risk is hard to track, since the federal government has changed the way it calculates the Consumer Price Index a dozen times in the last 50 years, Schatz says.
"I don't believe these high energy and food prices are here to stay," he says. "They are an aberration caused by the collapsing dollar and emerging global demand."
Schatz said economic troubles are a cyclical occurrence, which is why financial planning and diversification are essential ingredients of building a successful investment plan and retirement nest egg.
"You should put together a plan for the next five, ten, 20, 30 years," Schatz says. "Depending on your risk tolerance, you have to blend in several strategies."
Schatz agrees with Getman that the key is to mix in several different asset classes, from equities and fixed-income investments to "hard assets" such as real estate and commodities.
"The larger the portfolio, the more diversified I would be," he says, meaning that someone with significant assets to invest can afford to add alternative investments such as hedge funds or to speculate in currency shifts. But those strategies carry a high level of risk and so are not recommended for everyone, he warns.
Schatz also stresses the need to rebalance one's portfolio regularly to ensure that the diversification plan you settled on is maintained through good times and bad. "Rebalancing" simply means changing the percentage of your assets invested in each asset class to maintain an optimum balance, since successful investments will grow to become a larger percentage of your portfolio while less successful investments will become a smaller part over time.
Schatz also warns investors against going along with conventional wisdom and the latest fads in the investment world.
"I wouldn't be hasty in throwing together a portfolio of the 'latest and greatest,'" he says. "For instance, last year and early this year, everyone was hot about China. But that market has been decimated this year."
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Author: ROB VARNON
Date: April 15, 2008
Publication: Connecticut Post (Bridgeport, CT)
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Private equity firm Greenfield Partners LLC on Monday made a $162 million offer to buy Shelton-based Clayton Holdings Inc., a research and analysis company for the financial industries.
Norwalk-based Greenfield Partners will buy outstanding shares of Clayton for $134 million, or $6 per share, and also repay $23.8 million of Clayton's debt.
Clayton's shares rose 90 cents to close at $5.72 in trading on the Nasdaq Stock Exchange on Monday.
The company's shares reached a 52-week high of $20.50 on May 10, 2007, according to MarketWatch.com; it fell to a low of $3.00 this Jan. 11.
Greenfield's move makes sense to one area investment adviser, who expects more equity firms to pounce on companies whose stock has flopped.
"There's a lot more value around now than there was six months ago," said Paul Schatz, president of the Woodbridge investment advisory firm Heritage Capital. "I'm just surprised more hasn't happened yet."
"This is when private equity guys are at their best," Schatz said, referring to markets that have hit some difficult times.
Clayton, founded in 1990 as a due diligence services and loan analysis firm, went public in 2005 when it combined with Denver-based The Murrayhill Co., a securities surveillance and risk management company.
"This transaction benefits our shareholders, clients and employees," said Frank Filipps, Clayton's chief executive officer and chairman, in a news release. "It provides a significant premium to our shareholders during
a period of unprecedented difficulty and great uncertainty in the markets we serve."
The real estate market has taken a pounding this year with housing sales and prices dropping, while losses among lenders have continued to pile up with mortgage defaults and foreclosures.
The company reported a net loss of $91.8 million in the fourth quarter of 2008, compared to a net profit of $3 million for the same period in 2007.
Clayton has been trying to expand its business overseas and has an office in Bristol, England. Clayton also has offices in California, Colorado and Florida.
The bulk of employment is in the U.S., where Clayton employs 150 in Connecticut and 260 more nationwide, according to Chris Cosentino, a Clayton spokesman. The exact figure for the office in the United Kingdom was not available.
The deal must be approved by Clayton's shareholders and is expected to close by the third quarter. Clayton's board of directors voted in favor of the sale and the company's largest shareholder, TA Associates, has also blessed it. TA Associates owns 37 percent of the company's outstanding shares.
Eugene Gorab, president and chief executive officer of Greenfield, said his company sees a tremendous future for Clayton.
He said in a news release, "The company is well positioned to participate in the restructuring of the asset-backed and mortgage-backed securities."
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Author: Angela Carter, Register Staff and The Associated Press
Date: April 13, 2008
Publication: New Haven Register
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By most accounts, American consumers love a good sale. The problem these days? The historically mighty dollar’s on discount.
A meltdown erupted in the mortgage credit industry last August and spread to financial markets. In an effort to stunt the damage, the Bush administration and Congress negotiated a $168 billion stimulus package, providing tax rebates for households and businesses, and the U.S. Federal Reserve has aggressively slashed interest rates.
Thus the dollar, America’s official unit of currency, is taking a beating with other factors piling on: weak consumer confidence while debt is high; increasing unemployment; soaring costs for bread, dairy and other foods; and record prices for crude oil, gas and energy.
As the dollar falls, the chance is increasing that OPEC, the Organization of the Petroleum Exporting Countries, may broaden the benchmark it uses for oil pricing beyond the dollar — its traditional measure — to a so-called “basket” of currencies from multiple nations.
Robert L. Engle, a professor of international business at Quinnipiac University in Hamden, said such a move could further drive up prices for crude oil and its derivative products in the United States and in other countries that use the dollar and the euro, the currency for the 15 members of the European Union.
“The real story is just in the fact that they’re talking about it. It’s a signal that, economically, the world realizes we’re not invincible,” he said.
Thirty years ago the dollar dropped significantly, Engle said, but there was no thought of OPEC making such a dramatic shift. “The dollar truly was king,” he said. “Today, we’re not sitting on top all alone. There are other choices.”
Some of the currencies OPEC would likely consider are the euro; the pound, which is used in Great Britain; and the yuan, used in China. “I haven’t heard anything specific, but that’s a logical group of top currencies in the world,” Engle said.
Engle and HE Abdalla Salem El-Badri, OPEC secretary general, have pointed to fluctuations in the dollar, booming global demand and the volatility of market speculation as forces pushing up oil prices.
A weak dollar also does not help curtail the nation’s trade deficit, Engle said.
The Commerce Department reported Thursday that the trade deficit rose by 5.7 percent in February to $62.3 billion, the highest level since November, bucking expectations it would decline.
When a nation imports more than it exports, a deficit occurs. Analysts expected the domestic downturn — which some already deem a recession — would cut demand for imported goods and services.
Instead, imports shot up 3.1 percent to an all-time high of $213.7 billion, with a surge in imported foreign cars. Exports rose by 2 percent to a record $151.4 billion, showing strength in sales of heavy machinery, computers and farm goods.
Engle said export growth can not be sustained by a falling currency. Even though a weak dollar makes exports more affordable to foreign buyers, he is convinced a long-term solution to the U.S. trade deficit hangs on making innovative products that other countries want and marketing them effectively in those nations.
Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven, said Connecticut’s exporters sell more overseas when the dollar is weak but he questioned whether that trend is sustainable. Going forward, a decline in imports could still occur, he said.
“We need imports but we must keep exports on course,” Klepper-Smith said. “Trade imbalances in the long run are problematic because they reduce business competitiveness.”
Investors also have their eyes on the greenback.
Paul Schatz, founder and president of Heritage Capital LLC in Woodbridge, said the dollar had a “quiet” trading stretch last week overall, after a rally by the euro from early February to mid-March.
Lower interest rates, as is the Fed’s recent trend, hurt a nation’s currency because traders switch to countries that will yield higher returns.
“I think it gets better for the dollar from here,” Schatz said. “To me, the only thing that would signal a collapse of the dollar from here would be if our whole financial system collapsed.”
He outlined scenarios whereby the U.S. dollar could rebound. If there is an economic crisis in Asia — a voracious economy that is taking measures to slow down its growth — or if the economy slows in Europe, prompting the European Central Bank and the Bank of England start lowering interest rates, “then the dollar goes crazy,” Schatz said.
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Author: Angela Carter, Register Staff and The Associated Press
Date: March 25, 2008
Publication: New Haven Register
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NEW YORK - Wall Street extended its big advance Monday as investors applauded a new agreement that will give Bear Stearns Cos. shareholders five times the payout that was set in a JPMorgan Chase & Co. buyout deal a week ago. Investors were also pleased by a stronger-than-expected housing report, and sent the Dow Jones industrial average up nearly 190 points while also selling bonds sharply lower.
Stocks rose after JPMorgan said the company will boost its offer to $10 per share from $2. The revised plan is aimed at soothing Bear Stearns shareholders upset over JPMorgan's earlier offer, which was made at the behest of the Federal Reserve, the nation's central bank.
A week ago, the Fed lent its aid to the struggling investment banks, by accepting as collateral much of the now-shunned subprime mortgage debt.
The Dow Jones industrial average rose 187.32, or 1.52 percent, to 12,548.64, after jumping more than 230 points earlier in the day.
Bear Stearns shares jumped $3.42 to $9.38, while JPMorgan rose 58 cents to $46.55.
Paul Schatz, president and chief investment officer at Heritage Capital LLC in Woodbridge, said that Wall Street's troubles are likely to persist past the Bear Stearns deal.
"Bear Stearns was about as bad as the government was going to let it get," he said. "I still think we're going to see a steady flow of bad news and, I think, we'll see some midlevel banks go out of business."
Expectations are that it will be some time before Wall Street knows whether the write-downs on mortgages already taken will be sufficient.
Schatz said the stock market looks six to nine months down the road and signs of a broad-based, rather than narrow, rally are emerging in semiconductors, transportation, regional banks and retail.
"They seem to be emerging as new leaders in this bull run," he said.
Weaker areas might be Treasury bonds, mining and metals and commodities, he said. "That's where everyone ran for the past three to six months as the market came under pressure," he said.
Denis Amato, chief investment officer at Ancora Advisors in Cleveland, is skeptical of the notion that Wall Street might have put its troubles behind it with the Bear Stearns deal. "It may be the one of many bottoms," Amato said.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 20.37, or 1.53 percent, to 1,349.88, and the Nasdaq composite index rose 68.64, or 3.04 percent, to 2,326.75.
Light, sweet crude fell 98 cents to $100.86 per barrel on the New York Mercantile Exchange.
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Author: ANITA PELTONEN, Editor
Date: March 17, 2008
Publication: Barron's
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Asset-Backwards?
Serenity, Now! by MacroMavens
145 E. 57th St., New York, N.Y. 10022
March 13: Realizing that no profit-motivated banker would lend against deflating collateral, the Fed is doing so itself. We'll let others engage in the semantic debate. To us, allowing banks to pledge these dubious mortgage "assets" at its TAF [term auction facility], now it's the TSLF [term securities lending facility], is essentially the Fed's way of lending against(rapidly) deflating assets.
-- Stephanie Pomboy
Applause for a Liquid Launch
Street Smarts by Heritage Capital
1 Bradley Rd., Woodbridge, Conn. 06525
March 12: I was extremely critical of the Ben Bernanke Fed as they [slept] at the switch late last year, but completely applaud, endorse and support their moves since Jan. 22. This is the most creative and unconventional Fed I can remember, not relying solely on monetary policy.I remember the 1992 presidential election when Bill Clinton [said], "It's the economy, stupid." I may not have voted for him, but [that] was very smart.[Today's version]: "It's the credit market." [which] has completely and unequivocally seized up.almost no business has been transacted for weeks and months, with financial institutions seeing less and less value in the instruments they held, forcing a death spiral of selling.Thankfully, the Fed finally recognized this and began.providing more.liquidity.
-- Paul Schatz
Alt Energy: The Best Revenge?
Growth Report by the Big Idea Investor
611 Pennsylvania Ave., Washington D.C. 20003
March 12: Oil prices hit [a record]. Gasoline prices are in record territory. You and I both know.Saudi princes and oil executives are getting rich as we get fleeced. Well, it's time to get even, and maybe even rich. Every time oil prices spike, alternative-energy stock prices ramp up, too. Wind, solar, hydrogen, ethanol, geothermal -- it doesn't matter. We have to find new, cheaper and cleaner ways to power our cars, heat our homes and run our factories.
-- Ian Wyatt
Money Makes the Mare Go
Mr. Market by Nollenberg Capital Partners
101 California St., San Francisco, Calif. 94111
March 12: Our market-trend indicator is signaling a downtrend.The New York advance/decline line is 4,277 net declines below its 18% average. [March 12] marks the fifth anniversary of the March 2003 low that kicked off the last bull market. It's fascinating that the July and October highs in '07 were near the fifth anniversaries of the July and October '02 lows. The challenge is to find which harmonics (most likely dynamic versus fixed) work from this point.
--William Gibson
The Fed Gets Creative
Economics & Strategy by MKM Partners
1 Sound Shore Dr., Greenwich, Conn. 06830
March 11: Tuesday, the Fed announced it will lend up to $200 billion to primary dealers secured for a term of 28 days (rather than overnight as per the existing program) by a pledge of other securities, including federal agency debt, federal agency residential mortgage-backed debt securities, and nonagency Triple-A/Aaa rated private-label residential MBS. After Monday's close, S&P 500 bank stocks were down 46% from their 2007 peak. The peak-to-trough fall in bank stocks in 1989-1990 was just over 50%...A look back at the early 1990s suggests that we could be close to a bottom on bank stocks. We will continue to look for a further improvement in various credit-market indicators (swap spreads, etc.) to give us confidence that the bottom is in place.
-- Michael Darda
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Author: Cara Baruzzi, Register Business Editor
Date: February 24, 2008
Publication: New Haven Register
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Wall Street ended a volatile week with a dramatic late-day turnaround Friday, with the Dow Jones industrial average surging in the final half-hour of trading after sinking more than 100 points earlier in the day.
"The market's in a somewhat of a schizophrenic state right now," said Paul Schatz, president and chief investment officer at Heritage Capital LLC in Woodbridge.
"We're seeing triple-digit moves in the Dow every single day, but few back-to-back in the same direction. This is the single most volatile period in modern history."
The Dow managed a gain of 96.72, or 0.79 percent, settling at 12,381.02 Friday. It had tumbled more than 100 points during the day, but got a late boost by word that a bailout plan for troubled bond insurer Ambac Financial could be announced next week.
CNBC reported shortly before the closing bell that a plan to help shore up the finances of Ambac Financial Group Inc. could be announced Monday or Tuesday. Ambac shares jumped on the report and finished up $1.48, or 16 percent, at $10.71.
Broader indexes also got a lift. The Standard & Poor's 500 index rose 10.58, or 0.79 percent, to 1,353.11, and the Nasdaq composite index rose 3.57, or 0.16 percent, to 2,303.35.
One reason the indexes, particularly the Dow, are so volatile now is that trading volume is relatively low, Schatz said.
"That makes it really easy for one or two big players to push things around very quickly," he said.
The see-sawing likely will continue next week, when investors will be eyeing the Producer Price Index, said Chris Getman, president of Soundview Capital Management Corp. in New Haven. The PPI reading, slated to be released during the coming week, often has a significant ripple effect on Wall Street, he said.
"The two key indicators that most impact the market are the unemployment numbers and the Producer Price Index," he said.
The PPI measures the changes over time in selling prices charged by domestic producers of goods and services.
Unlike the Consumer Price Index that measures prices that consumers pay, the Producer Price Index measures prices from the producer's perspective.
Producers' selling prices may differ from the prices consumers pay because of sales and excise taxes and distribution costs.
The Producers Price Index, like the Consumer Price Index, is a gauge of inflation, Getman said, so Wall Street will be watching it closely. Consumer sentiment reports are also due next week.
But investors should resist the urge to shift their investments from the stock market, even amid uncertainty, Getman said.
"If you believe in the long term that the U.S. economy is solid and we are still the strongest economy in the world, then you want to be invested in it," he said. "If you're in it, stay in it for the long haul."
Schatz agreed, and said investors should see the current market conditions as a sign to buy shares, not sell them.
"We're going to have a couple more bouts of weakness in the next few months," Schatz said, but he believes the country will avoid a recession and markets will rebound later this year.
"When there's fear, put money back in the market," he said. "It's a buying opportunity, not a selling opportunity."
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