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Strategies
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Temporarily, At Least, It Looks Like The End Of Class-Action Lawsuits |
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Friday, February 22, 2013 12:46
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Tags: Charles Schwab | FINRA | investor behavior
A FINRA hearing panel has dismissed two of the three charges FINRA brought against Charles Schwab Corp. over pre-dispute arbitration agreements.
The panel found that, although language in the agreements violates FINRA rules, FINRA cannot enforce the rules because they are in conflict with the Federal Arbitration Act. This Website Is For Financial Professionals Only
The decision has far-reaching implications. It opens the door for other firms to adopt arbitration agreements like Schwab’s that essentially preclude clients from participating in class-action suits.
Every broker-dealer would like to insulate themselves against class-action litigation—or any other type, for that matter.
The third charge against Schwab involved an attempt to limit the liability of arbitrators to consolidate individual claims in arbitration.
FINRA ordered Schwab to eliminate that language from its agreements and fined the firm $500,000.
The decision can be appealed to FINRA’s National Adjudicatory Council (NAC). The NAC can also take the first step and decide to review the case. If nothing is done after 45 days, the decision becomes final.
So far, Schwab has not commented about making an appeal. The firm feels arbitration is more effective for both it and its clients.
But the case is an important one so some type of review is likely. FINRA does not allow class-action claims to be filed within its arbitration system so precluding class action by clients in court effectively does away with them.
Read more...
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If SEC Won't Fix Its Own Problems, Other Regulatory Bodies Will |
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Friday, February 22, 2013 12:33
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Tags: Dodd-Frank | regulation | sec
Taxpayers have been waiting since 2008 for the SEC to take action to prevent a repeat scenario of the worst economic crisis since the Great Depression.
But the Financial Stability Oversight Council (FSOC) keeps gumming up the process according to prominent SEC alumni. Many have written letters to the FSOC to stay out of the way. That still doesn’t seem to motivate the SEC to actually act. This Website Is For Financial Professionals Only
If the SEC wants to keep other regulators from taking over problems created by SEC regulations, the SEC needs to step in and fix them itself.
When the 2008 crisis hit, it became obvious that money funds whose values were thought to be stabile actually were not so.
Judgments of credit ratings companies were not so reliable, either. Yet four years out, the SEC still has not fixed either problem.
It’s difficult for taxpayers to understand why. Time can work wonders, however, and now, the two hold-out commissioners have said they are willing to support accurate prices instead of holding to the $1 NAV.
The letter-writing alumni say the SEC would do a better job of fixing these issues than the bank regulators on the FSOC. That is, if the SEC will actually act on them.
Of course, the entire financial industry has input on proposed SEC rules. Perhaps a better balance needs to be struck between what's good for the industry and what's good for the investing public.
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Currency War Phrase Actually Refers To Problems Of Global Economy Where Countries Are Highly Connected Yet Very Different |
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Friday, February 22, 2013 12:28
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Tags: currency | U.S. economy | world economy
Some of the biggest global banter is the threat of a currency war. Rather than a real threat, the phrase is being misused as the moniker for a debate on how developed countries will grow out of their economic malaise.
The phrase “currency war” was uttered first by Brazil’s finance minister, Guido Mangega, in 2010.
He was referring to the huge effort by the US to keep interest rates low through quantitative easing. This Website Is For Financial Professionals Only
The Fed’s easy monetary policy resulted in downward pressure on the dollar that pushed the values of other countries’ currencies up.
Noting the lesson that physics teaches us—every action has an equal and opposite reaction—the actions of the US Fed have pushed hot money with higher interest rates into primarily emerging countries.
This promotes asset price bubbles and incites inflation. The normal reaction of any country on the receiving end would be to ease its own monetary policy and also lower interest to push down the value of its currency.
Brazil cannot do this as effectively because it has a very stubborn inflation rate of 6% that doesn’t allow the country to respond as the US can.
Rather than a currency war, the reality is that other countries are responding to their own economic troubles by easing their monetary policies.
The caveat is that emerging countries’ efforts are not as effective as those of the US because of economic or political issues.
The currency war phrase has been resurrected because of the significant drop in the value of the Japanese yen.
Japanese exports have become suddenly much cheaper as a result. This makes other countries’ goods much less competitive in the marketplace.
The real issue is how emerging countries will respond. The simplest way would be for them to allow their currencies to appreciate.
Developed countries like the US and Japan would benefit from having a cheaper currency and more growth and emerging countries would benefit from a stronger currency and greater buying power.
So, the so-called currency war really reflects disagreements between countries on how to respond to the easy-money policies of the larger developed nations. |
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The Mutual Fund Industry Is Changing In A Desperate Attempt To Stay Relevant |
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Thursday, February 21, 2013 14:09
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Tags: alternative investments | investment strategies | mutual funds
Who would ever have thought that mutual funds would have to fight to stay relevant in the marketplace?
There are major cracks in the US mutual fund business. Revenues are roughly what they were in 2007. In 2000, mutual funds accounted for 80% of the fund business; now, they are on 58% of it. This Website Is For Financial Professionals Only
ETFs are largely the detractors. Currently, most are not actively managed and they have lower fees so investors get decent returns at lower costs.
Alternative asset managers and private equity firms are also taking investor dollars away. One alternative for mutual funds is to get involved in buyouts.
Or they could consider merging with private equity funds. Mutual funds would provide new pools of cash to the private equity funds who are having difficulty meeting their historically large returns.
It also could give investors the opportunity to partner with the founder of a company in a buyout—something formerly reserved only for the significantly wealthy.
Industry dynamics are undergoing significant change. It will be interesting to see how the mutual fund industry evolves from here.
Read more...
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Cyberdefense Is Emerging As A Growth Sector Despite Possible Defense Cuts From Sequester |
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Thursday, February 21, 2013 13:53
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Tags: defense | deficit | investment strategies
The US Defense Department is facing draconian cuts if the sequester that kicks in on March 1 is not avoided.
Defense stocks have lagged ever since the wars in Afghanistan and Iraq have been winding down. But a new kind of military threat is facing the US: hackers.
Companies combatting this new threat may be an attractive alternative type of investment in defense. This Website Is For Financial Professionals Only
A report from security firm Mandiant has linked China’s People’s Liberation Army to a sea of cyberattacks on US government agencies, corporations, and media companies of late.
Many companies focused on cyber security will see their budgets increase instead of being cut.
Governments across the globe will be increasing their budgets on maritime and border security and on protecting critical infrastructure.
Private equity firms are already raising capital to invest in ventures that address those issues.
Investment partnerships between mid-sized companies and private equity firms are growing more popular.
Interest in cyberdefense has pushed company valuations so high that strategic investors are looking at companies with as little as $10 million in revenues.
Currently, there are few public companies with a cybersecurity focus. But it is likely to be a key growth area in the near future.
Cybersecurity used to mean protecting against information theft. Now, it means the possible destruction and disruption of everything from databases to the nation’s power grid.
Investors should be on the lookout for companies providing mission-critical software for intelligence, surveillance, and reconnaissance for the CIA and NSA.
Commercial cybersecurity is also a growth area. Companies springing up to address these issues may realize strong growth on their own, despite budgetary concerns for traditional defense. |
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