What should these accusations/findings tell us?

That it’s very hard to beat the market!

(Some) companies will go to any length to get information that no one else has in order to get a good return and beat the market.

Those companies that do manage to outperform the market year-in and year-out will find themselves under scrutiny.

More on this later…

Rupert Murdoch has vowed to charge for all the online content of his newspapers and television news channels, going well beyond his prediction in May that the company would test pay models on one of its stronger papers within the year.

Interesting…

Will he be able to do it? I don’t think so. I subscribe to the Wall Street Journal and Barron’s but I don’t I’d pay for any of their other content. I think they will end up shooting themselves in the foot.

What are your thoughts?

Mr. Madoff did shed some light on why he started the fraud and whether he knew he would get caught. He said when the fraud started in the early 1990s, he felt “compelled” to give institutional investors strong returns despite the weak stock market and national recession. “When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme,” he told the court. “However, this proved difficult and ultimately impossible.”

He didn’t explain how he invested clients’ money before the 1990s or why the recession of the early 1990s would cause him to suddenly stop investing on behalf of clients.

Mr. Nierenberg, one of the investors in the courtroom, challenged the government on why it didn’t charge Mr. Madoff with being part of a conspiracy, saying the scale and complexity of the fraud had to involve others. Prosecutors said they are investigating others in the case.

In his statement to the court, Mr. Madoff didn’t address the issue of whether anyone else knowingly helped him carry out his fraud, though in the past he has said he acted alone.

I wondered about that. I wondered if he “meant” to get started in it or not. It doesn’t matter because he had to have known that it was wrong in the first place. He also lived off the scam for nearly 20 years. The guy deserves to live the rest of his life in a REAL prison.

The next thing I want to know is whether or not it was a conspiracy. I think it might have been. There was simply too much money being given to Madoff to invest and almost NOBODY investigated his business over the years. Either that or Madoff’s reputation as a good guy helped stave off investigations.

What do you think?

To put it in perspective, if you had 1,000 shares of Wells Fargo, your annual income from those shares would drop from $1,360 to $200.

Yes, this was probably a good move on Well Fargo’s part since you can’t pay out what you don’t have. But, it also shows how counting on dividends can hurt you. I remember some guy on one of the business channels a while back talking about how great dividend yields were and I thought to myself, “Yeah, but what happens if dividends are cut?”

According to the article I read about the Wells Fargo dividend cut, they will increase the dividend when it becomes reasonable to do so. In other words, this is supposed to be a temporary thing but who knows how long that will be.

1. Consumer borrows money to buy a new car.

2. The lender bundles this loan with others into secruities and sells to investors.

3. The investors borrow from the Fed, a minimum of $10 million, to help fund these purchases.

4. The Fed provideds low-interest loans, and also offers protection if loans in securities default.

5. If consumers fail to pay their loans and the securities suffer losses, U.S. taxpayers take the first losses with the Treasury backing up the Fed.

From the article:

Investors, who must request a minimum $10 million loan from the Fed, will take some risk, though it will be limited. In World Omni’s case [mentioned earlier in the article], for example, they will be able to borrow between $92 and $94 from the Fed for every $100 they put into the deal. The Fed will charge investors the London interbank offered rate, or Libor, plus 1 percentage point. Investors’ ultimate return will depend on the final pricing of securities. Assuming no major losses on the underlying loans, World Omni investors are anticipating returns of between 12% and 16% a year over three years.

One big carrot for the investors: They can walk away from a deal if they are unable to repay the Fed loan, losing only their initial investment.

Basically we are going down the same exact road only this time we are rewarding the investors.

I was also under the impression that people who are credit-worthy can get loans so who exactly is going to be helped by this program? Those who aren’t as credit-worthy, who also pose a greater risk of default?

If you think about it, this is simply another form of taxation. Only this time it’s the responsible propping up the losers.

I just have this feeling that this country is heading in the wrong direction. We’ve been down this road before…

The SEC has registered a complaint against Stanford Financial Group (StanfordFinancial.com), alleging massive fraud. You can read the PDF of the complaint here. If the SEC’s complaint is to be believed, Stanford Financial Group is evil. Read the complaint for yourself.

The complaint is filled with lots of accusations. I found this one from the SEC’s press release interesting:

According to the SEC’s complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in “liquid” financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no “direct or indirect” exposure to the Madoff scheme.

The SEC seems to be overreacting to the Madoff tie. When I dug into the complaint, I found exposure of $400,000. From the complaint:

In a December 2008 Monthly Report, the bank told investors that their money was safe because SID “had no direct or indirect exposure to any of [Bernard] Madoffs investments.” But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they indirectly managed with Madoffs investment firm.

Yes, it is exposure to Madoff, but it is relatively small exposure for a company managing billions of dollars.

I did find something kind of interesting while looking around on Stanford Group’s website. For instance, here is some information on their investment strategy. It sounds eerily similar to Madoff’s “strategy.”

Stanford’s Stanford Investment Model (SIM):

The objective of the Stanford Investment Model (SIM) is to provide consistent returns regardless of market volatility, and it is based on the investment philosophy that has been used successfully for all of Stanford’s proprietary funds. We target a consistent yield or income stream as agreed upon with our clients, while monitoring risk and managing the overall volatility of the portfolio.

Our strategy for diversification to minimize the effects of market volatility is sophisticated and far-reaching. We pursue true global diversification with relentless intensity to meet our objective of targeted returns. We carefully consider asset classes, investment strategies, sectors, and regions of the world that most investors either don’t have easy access to or rarely receive information about. SIM was developed first and foremost to minimize the downside risk of a portfolio.

We recognize taking risk is essential to achieve investor goals, but there is a difference between accepting the risk the market gives you and managing that risk.

Although we may not outperform the indices during a bull cycle, our investment strategy is one of long-term consistency through bull and bear markets. The Stanford Investment Model offers investors a truly different view of wealth management.

This stuff is getting more exciting by the day. The best fiction writers would have a hard time coming up with stuff this good.

Some notable names appear on the list, including Fred Wilpon, owner of the New York Mets baseball team. It isn’t clear how many of the clients listed had money at the firm at the time of Mr. Madoff’s arrest on Dec. 11.

Other high-profile names on the list include former Dodgers pitcher Sandy Koufax, actor John Malkovich, talk-show host Larry King and New Jersey Sen. Frank Lautenberg. A number of estates or entities associated with deceased people were listed, and those, too, had some famous names, including John Denver Concerts Inc. Charities, museums and pension funds also show up.

Lots of wealthy (and supposedly smart) people got burned by Madoff.

Not surprisingly, Warren Buffett’s name isn’t on the list.

What I want to know is WHY did Madoff do it? Greed? He was already a wealthy man. Why did he feel the need to run a Ponzi scheme? Was it something that he didn’t start out to do but somehow got out of hand? These are the questions I’d like answered.

As far as preventing something like this from happening in the future, I think the thing to remember is NOBODY can give you a 1% return every month with little or no risk. That should have been the first clue right there.

The opposition’s argument is that such limits will cause a flight of talent away from these firms, which brings up an interesting thought:

Imagine how bad things could have gotten if we would’ve had less talented executives running things!

I can’t say that I’m in favor of mandating limits on pay. I do think bonuses are out of line in this economy—especially at these firms that lost tons of money through dumb mistakes. When a company loses money, you don’t pay bonuses. That should be pretty simple to understand. But, I also don’t like the government placing limits either. It seems like an emotional decision.

That said, the opposition’s flight of talent argument really cracks me up. Do they know how stupid they sound?

It’s sad actually. They JUST finished building a brand new store on the parking lot of our local mall. Now that brand-new building will sit vacant for who knows how long. It’s gonna sit there right in the middle of the parking lot. Empty.

What really makes this story sad is that they moved into their new store from their old store that was across the street. Their former location is still vacant.

I remember going to Circuit City when they first opened in our town. They used to have an amazing selection of CDs. They also sold appliances back when they first opened. They quit selling appliances several years ago and also quit carrying most of their CDs and basically became a TV/Computer store. That’s it. I quit going there. Looks like everyone else will too.

If I understand his editorial correctly, GM should be bailed out because:

1. They are going to build cars that are efficient, that will help reduce our dependence on foreign oil.

2. They have plants all over the U. S.

3. The health of domestic auto business is critical to the health of the U.S.

I remember GM talking about electric cars back when I was a kid. They keep dangling that carrot on a stick but they have yet to come through with anything. I understand that when gas prices are low, there’s little incentive to produce electric cars or cars that run on alternative fuels. But, companies also must plan for the future.

The health of the domestic auto business is critical to the health of the U.S.? I’m not so sure about this one. Yes, if GM were to shut down all their plants, it would hurt. It would hurt a lot. But, how are we hurting ourselves if we continue to support a failing business?

I’m against a bailout. I would be open to a loan of some sort but I wonder if that would even help, or would it just prolong the inevitable? Once credit starts flowing again, will people buy domestic cars?

These are tough times. I don’t have the answers.