EYE-BALL Guru on – Everybody is dancin’ around the Banks …

December 8, 2011
Everybody is dancin’ around the Banks …
– yet the music stopped playing several years ago …
The US ratings agency S&P is claimed to be playing a game with threats to downgrade most of the EuroZone and its Bankers.   A report out overnight by Bloomberg’s Business Week titled – S&P Jumps Into Politics Again With Basis for Cutting EU Outlook was challenged by some economists and political commentators.   Part of the story is published below:

” … The ratings firm put Germany, France and 13 other euro-area nations on review for a downgrade yesterday, saying “continuing disagreements among European policy makers on how to tackle” the region’s debt crisis risk damaging their financial stability. The move came four months after S&P cut the U.S. to AA+, saying “extremely difficult” political discussions over how to reduce America’s more than $1 trillion budget deficit tainted the credit quality of the world’s largest economy.

Bondholders questioned the timing of S&P’s move, with European Union leaders planning to meet Dec. 8-9 in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy. German Chancellor Angela Merkel and French President Nicolas Sarkozy presented a plan earlier in the day to rewrite the EU’s governing treaty to allow tighter economic cooperation.

“S&P should back off,” Anthony Valeri, a market strategist with LPL Financial in San Diego, which oversees $330 billion, said in a telephone interview yesterday. “It complicates the job of the EU leaders to resolve the debt problem…”

continues … [use this link]

The defence of the allegation against the impartiality of S&P comes from the Banks and one would have to ask whether their protest is objective – of because it is feeling the pressures of survival?

Within the Financial Markets cycles – liquidity between Banks is the only thing that keeps the money flowing – the recent interventions by the six largest Central Banks was aimed at improving the tightening liquidity between the European Banks as rumours and scandals were causing ‘watch-lists’ where internal interbank limits were being reviewed and pulled.

This is how the Lehman Bros collapse started and finally succumbed … it would seem that Central Banks have learnt that lesson .

Another report that has greater significance if one looked harder at the between the lines signifance was published by CNN earler this week.   That story was titled – Underperforming hedge funds still raking in the bucks – part of that story is published below …

NEW YORK (CNNMoney) — Hedge funds have done a poor job living up to their name in 2011, but they still managed to rake in the big bucks.

Rather than protect their investors against the market’s losses, these funds have actually performed worse than the broader equity indexes.

An investor who put money into the S&P 500 (SPX) at the start of the year would have lost just 0.8% as of Nov. 30. That same investor would have lost 7% if the money was in an actively managed hedge fund with highly compensated advisors, according to the Dow Jones/Credit Suisse Core Hedge Fund Index.

Despite the industry’s subpar performance this year, investors continue to add to these funds. Overall a net $8.6 billion flowed into hedge funds by the end of September, according to the Hedge Fund Research Institute.

Why would investors put money into an asset class that charges significantly higher fees (roughly 2% on money managed and 20% on any profits) than all others, which generally charge about 1%? Ask the underfunded pensions.

“Today, boards have this serious pressure to increase their returns,” said Yuliya Oryol, a partner and head of the public pension practice at San Francisco, Calif., law firm Nossaman. And hedge funds, while riskier than other investments, offer the promise of market-beating returns, even if they prove to be elusive.

Boards often think they have no other choice because of those returns, said Oryol.

Take John Paulson’s hedge funds. The Paulson Advantage LP is down 32% from the start of the year through Sept. 30. But for those who invested in this fund in 2007, it generated returns of nearly 100%.

Public pensions are facing huge gaps between what they’ve set aside to pay for employees retirement and what they’ve promised. In 2009, the gap for state and local public pensions was $1.26 trillion, yes trillion, according to the Pew Center of the States.

…continues … [click here to read]

The conclusion from a story like this is that Pension-Funds need a return greater that what is currently on offer by their investmant charter options to fulfill their pension obligations.  That is to further to say that they are taking higher risk profiles in chasing the higher returns needed.   That can and will only end in disaster as the returns turn negative in an extremely volatile marketplace.

Put simply – these funds are playing russian roulette with life savings and the commissions and management fees they take come off the top whether they win or lose …

What a crap-shoot and an easy way to line pockets … pensioners and superannuants are walking in a dream-land thinking their future is secure … someone has to start telling the truth to all and sundry what is happening around the globe with their super and pension entitlements.

Australians have over a A$trillion dollars invested in super with Fund Managers and self-managed super – who is holding the Fund Managers accountable – who is providing real answers to real questions to the employees?

ASIC and the ACCC have many cases on their books where employers have not been paying employee superannuation contributions to their super funds … when they go belly up the employee loses everything … how do ASIC and ACCC plan to protect them when this happens?

Many of the Banks that are in difficulty have Fund Management business’ – the lower interest rates go the 1-2+% management fees extracted begin to look extravagant – i.e. official interest rates at 4.25% and a management fee of 2% or higher hardy renders the clients a return that matches inflation … this is another issue that needs to be addressed and one which will impact on Bank profitability in a significant way.

The extent the continued GFC fallout is reaching out to will only surface as time passes … one thing for sure – the Banks are intent on survival and appeasing their shareholders.  During the 2008-9 meltdown the CBA issues $100’s million worth if shares to Institutional investors – i.e. Fund Managers purchased CBA shares at $25-$28 – and with the current value at $49 or so – they have done very well.

Yet the returns published on the APRA website for the September 2011 Qtr returns states:

“… The combined rate of return for the September quarter was -4.9 per cent. The rate of return for public sector funds was -4.2 per cent, industry funds -4.6 per cent, corporate funds -5.1 per cent and retail funds -5.4 per cent..”.

Let me paint a picture for you from these latest APRA Superannuation numbers contained in this report – [report can be downloaded here]

Of all Superannuation Funds reporting to APRA the beginning period value for Sep 2010 was $815,195 million. [A$815.195 billion]  The total contributions by employers and employees for the year were $83,655 million [A$83.655 billion]  The value of the combined Funds at the end of the period – i.e. Sept 2011 is $828,832 million. [A$828.832 billion].

That means that of the $83 odd billion invested over the year Oct ’10 – Sept ’11 – Fund Managers only managed to grow the value of the Funds by [$828,832 – $815,195] $13,637 million.   They lost the best part of $70 billion yet still took Management and Administration charges of $4.6 billion off the top.

This is where the Financial Industry sucks bigtime … why is the media, ASIC and ACCC not full bore into the Banks and the Managed Funds over this type of outright mis-management.

Be warned – get your funds out of the Managed Fund business and manage it yourself.  Governments should be making and creating Legislation that allows employees to self managed their own super – and what better way than being allowed to invest it in your own family home.

You would pay no fees – you have an asset that you live in – it is long term – it is something that nurtures your family – and will provide you with financial security when it comes time to downsize and retire.  Perhaps with the option to invest super into a family home – generations will be able to live together and help with child minding and create a nurturing and committed family environment – a sure boost to our society and something that would help keep families together for longer.

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