Insider Trading is Legal, Finally!

Posted by Ray on June 20, 2011 under Main | Be the First to Comment

Insider trading is profiting from the buying and selling of a security based upon information that is nonpublic. Trading on nonpublic information is illegal and if the SEC catches you be prepared to cough up your gains, fines, being barred from the business and possibly going to prison. Well, that is if you are just the average Joe of course because the SEC views Congressional members who trade on nonpublic information as completely legal.

John Edwards said in 2008 that we live in a 2 society system, the haves and the have not’s. He was partially correct as we do live in a 2 tiered society but it is the average person and the political elite. Being an average Joe is no fun since all laws and rules apply to us and if we break them we go to jail. However, being in the political elite class is the best thing that can happen to you as you can write the laws, exclude yourself from those laws or even break those laws and all that happens is you get some bad press a censure from Congress and then reelected again. There is a 97% reelection rate for politicians in America even those who are found guilty of crimes, Charles Rangel is a great example, so getting elected is much like the Soviet system of appointment for life.

The issue of Congressional insider trading first crossed my mind in 2008 when I pulled Mel Watts financial records and saw he was trading leveraged ETF’s during the market crisis that year. The country was on the brink of disaster and Congress was pressed to pass TARP and Mel Watts, who hails from North Carolina surprisingly from Bank of Americas home office, was trading leveraged ETF’s. Did Mr. Watts know that TARP was not going to pass the first time around? Did he know it was going to pass the second time around? When did he know, he is on the Financial Services Subcommittee, that mark-to-market restrictions were going to be gone for banks? Did Mr. Watts profit at all from this information? I do not know and no one will answer the questions. Even more surprising is the SEC does not even care as they do not consider any of that insider information.

That’s right, a sitting member of Congress can know a bill that will benefit a certain company will be passed or failed and buy or short the stock on that information and the SEC says that is fine. I wish I was making this up, but I am not as this CNBC article points out. Even worse is that our elected officials, who are mostly lawyers, outperform the market regularly based on a study by some heavy weight academics. The odds of the best mutual fund manager outperforming the market over the long-term is against them, 95% of fund managers fail to outperform the S&P 500 on the 10 year benchmark, but our Congressional members can do what these professional money managers cannot do… amazing, right?

The funniest part of this is the simple fact that these people can make a killing for themselves but cannot get the country’s finances in order. Perhaps if they wasted less time making money for themselves with, apparently, questionable information we would not have this debt ceiling issue. Apparently I am not the only person who is worried that the political elites are helping themselves to illicit gains as, for the second time, a bill is being introduced that would make it illegal for Congressional members, their staff or their family members from disclosing and profiting from nonpublic information. Good luck with that, who would give up that gravy train.

I think it is pretty clear that we do indeed live in a culture of complete corruption were it really does pay to be the elite. There is also a striking resemblance to the U.S. and the Roman Empire or any other Empire that has failed in the past. As this type of corruption becomes commonplace and the citizens tend to not care or pay attention the Barbarians tend to storm the gates and the bloodbath ensues. Insider trading is terrible whether it is Goldman Sachs doing it or my elected Congressional member, actually it is worse if my Congressman was doing this as they are breaking the law and betraying my trust. It is time we ask for some accountability and stop this king of behavior from our public servants.

For the record, the Democrats tend to have better performing investment portfolios than Republicans so this is not a partisan issue, based on the study.

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It is June and the economy is weakening

Posted by Ray on June 6, 2011 under Main | Be the First to Comment

I suppose it was back in the late fall and reiterated again in mid-winter that I believed the market would simply go up for no real reason until QE2 ended and then it would begin to decline as liquidity ended. It looks as though I was somewhat accurate in that prediction although you did not have to be a rocket scientist to figure that out unless you were a permabull with your blinders on and absolute faith in the government and the Fed in which case please move along.

The Fed knew the same thing I and many others did and that is why at the last meeting they emphasized that they would continue to reinvest maturing paper and interest from the existing portfolio, kind of a QE infinity if you will, but on a small scale. I do believe they will let QE2 go and not announce anything new until the fall when they see the economy really weaken. I think a couple months of sub 100K jobs reports, with a healthy BLS birth/death adjustment, along with softening other indicators such as the PMI and so forth the Fed will get the point and step in with $1T in QE since $600B did not work.

That is how it works as one QE is ineffective the next one gets bigger. The really unfortunate part is that Japan has done the same thing and it did not work but there is a big difference between the US and Japan, we are the reserve currency and they aren’t. In other words, Japan could print all they wanted because their citizens bought their own debt and the world settled trades in dollars. However, the US is limited in what they can really do in QE because as the value of the dollar sinks, and we really had a nice scare a week or so ago, the world will pick a new reserve currency on its own. You know how that story ends.

Ben knows this and he knows that his QE options are limited and he can probably only get away with 1 more so it will be big, it has to be. If that one does not work and spur growth, well, the Fed is done and completely out of bullets in a traditional sense. We would see some new things coming to the table like in 2008 with all the new facilities and such, but I have no idea what they will be or what they will look like since we do not know how things will play out.

What I do know is that we should get a nice bounce in the dollar here sending commodities lower for a bit. This will give Ben and Washington a little relief and you an opportunity to buy, buy, buy every commodity you like. I love silver, still, wheat, gold, palladium, soybeans and corn (unless the subsidy is pulled). If those go on sale buy them either directly or via the growers or agricultural ETF’s.

In the mean time enjoy watching Ben sweat it out as he will not have answers for the weakness in the economy or the weakness is ‘transitory’ which is the longest transitory period I have ever seen. Kind of like this recovery it is the longest start of a recovery ever as it gains steam and loses steam every other week. Good luck.

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What happens when you really need your disability insurance company to actually pay up?

Posted by Ray on under Main | Read the First Comment

As many know I have had a bad fight on my hands over the past few years and while the prognosis is now good the war has taken its toll on my body. I have severe chronic pain which makes even this tough guy come to tears every once in awhile and this pain has prevented me from regular work of any kind anymore. Of course with my extensive insurance background I was prepared with disability riders on my life insurance policies and a top of the line disability insurance policy.

Everyone knows that insurance carriers do not make money by paying out claims but some claims are so obvious they have no choice, such as mine. I have medical files thicker than the Holy Bible written in brail so proving my disability was easy, at first. I breezed through the short-term policy of 12 weeks rather easily, which pays you nothing I might add, and hit my long-term policy back in November of 2010. At first there were no problems as the first 3 checks went out on time with no further information needed. However, that changed when I called in to verify my 4th months check and it was not approved.

I had read the prospectus and understood it and by their definitions I could not perform, at a minimum, my job that I was trained for which triggered a benefit payout. Well, I told the nice service person that I wanted to talk with a supervisor for the real reason why my benefit was not being paid, OK, I was yelling at her, but she got me through to a manager. After I politely explained to him that I understand how the denial system worked as I was, at one point, a Director of Insurance Markets and that according to this policy there was no reason for a denial of benefits and my attorney agreed with me the manager said he was just going to approve the claim and more paperwork will be on the way. That was an honest to God true story that I would swear my good leg on and that should tell you something, if you don’t know anything they will deny you right off the bat. Read the prospectus or get a lawyer to read it for you and be prepared.

Now, I got my benefit and the work is all over with, right? Wrong. All long-term disability insurers want you to apply for social security disability because if you win whatever the government sends you will be deducted from the benefit the insurance company sends you. The disability insurance company will provide you with an attorney to help you win, do not take that attorney, go get your own so they are not collecting evidence to deny you benefits either now or at the 24 month review period. There will be a fee for hiring a private lawyer, but so what better safe than sorry. You are also better off going with a local guy who talks to you versus a national firm where you will never see an attorney until your hearing date some 18 to 24 months away.

The social security offset is what really angered me today because I learned that my private insurance carrier will offset any benefit my wife and kids will receive from social security, which they do receive, typically. I was thinking why would the benefit my kids get offset the benefit I get from my insurance company? The check from social security comes in their name and I will need the money to live on so the insurance company is forcing me to break the custodian law by cashing it to by food for the family. I paid premiums based on my income, not my wife’s or my children’s so why would their benefit be reduced from my disability insurance checks? I asked the insurance company that question and their answer was that since my family was pushing my income over 60%, what my disability benefit was, of my previous income it is considered my additional income because they are getting because of my disability.

That is simply outrageous considering that SSDI, social security disability income, family payments were designed to make sure your kids can go to college and have savings not so insurance companies can offset benefit payments. Well, maybe I am wrong since insurance companies contribute more money to Congress than disability recipients, who knows.

I am upset over this because it reduces the value of the policy I paid good money for throughout all those years. I am mad because people who are in a worse position than me will have to deal with the same thing and not have the knowledge, resources or desire to fight the system and it will hurt them. I do and plan on fighting this; I will let you know how I make out I am confident I can win 2 years worth of exemptions, but after that I do not know.

Why do you need to know any of this? Because like me you have a greater chance of becoming disabled at a younger age than dying, look at me, and you might have to go through this mess. I can assure you that I am giving you the very abridged version of everything, but all the information I have given is 100% accurate. Oh, the insurance company I use… Lincoln Financial Group who had no problem taking TARP Funds while it scrambled to dump its toxic assets and was, shall we say, encouraged to sell Delaware Investments among other things because they run such a great operation.

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