Greetings!
Why would the banks do this? Why not? It's not greed (alone) that caused the problem. Let's look at the LIBOR system itself and reduce it to an elementary level, as if we were paying.
LIBOR is the average rate paid by really large banks. Very large European banks report what interest they are paying on their loans. They could report an accurate number, a low number or a high number. If a bank reports a high number, then the bank appears (to regulators) to have less profits. The bank appears to have a smaller spread on the amount of interest they are receiving vs. the amount they are charging. There is no "double-check" on the reported number (and, in fact, would be very difficult to enforce).
If the bank under-reports the interest they are paying, then they appear more profitable than they are. This invites regulatory scrutiny and, when profits are reported (quarterly or otherwise), may lead to disappointment and poor stock performance.
Taking a step back, think about what decision you would make if you were a banker. You are still the ethical person you are today, only now you have to make a decision: do you err on the side of under-reporting, with much more painful (possibly catastrophic) risks? Or do you err on the side of over-reporting, with no (apparent or immediate) downside risks and, quite possibly, positive earnings surprises and less intrusive, more happy regulators?
Unfortunately, the LIBOR system positively reinforces LIBORgate. This key issue is unaddressed by any penalties, lawsuits or employee terminations. (1,2) |
| Weekly Economic Update | |
CONSUMERS ARE STILL A BIT CYNICAL
The good news is that the University of Michigan's final July index of consumer sentiment improved from its 72.0 preliminary reading to a final mark of 72.3. Still, that represents a 2012 monthly low for the gauge, which had finished June at 73.2. (3)
NEW & PENDING HOME SALES DECLINE
In year-over-year terms, things look sunny: new home sales were up 15.1% in June compared with June 2011 and pending home sales were 9.5% improved from a year before. June reports from the Census Bureau and National Association of Realtors were respectively gloomy, however: new home sales dropped an alarming 8.4% after two months of gains, and contracts to purchase existing homes decreased by 1.4%. (4,5)
GDP LOOKS WEAK; HARD GOODS ORDERS SURPRISE
The federal government's second estimate of Q2 GDP (+1.5%) represents the tamest growth since Q3 2011. June's durable goods orders beat forecasts, registering a 1.6% increase (economists polled by Briefing.com had predicted a gain of 0.3%). (3,6,7)
DOW LOGS BEST 3 DAYS OF THE YEAR
How could that happen with such negative indicators? Two words: renewed hope. Thursday, European Central Bank president Mario Draghi said the ECB would do whatever is needed to save the euro; Friday, Draghi was reportedly talking with Germany's central bank about coordinated sovereign debt purchases. So the Dow (+1.97% to 13,075.66), NASDAQ (+1.12% to 2,958.09) and S&P 500 (+1.71% to 1,385.97) all did well last week. COMEX gold rose 2.22% last week to end Friday at $1,618.00; oil settled at $90.13 Friday, as prices slipped 1.85% across five days. (3,6,8)
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| Lunch and Learn |
In addition to being one of the most closely-watched financial market players, the Federal Reserve is perhaps also one of the most widely misunderstood. People who follow economic events often wonder why the Federal Reserve was created, how it gets its authority, and whether it is accountable to the average citizen.
In this workshop, Dr. Debbie Evercloud will tell the story of the Federal Reserve's founding in 1913 and talk about how its function has evolved over the past century. Debbie Evercloud, PhD. is an economist who teaches at the University of Colorado Denver. She earned a B.A. from Adrian College, an M.A. from the University of Notre Dame, and a Ph.D. in economics from the University of Virginia. For the past 20 years, she has worked as an instructor, author, and curriculum consultant in the field of economics education. Understanding the Federal Reserve
Date: Thursday August 9th, 11:30am - 12:30pm
Location: Our office, 9800 Mt. Pyramid Court, Suite 450
Englewood, CO 80112
Lunch will be provided. or call 303-690-5070. Seating is limited.
Friends and colleagues are welcome to attend! 
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| Market Summary |
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% Change |
Y-T-D |
1Yr Chg |
5-Year Avg | |
DJIA |
+7.02 |
+6.28 |
-0.29 | |
NASDAQ |
+13.55 |
+6.99 |
+3.09 | |
S&P 500 |
+10.21 |
+6.21 |
-1.00 |
(Source: msn.money.com, bigcharts.com, treasury.gov, treasurydirect.gov - 7/27/12). Past performance is no guarantee of future results. Indices are unmanaged, and investors cannot invest in them directly. |
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Create a beautiful week!
Karl Frank, MBA, MSF
Certified Financial Planner (R)
A & I Financial Services LLC
303.690.5070
Citations:
1 - http://www.nytimes.com/2012/07/29/business/libor-
mortgage-rates-and-wall-street-fair-game.html
2 - http://online.wsj.com/article/SB10001424052702
303740704577524144196458040.html?KEYWORDS=
liborgate
3 - money.msn.com/market-news/post.aspx?post=51f8caab-e29b-4584-b079-effc8020cb48 [7/27/12]
4 - www.cnbc.com/id/48335711 [7/26/12]
5 - www.cbsnews.com/8301-505145_162-57480113/new-home-sales-drop-but-up-for-the-year/ [7/27/12]
6- money.msn.com/market-news/post.aspx?post=ed48f96d-7a7c-4319-8c50-47ce5224d6c8 [7/27/12]
7 - briefing.com/investor/calendars/economic/2012/07/23-27 [7/27/12]
8 - montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [7/27/12]
Securities offered through Geneos Wealth Management, Inc., member FINRA/SIPC. Investment advisory services offered through A & I Financial Services LLC, registered investment advisor.
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| Words for Thought |
"Don't be intimidated by what you don't know. That can be your greatest strength and ensure that you do things differently from everyone else."
Sara Blakely |
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Riddle of the Week
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You have been hired by an eccentric farmer, who requests that you build four pens for his nine sheep, but only allow an odd number of sheep in each pen. How do you accomplish this?
Last week's riddle:
I nearly always lie on a surface, and I come in different shapes and sizes, often with curves. You can put me anywhere you like, yet there is only one proper place for me. What am I?
Last week's answer:
A jigsaw puzzle piece. |
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Karl Frank was interviewed by 9News on March 28th, 2012 regarding "3 Things You Should Do if You Win the Mega Millions Lottery". | |
Click Here to View Video
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Karl Frank In Investment Advisor Magazine |
 | | Investment Advisor - November 2011 |
Investment Advisor Magazine's November 2011 edition features Karl Frank. In the article "Never Satisfied," John Sullivan writes: Passion born of tragedy drives Karl Frank to do all he can to help business owners ensure a legacy for loved ones and heirs. Industrial age publisher and philanthropist Frederick Bonfils said there is no hope for the satisfied man. If that's the case, Karl Frank is full of hope.
"I'm never satisfied," Frank says matter-of-factly when asked about his advisory firm
.....Read More. |
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