A generation shy of risk?

FEB 15 – You did what you were supposed to do. College. Graduate school, maybe. Bought a home. Invested in mutual funds. Bought a house.

And now? You have student loan debt. Your degree has not shielded you from unemployment (or the fear of it). The house is worth 20 per cent less than two years ago, and your retirement portfolio is down 40 per cent from its peak.

So at this moment, can you blame people in their 20s and 30s for giving up altogether on risk of any sort? It’s one of the bigger questions preoccupying those who think about money management all day.

Are we in the process of minting a new generation of adults who are averse to taking chances, whether it’s buying real estate or investing in stocks?

“We trained people that if you took risk and diversified and played by the rules that you’d have a great life for yourself,” said Howard L. Simons of the bond specialist Bianco Research. “But all of that can disappear in a hurry. And most of us can look in the mirror and say, ‘What did I do to cause this?’ And nothing springs to mind.”

I’m not sure we can say for sure whether there has been some permanent change in attitudes toward risk. It’s easy to overestimate the extent to which the world – and our perception of it – has changed in the middle of a crisis. But this one has not lasted long. And its duration does not come close to matching the period in the 1930s that left a permanent imprint on so many people’s financial habits.

Even before the downturn, younger adults were not necessarily enthusiastic about riskier forms of investing, even though they are far from retirement.

A joint study by the Investment Company Institute and the Securities Industry and Financial Markets Association noted that just 45 per cent of households headed by people under 40 held 51 per cent or more of their portfolios in stocks, mutual funds and other, similar investments last spring. That is less than what households headed by those 40 to 64 owned. Fifty per cent of them invested more than half their money in equities.

Data from Vanguard, however, suggests that its investors under 45 who use target-date mutual funds, which allocate assets among stocks and bonds for the investor, tend to have significantly more money in stocks than those who do not use these mutual funds.

As more employers automatically sign up younger workers for 401(k) plans and use fairly aggressive target-date funds as a default investment, those employees’ exposure to stocks will grow.

So perhaps a better question to ask is not whether people in the first half of their working lives are becoming more risk-averse, but whether they should be.

On Thursday night, Kevin Brosious, a financial planner in Allentown, Pa., polled the students in his financial management class at DeSales University on the percentage of their portfolios they would allocate to stocks right now. The majority would put less than half in stocks; among their reasons were fear of job loss, lack of accountability on Wall

Street and economic fears amplified by the news media.

The problem with their approach, according to Brosious, is that by investing conservatively they are probably guaranteeing themselves a smaller return and a more meagre standard of living in retirement.

Or, as Robert N. Siegmann, chief operating officer and senior adviser of the Financial Management Group in Cincinnati, wrote to me in an e-mail message, “Why would you consider taking less risk NOW after most of the risk has already been paid for in the market over the past 12 months?”

If investing still seems too risky to you right now, you’re not alone. At Charles Schwab, according to a spokesman, younger 401(k) participants are not making many big investment moves. But there is a sense that at least some younger investors may divert 401(k) contributions to other uses, especially as more companies reduce or suspend their 401(k) matches.

In that case, one sensible way to reduce overall risk is to pay down high-interest debt, like credit cards or private student loans. That, at least, offers a guaranteed return, since every extra dollar you pay now keeps you from having to pay more interest later. Also, the sooner you rid yourself of debt payments, the less you would need in your monthly budget if you lost your job.

“I think the only thing younger people should be more risk-averse about is the leverage they take on,” said Jeffrey G. Cribbs, president of Chicago Wealth Management in Oak Park, Ill.

In particular, he suggested they buy real estate and cars at levels below what they can actually afford.

So what kind of risk should you take on with the savings you have left over? To Moshe A. Milevsky, the author of “Are You a Stock or a Bond?,” risk should have less to do with the era in which you live and more to do with what you do for a living.

If you are a tenured professor, a teacher, a firefighter or other government employee, you have better job security than most other people. Your income stream is stable, like a bond. Certain service providers, like plumbers and doctors, have similar security.

Investment bankers and many technology and media workers, however, have more volatility in their career paths. A chart of their income might bounce around like one showing a stock’s price.

“The idea is that we should focus on our human capital and invest in places where our human capital is not,” Milevsky said. “It’s not about risk tolerance or time horizon but about what you do for a living.”

As a tenured professor, he invests entirely in equities. Other people with bond-like characteristics who are far from retirement could take similar risks, and withstand 2008-level losses, because their incomes are fairly stable. Those who have more stock-like careers, however, probably ought to invest a bit more conservatively, in both their retirement accounts and in their primary residences.

For most young people, however, their biggest asset is not a 401(k) account or a home but the trajectory of their career and the value of 20 or 30 or 40 years of future earnings. It makes nearly everyone a millionaire on paper.

So whether you are taking on too much risk right now or not, all of that money will provide many more chances to fix any mistakes you have already made.

Has your risk tolerance changed forever? – NYT

UK veteran killed himself after Madoff loss

LONDON: A retired British army major killed himself after losing his life savings in the alleged fraud perpetrated by U.S. financier Bernard Madoff, his son said Friday.

Willard Foxton told The Associated Press that, at first, he felt so angry after his father William Foxton's death he wanted to attend Madoff's possible trial in the United States to fling the veteran's medals in his face.

Now he just wants Madoff to know what happened to his father.

"I'm sure Mr. Madoff thinks it was just a con got out of hand. He thinks it's all about money - I'm sure that's what he feels," Foxton said in a telephone interview.

"I want him to see that people have died as a result of what he's done."

Police in the English town of Southampton say William Foxton, 65, died from a single gunshot to head on Tuesday and that a pistol was recovered at the scene.

An inquest still needs to determine the cause of death, but police in the town, 80 miles (130 kilometers) southwest of London, say the shooting was not suspicious.

Willard Foxton said it was suicide.

Foxton, 28, said his father told him that he had lost all his money in a Madoff-linked fund about a week before the shooting.

"He was a bit distracted," Willard Foxton said.

"He said: 'I can't really concentrate, I've lost everything in these bloody Bernie Madoff hedge funds."'

William Foxton, who served in the French Foreign Legion and rose to the rank of major in the British army, lost an arm during service in the military.

He retired in the 1970s.

His son said he did not know the exact circumstances of the injury, explaining that his father told him little about his time in the army.

William later threw himself into humanitarian work, spending the 1990s and early 2000s in the Balkans, where he was a member of the European Commission Monitoring Mission and spent time as a spokesman for the Organization for Security and Cooperation in Europe.

He also did work for the German charity Arbeiter Samariter Bund, his son said.

Foxton was made an Officer of the Order of the British Empire in 1999 for his work in the former Yugoslavia.

His son said he had been investing his life savings in the Herald USA Fund and Herald Luxemburg Fund, both of which suffered hundreds of millions of dollars in losses as a result of Madoff's alleged scam.

Foxton said he doesn't yet know how much his father lost, but thought it could be in the high six figures.

Foxton's isn't the first suicide linked to the alleged fraud.

In December, 65-year-old French financier Rene-Thierry Magon de la Villehuchet slit his wrists after losing $1.4 billion he had invested with Madoff.

He was among the thousands of clients allegedly swindled out of billions of dollars by Madoff in a mammoth pyramid scheme - a word used to describe a scam in which early investors are paid with money raised from new investors.

Madoff was arrested in December as the scheme unraveled and he remains confined to his Manhattan penthouse under house arrest.

"God knows how many people have been affected by this," Foxton said

Britain in ‘deep recession’

LONDON, Feb 12 — The Bank of England is prepared to cut interest rates below 1 per cent and use "unconventional measures" to dig the economy out of the "deep recession" that it failed to spot six months ago, the governor of the Bank of England said yesterday.

Mervyn King said Threadneedle Street would use the "full range of instruments at its disposal" to counter the impact of the credit crunch and a collapse in confidence.

After predicting in August that the economy would be broadly flat over the coming year, the Bank said yesterday output would be slumping at an annual rate of 4 per cent this year. King said the Bank's nine-strong monetary policy committee had not erred by leaving interest rates at 5 per cent last spring and summer before slashing them repeatedly since October; the shock to the global economy last autumn had been unexpected and could not have been predicted, the governor said.

Unveiling the Bank's quarterly inflation report, King said: "The UK is in a deep recession. Monetary fiscal and financial policy have all responded vigorously to that prospect."

The governor added that the UK was caught up in a synchronised global downturn. "Restoring both lending and confidence will not be easy and will take time," he warned.

Despite the aggressive downgrading of the MPC's growth forecasts in recent months, King said there was a risk that the recession could be even worse than currently envisaged. "The MPC judges that the balance of risks to the path for GDP is very much to the downside, reflecting in large part uncertainty about when lending and confidence will recover."

Inflation is forecast to be 0.5 per cent in two years' time, assuming interest rates are kept at their current 1 per cent. The Bank believes that the deflationary forces hitting the economy will require "further easing in monetary policy" to bring inflation back up to the government's 2 per cent target. "That is likely to include actions aimed at increasing the supply of money in order to stimulate nominal demand."

King explained that the Bank stood ready to pursue "quantitative easing" — a policy that involves an expansion of the money supply through the purchase of gilts. The Treasury has already given outline approval for the emergency measures, which are designed to boost growth once the interest-rate avenue has been exhausted.

King said that Threadneedle Street could introduce quantitative easing at any time. "Bank rate doesn't have to go to zero, because we're getting to the point where it doesn't make a great deal of difference where it is."

The governor added: "We now will be moving to is a world in which we would be buying a range of assets, certainly including gilts, to ensure that the supply of money will grow at an adequate rate to keep inflation at the target so that normal economic growth can resume."

Asked about the Bank's approach to the crisis, the governor admitted: "I'm not pretending that everything worked well. It clearly didn't". He added, however, that the Bank needed new policy instruments if it was to target both inflation and the boom in asset prices that led to the financial crisis of the past 18 months.

As for savers, King said that he had "immense sympathy" for them because they are "clearly the one group who did not cause any of the problems we are facing". However, he said that, in the short run, "if we did not take measures to stimulate the economy then the savers would find they would be actually worse off — there would be even higher unemployment and even more of a downturn in the economy".

Colin Ellis, European economist at Daiwa Securities, said the Bank was expecting growth to bounce back in 2010 and be at 3 per cent a year by the end of the year. "The marked rebound in growth that the MPC is expecting raises fears that it is still too relaxed about the recession," he warned.

"Perhaps that is not surprising, given King's aversion to admitting past policy mistakes — indeed, when pressed on these at the press conference, King lost his cool, responding more aggressively than usual to questions about past policy errors. Unfortunately… big errors were made." — The Guardian

Get Rich Using Google Earth

HOUSTON, Feb 11 – A treasure hunter who claims to have found a buried ship filled with treasure using Google Earth, the popular satellite imaging service, is fighting a legal battle to excavate the site.

Nathan Smith claims the lost gold and silver cargo of a Spanish barquentine that reportedly ran ashore south of Refugio, Texas, in 1822, could be worth $3 billion (£2 billion).

Smith, a musician from Los Angeles, said he used Google Earth, an internet site normally used by people wanting to find their own rooftop, to zoom in to a spot north of the Aransas Pass.

There, he saw an outline shaped like a shoeprint near an area known as Barkentine Creek, where the vessel was said to have run aground, he said.

After consulting experts and visiting the area with a metal detector, he is convinced he has found the ship, now buried under mud.

However, the ranch’s owners have refused to allow him on to the land and the dispute has gone to federal court in Houston.

Documents and photographs of the area have been sealed by order of the court to hide the exact site.

However, Smith told an earlier hearing that it is even possible to make out an X marking the spot, which he believes is part of the ship’s capstan.

His lawyers say the case, known as Smith vs Abandoned Ship in order further to preserve the secrecy, hinges on whether the spot – a wetlands area – counts as land or as a navigable waterway.

If it is the latter, US law allows the first person to find abandoned treasure to ask the federal courts and the US Army Corps of Engineers for permission to retrieve it. If it is deemed to be land, then it belongs to the family of the ranch’s late owner, Morgan Dunn O’Connor.

However, other legal experts claim the creek is clearly outside any commercial waterway and so, if it is deemed to be in the water, any wreck belongs to the state of Texas. A judge is due to rule on the case next month.

Ron Walker, a lawyer for the ranch’s owners, told ABC News: “It was offensive that somebody could go on Google Earth, look down and see what they think under the ground ... and come in and say I want to dig up your property. They have no proof anything is there and no experience.”

Smith, who was inspired to become a treasure hunter by the Hollywood thriller National Treasure, said he has been looking for three years without any luck. He estimates the treasure near Barkentine Creek to be worth $3 billion.

The Texas coast is believed to be littered with wrecked ships, but the notoriously muddy waters of the Gulf of Mexico has made treasure hunting particularly difficult there.

Smith’s site is not far from Matagorda Bay, where an archaeological team discovered a ship belonging to the 17th century French explorer La Salle in 1995, following an on-off search that had lasted 17 years. – The Daily Telegraph

Intel Invests In US

While other companies are cutting back, the chip giant plans aggressive capital investment spending .

Moving against a tide of gloomy sentiment in corporate boardrooms, chip giant Intel (INTC) on Feb. 10 announced plans to invest $7 billion over the next two years to expand and transform three U.S. manufacturing plants. The new "super-fabs" could slash the costs to make everything from PCs and cell phones to set-top boxes and retail-sale systems.

As early as this fall, the company plans to begin shipping in volume the world's first microprocessors created at the subatomic 32-nanometer level—transistors so small that 4 million of them could fit on the period at the end of this sentence. To deliver the chips quickly, Intel plans to begin retooling chipmaking plants in Arizona, New Mexico, and Oregon, where a total of 7,000 people will be employed.

By shifting to a more efficient manufacturing process, Intel aims to outpace rival Advanced Micro Devices (AMD) in its core PC business. And it hopes to make inroads selling chips for consumer electronics, cell phones, and other Internet-connected devices. Such chips could substantially lower development costs for Nokia (NOK), Samsung, Sony (SNE), and other manufacturers struggling to outdo each other with cutting-edge TVs, phones, and other devices. "The chips [that the new fabs] produce will become the basic building blocks of the digital world, generating economic returns far beyond our industry," Intel CEO Paul S. Otellini said in a speech at the Economic Club in Washington, D.C.

An Emphasis on Commitment
The move represents a manufacturing coup for Intel. Otellini used his speech before lawmakers, reporters, and businesspeople to highlight Intel's commitment to investing in the U.S. at a time when many other manufacturers are seeking government bailouts. "We're investing in America to keep Intel and our nation at the forefront of innovation," he said.

In San Francisco shortly after the speech, Intel executives are expected to reveal computers running on the 32-nanometer chips, months ahead of schedule, and announce that consumers and businesses will be able to buy the superfast, energy-efficient systems as early as September.

The massive investment comes as companies across the U.S., Europe, and Asia have announced plans to slash capital expenditures in a bid to conserve cash. A study of announcements from major companies in Europe and the Middle East found they planned on average to cut capital spending by a third, moves that could knock as much as three percentage points of economic activity off the world's gross domestic product, according to a report released on Feb. 9 by Fitch Ratings.

Intel executives had been signaling for weeks that the chipmaker remained on track to spend $5.2 billion, or roughly the same as it spent on capital improvements in 2008, to move to the 32-nanometer manufacturing process. Most analysts, however, expected the company to delay volume manufacturing until early 2010. Accelerating job losses in the U.S. and abroad over the last few weeks point to continued weak corporate and consumer demand for pricey new PCs and servers, researcher IDC said in a report released on Feb. 9.

Stealing a March
Even so, the move is classic Intel. The company's competitive advantage for decades has been driven largely by its heavy investments in manufacturing. The chipmaker has dominated the PC market, taking an outsize share of the profits, by investing heavily to make semiconductors more cheaply and efficiently during downturns. Conservative and cash-strapped competitors fall months behind Intel in terms of cutting-edge technology and cannot compete effectively on cost.

AMD, for instance, is only now beginning to ramp up its 45-nanometer production, the generation of chipmaking before the 32-nanometer Intel is scaling up. And a joint effort between IBM (IBM), Chartered Semiconductor (CHRT), and Samsung to develop a common 32-nanometer process technology across all three companies' semiconductor manufacturing facilities is only now in the testing phase.

"We recognize risk-taking is not a move that is common at the moment," says Intel Executive Vice-President Sean Maloney. "But when you can build faster, cheaper, simpler, more attractive, and more compelling devices, it's a safer bet than you'd imagine."

The chipmaker is doing some belt-tightening in the wake of a 90% drop in fourth-quarter profits. On Feb. 5, Intel announced it was shuttering a chipmaking plant in Shanghai, China. Weeks earlier, the company said it planned to cut as many as 6,000 manufacturing jobs and shut down four facilities in California, Oregon, Malaysia, and the Philippines.

Madoff list adds humiliation to victims’ losses

FEB 9 – It’s increasingly apparent that Bernard Madoff’s investment services weren’t as exclusive as once thought.

An eclectic list purporting to name thousands of people who lost money in Madoff’s alleged $50 billion Ponzi scheme – complete with their street addresses – includes housewives and retirees, a plumbers union and a high school.

The list, released as part of his firm’s bankruptcy-court proceedings, is providing fodder for gawkers who are already poring through it to look for friends, business associates and prominent people who had so far avoided the spotlight, but who now have been outed.

The list includes baseball legend Sandy Koufax. In addition it lists some other famous-sounding names: John Malkovich (the actor’s agent declined to comment); the late musical philanthropist Avery Fisher (a family member declined to comment); Steven Spielberg, director; and Jeffrey Katzenberg, producer.

Also on it is the family trust of Susan Leavitt, a stay-at-home mother of two in Tampa, Fla. She was dropping off her son at grade school Thursday morning when another parent mentioned that a list naming Madoff’s investors was circulating. She was horrified: Her family’s name is on it.

It felt like she’d been “socked in the stomach,” she says, having lost what she described as her children’s nest egg in the alleged fraud. “I felt sad for everyone who has been anonymous up to this point and now has to deal with the outright humiliation of yet another betrayal.”

The document, released late Wednesday, consists of people who either were identified as customers in Madoff’s records or who identified themselves as customers by contacting Irving Picard, the court-appointed trustee in charge of liquidating Madoff’s assets, or the Securities Investor Protection Corp.

“It’s as public as Paris Hilton porn movies,” says Steven Salbe, a 42-year-old consultant who sets up corporate computer systems in Boca Raton, Fla., whose family lost much of its savings in the scandal. “It’s the one list I prefer not to be on, but I’m on it.”

The fact that it includes so much personal information, including home addresses, is sparking interest from the capitalist-minded. “This is the best prospecting list ever,” says Ken Phillips, who runs RCG Capital Advisors, a Boulder, Colo., fund that invests in hedge funds. “You’ve got the names and addresses of a whole bunch of rich people who don’t demand much accountability.”

New York trial lawyer Gary Pillersdorf adds that some lawyers (not including him) inevitably will use it to troll for clients. “Lawyers all went to law school; they’re not dumb,” he says. “That list connotes people who have a lot of money.”

The list also includes the incarcerated. Melvyn Weiss and David Bershad – two high-profile one-time plaintiffs’ lawyers now serving time in federal prison for illegally paying kickbacks to clients – appear to be victims of the fraud.

This type of information is routinely released during bankruptcy proceedings. But the massive size of the alleged fraud, the tremendous interest it has spawned, and the technology available to post it digitally has fueled an online frenzy.

The document itself is a simple alphabetical list, originally posted on the US federal court electronic records Web site. It’s not very easy to use in that format: Oddly, it’s alphabetised by people’s first names.

But within hours, Josh Linsk, a 26-year-old who runs a publishing company based in Las Vegas, transformed it into a searchable database, www.madoffsearch.com, which he dubbed “The first and only Bernard Madoff Search Engine.”

“Access to this type of information is important,” said Linsk, who isn’t a Madoff investor himself. He said that if any individuals wished to be removed from his version of the database, “we would honour that.”

The list isn’t entirely accurate. New York law firm Wolf Popper LLP was included. But Wolf Popper partner Jim Harrod said he had no idea why. “I have to assume that that’s a mistake,” said Harrod.

One possible explanation is that it was inadvertently included because the law firm, on behalf of some clients, has sued Fairfield Greenwich Group, a firm that invested client funds with Madoff.

Particularly surprising was the appearance of Ira Lee Sorkin – Madoff’s lawyer – on the customer list. Whether Sorkin or his family members lost money through Madoff is unclear. A person familiar with the matter says Sorkin’s father, Nathan, opened an IRA account with Madoff at some point in the 1990s.

“I have never been an investor or customer of Bernard L. Madoff Investment Securities,” said Sorkin, adding: “I’m not going to talk about my family members.”

Sherry Morse, an interior designer in San Francisco who lost much of her retirement money, says she was shocked to receive an email Wednesday afternoon from an online group of Madoff investors, telling her the customer list was making the rounds.

“People might think I’m rich and want to rob my house,” she says. “To have our privacy invaded, it’s disparaging and disgusting.”

Many of Madoff’s investors spent hours poring through the list in hopes they weren’t included. Diane Peskin thought she was off the hook when her name didn’t appear under the P’s. “I thought, ‘Oh, they don’t have everybody’.”

But there it was, right beside a family member’s name, along with her home address in Bethlehem, Pa. She’s spent the day warding off calls from media. “I am completely appalled,” she said.

Some of the victims didn’t mind the attention. The Plumbers & Steamfitters Local 267 in Syracuse, N.Y., lost about $48 million in pension and other funds it had invested with Madoff.

“We don’t have any issues to hide,” said Gregory Lancette, business manager for the union. – The Wall Street Journal Asia

IMF warns of new 'great depression'

(The Bangkok Post) - The roll-out of stimulus packages and the clean-up of banks must be accelerated, the head of the International Monetary Fund said Saturday, urging action to avert "a repeat of the Great Depression".

IMF managing director Dominique Strauss-Kahn said stimulus measures announced so far were nearing the IMF's goal of about 2.0 percent of global GDP.

"But the reason I'm worried is that implementation takes time," he said, citing delays in the United States caused by the political transition, and in Europe because of the EU's political processes.

"On top of that I'm worried that all this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector," he told a press conference.

Strauss-Kahn said there were still losses in the banking sector that remained undisclosed, and that until the balance sheets are cleaned up confidence in the financial markets will not return.

"Loss of confidence is now the central problem. Governments and central banks should credibly commit to measures sufficient to eliminate the risk of a repeat of the Great Depression," he said.

The IMF boss endorsed Washington's stimulus package -- which aims to pump at least 780 billion dollars into the ailing US economy -- saying it was the "correct size" and mix.

But he added that it needed to be implemented at the same time as the restructuring of the banking sector.

Strauss-Kahn said the European Central Bank, which left interest rates unchanged this week, was more concerned about inflation than other parts of the world and there could be room for cutting interest rates.

However, measures such as cleaning-up banks could be a more effective tool for Europe than lower interest rates.

Strauss-Kahn said Asia could recover rapidly next year once the rest of the world had emerged from recession.

But he said that while central banks in the region have cut interest rates aggressively and many countries have introduced fiscal stimulus measures, "there is still room for more".

He said the IMF currently has enough resources to face the crisis, but that as problems deepen its needs "may double" and it might need more funds within six to eight months.

Strauss-Kahn played down the risk of ballooning deficits as governments spend big to avert or alleviate recession, saying it was inevitable that most nations would incur an increase in public debt.

Of the risk of excess liquidity as interest rates tumble, he said today's problems had to be addressed before tomorrow's.

"When you have a fire in the house, you first need to put out the fire and then you see how you evacuate the excess water. So that's exactly the situation we're in," he said.