Monday, Ocotber 22, 2012 - What's the Over-Under on a Thank You Note?

What's the Over-Under on a Thank You Note?

by Sinclair Noe

DOW + 2 = 13,345
SPX + 0.63 = 1433
NAS + 11 = 3016
10 YR YLD + .03 = 1.80
OIL – 1.79 = 88.26
GOLD + 9.00 = 1730.50
SILV +.38 = 32.55
PLAT – 9.00 = 1614.00

I never knew that you could do these things but apparently you can. How many times do you think you will hear the word China or Chinese in tonight's debate. The over/under on China is 7. You can actually bet on how many times you'll hear a particular word or phrase. The over /under on Benghazi is 25. A year ago, I didn't even know where Benghazi is; now it will probably be all over the debate. The over/under on terror/terrorists/terrorism or some other form of the word; the over under is 37 and this includes both candidates and the moderator. The over/under on Federal Reserve is one. Who knew? I'm not advising you actually place a wager on this. In fact, I think it would be a bad idea; but this is what it's boiled down to: bread and circuses, a chicken in every pot and cheap entertainment for all. The winner tonight could very well determine which man will be what was once called without irony The Leader of the Free World. There is a good chance that the winner tonight will be the one who convinces us that foreign policy actually matters to your wallet. If it happens overseas it impacts us here both in security and our pocketbooks.

While gas prices have little to do with decisions made by politicians, the issue was center stage in the second presidential debate between Mitt Romney and President Obama. Certainly, lower gas prices are helpful in terms of consumer spending by increasing disposable income, and if prices come down at a rapid rate in the next three weeks, that would tend to help the incumbent. It may not be logical, but if people see problems with the high cost of food or gas, it’s the president who tends to get the blame.

After some regions around the country reported record-high gas prices, the shock of high gas prices is set to lessen a bit. This past summer's high gas prices have lasted unusually long into autumn, but the decline has finally begun, with some states reporting their average price for a gallon of gas falling beneath $3. Gas prices are set to fall at a rate of about 50 cents per gallon, a welcome sign for Americans paying a national average of $3.86 in recent weeks. The average price for gas now sits at $3.69 a gallon, but that number is expected to decrease to $3.35 by Thanksgiving.

Earlier this month, Californians saw $4.65 leave their wallet for every gallon of gas they bought, a four-year record (not when adjusted for inflation, though). An Exxon Mobile refinery was knocked out by a power outage in the early days of October, leading to a price spike at gas stations. Some station owners stopped selling gas altogether, refusing to shell out money at the expensive wholesale prices. You may find it hard to believe, but prices are coming down. Unless something happens to push prices higher.

Crude oil prices remained steady in European trading today ahead of the IMF meeting later this week. Tensions between Turkey and Syria and tighter sanctions against Iran on its nuclear development continued to support prices. Concerns over oil supply shortage reemerged as President Obama approved a framework for tighter sanctions on Iran. Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei stated that "these sanctions are barbaric. This is a war against a nation... But the Iranian nation will defeat them". Sounds like the ayatollah is feeling the pinch from sanctions. This, adding to the recent conflict between Turkey and Syria, boosted Brent crude oil more than WTI crude oil. Spread between WTI and Brent crude oil prices widened to as much as 22.5 on Monday.

European exchanges were, however, weighed down by the IMF's comments that "downward spiral of capital flight, breakup fears and economic decline".

In IMF's latest Global Financial Stability Report, the world lender signaled concerns over the situation in Eurozone and anticipated as much as US$ 4.5 trillion is needed through 2013 so as to achieve the fiscal target. It stated that "intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops". Meanwhile, the ESM and OMT ( the bailout funds) "must be regarded by markets as real, not ‘virtual' and should be coupled with credible conditionality". According to the IMF, "restoring confidence among private investors is paramount for the stabilization of the Euro area".

French and German leaders have been meeting to put together a plan to prevent a downward spiral in the Euro-zone; they held a two-day-all-night summit. Apparently they didn't get much sleep. Apparently that created some confusion. Early reports were mostly optimistic that Europe’s top politicians had found a breakthrough in negotiations surrounding the creation of a pan-European banking union. Or not. Later there was a statement released by the summit leaders that they simply agreed on the “need to move towards an integrated financial framework” and set the bar at “agreeing on a legislative framework” where that could happen. It also did not mention if the framework would be for all of the euro zone’s banks or simply the several dozen deemed as “systemically-important,” a huge bone of contention surrounding the issue.

French President Hollande said “there was an agreement, a good agreement”; and then German Chancellor Merkel said: “We shouldn't disappoint markets by changing short-term announcements again and again.”

And while the summit went washed out in a downward spiral, we learn the true cost of the economic policy in the Euro-zone. Austerity cuts by the Greek government have forced local health officials to curtail anti-mosquito spraying programs, and this has led to the re-emergence of a once-extinct disease – malaria. Global health organizations have also warned travelers to avoid journeying to parts of the country’s south where the disease has been detected, worrying that the capital may soon be afflicted. Greece has not recorded a case of malaria since 1974 – this year, at least 70 people have been acknowledged to have contracted the illness through the first nine months of the year, plus there have been 16 deaths from West Nile virus, another disease spread by mosquitoes.

There was a march against austerity in London over the weekend. I read of a government finance minister justifying the need for austerity in the fiscal plans. One of the arguments is that it is necessary for the sake of the children; you know, the argument about debt being a burden on future generations, or at least the future generations that are left after the malaria outbreak.

So, anyway, tonight is the big debate; the bumper match; it could be a tie-breaker. Right now, it is shaping up to be an extremely close race to election day. One survey last month from the German Marshall Fund found Europeans breaking 75 percent for Obama and 8 percent for Romney. Even conservative leaders have maneuvered themselves to appear closer to the U.S. president, reasoning that they can get their own electoral bump from doing so, although popular enthusiasm for Obama has diminished after a public frenzy in 2008.

Three years into an economic crisis in the euro zone that has threatened to spill into the United States, many European leaders have built alliances with the Obama administration that they worry would reset to zero under Romney. The Republican challenger has pointed to Europeans as symbols of the big-government socialist state that he says Obama wants to build.

In Germany, the bulwark of austerity in Europe, Chancellor Angela Merkel would probably prefer an Obama victory, analysts say, although Ronald Reagan was a hero of her youth. Her center-right Christian Democratic Union has historically aligned with Republicans, but Merkel has focused on a vision of fiscal sustainability that includes high taxes along with lower government spending. A mid-October Emnid poll for the Bild newspaper found that 82 percent of Germans expected Obama to win, compared with 11 percent expecting a Romney victory.

In China, far more people appear to be paying attention to the U.S. presidential race this year than in 2008. Much of the Chinese coverage of the presidential campaign has focused less on who might win than on China-bashing rhetoric from the candidates.

Try keeping track of some of the key phrases when you watch the debate tonight, but it isn't something I would wager on.

Some of you have said that I am a little rough on big banks; what about others? You ask. What about insurance companies? OK.

The US Treasury Department may sell the rest of its holdings in insurer American International Group within the next few months. The government cut its stake in AIG to 16 percent from 77 percent in four share sales this year, most recently in September, after acquiring 92 percent in a bailout during the financial crisis.

The US has recovered, or nearly recovered, its $182 billion commitment to AIG, which included a credit line and the purchase of mortgage-linked securities. AIG sold units in Asia to rivals MetLife and Prudential Financial to help repay the bailout, scaling back in the region. The company is working to improve results at its Chartis property-casualty unit by shunning lower-priced business, as Benmosche seeks to attract private investors.

Robert Benmosche, the CEO of American International Group is still bitter Congress had the gall to question why employees in his bailed-out firm should have received multimillion-dollar bonuses in the midst of the financial crisis.

In a cover story in New York Magazine, Benmsoche is quoted as railing against what he believes is the view creeping into U.S. governing institutions that “there’s such a thing as a free lunch,” pointedly noting the AIG bailout “wasn’t a free lunch” but a loan. Whether AIG's repayment of its bailout loans and the sale of associated investments resulted in a profit for the government is debatable. Benmosche’s dislike for seeing himself or his company in debt to the government has been widely discussed ever since the executive came out of retirement in 2009 to take over the reins at AIG. In an early pep talk with employees, a tape of which was leaked to various financial media outlets at the time, Benmosche was heard belittling the aid given by the Treasury and insulting specific officials who had been critical of the firm. Earlier this year, Benmosche made some waves when he told Bloomberg News “retirement ages will have to move to 70, 80 years old” in the euro zone to solve the fiscal crisis facing some countries.

Benmosche says he feels indignant that no one from the government said “thank you” to his firm when it was able to repay most of the emergency loan provided by Uncle Sam in 2008. Ahhhh....hhhh.

Meanwhile, with a completely different matter...

AIG will pay an estimated $300 million owed on life-insurance claims. That payment will be divided among 39 states and the District of Columbia. American International Group has agreed to an $11 million settlement with a group of states over its claims settlement practices for life insurance policies; this amount will go to the regulators for monitoring costs. AIG is the latest insurer to settle state probes over its use of the Social Security "death master" file, joining companies like MetLife and Prudential.

State regulators have alleged that insurers used the list of recently deceased people to stop making annuity payments to dead customers, but, at the same time, did not use the list to check whether any life insurance policy holders had passed away.

Pennsylvania authorities said AIG had agreed to use the death master file "on a uniform basis" to find dead policyholders and pay beneficiaries. The company said in a statement it began a process of matching policyholder records against the death master database last year to find accounts where no claim had been made yet.

AIG also said it would increase reserves by $55 million in the third quarter to cover potentially accelerated benefit payments under the settlement. In addition to Pennsylvania, the other states listed on the agreement were Florida, North Dakota, California, Illinois, New Hampshire and Texas.

AIG joins a roster of insurance companies that have pledged to change the way they handle life-insurance claims. Last week, Nationwide agreed to pay $7.2 million in a similar settlement with state insurance regulators. MetLife and Prudential have made similar arrangements.

Mr. Benmosche, about that Thank You Note..., we'll check the list.