Tuesday PM February 17th, 2009

SEC charges Stanford over high-interest rate CDs; Stanford's Galleria offices closes doors as U.S. Marshalls guard computers and documents…Governor says Texas should be cautious about taking money from federal economic stimulus package…President Obama signs $787 billion bill…

Federal regulators have charged Robert Allen Stanford, his offshore bank and two of his Houston companies with a “massive fraud” that centered around high-interest rate certificates of deposit. The Securities and Exchange Commission’s complaint, filed in federal court in Dallas, alleges that Stanford International Bank sold about $8 billion of so-called “CDs” to investors by promising “improbable and unsubstantiated high interest rates.” The rates allegedly allowed the bank to achieve double-digit returns on its investments for the past 15 years. U.S. District Judge Reed O’Connor entered a temporary restraining order and froze Stanford’s assets. Jeanie Wyatt is with South Texas Money Management.

image of speaker, click here for audio“It’s bad enough that investors have been so shaken by the economic and financial situation, and to have this happen after the Bernard Madoff case is just terrible.”

Wyatt writes an investment column for the San Antonio Express-News.

image of speaker, click here for audio“I was asked to look at the structure of that firm many years ago for actually an associate that was considering joining that firm. And I was uncomfortable at the time that they were formed and operated as an offshore company. If you are a U.S. citizen, you always need to think about the implications of putting money offshore, because it’s not subject to either FDIC protection or SEC regulation.”

The U.S. Marshall’s office sent officers to Stanford offices in the Galleria around ten this morning to safeguard computers and documents. A sign on the doors said the company is still in operation but under the management of a receiver. The SEC’s outgoing enforcement chief Linda Chatman Thomsen says Stanford and his family and friends “perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors.”

President Barack Obama has signed into law the most sweeping economic package in decades, a rescue plan designed to create millions of jobs and boost consumer spending. It was a major political victory for Obama, who took office less than a month ago. Obama said the government has begun the essential work of keeping the American dream alive in our time. The $787 billion package aims to reverse the nation’s economic free fall. It pumps money into infrastructure projects, health care, renewable energy development and conservation. There’s a $400 tax break for most individual workers and $800 for couples. It dishes out tens of billions of dollars to states. Obama signed the bill at the Denver Museum of Nature & Science. The setting was to underscore the new law’s investments in “green” energy-related jobs.

Governor Rick Perry says Texas should be cautious about taking money from the federal economic stimulus package. Speaking to a gathering of small business owners, Perry said he’s interested in taking tax money Texans had already paid for spending on such things as roads and transportation projects. Perry, a Republican, says he’s also concerned about using federal money for programs that could leave the state paying the bill several years later. He did not identify what those programs would be, but said his office will be studying the stimulus plan closely and how it will impact Texas.

The National Association of Home Builders says its housing market index climbed one point off an all-time low this month as improved traffic by prospective buyers helped lift some builders’ confidence in their sales outlook. The Washington-based trade association said the index rose to nine in February. Index readings lower than 50 indicate negative sentiment about the market. The report reflects a survey of 421 residential developers nationwide, tracking builders’ perceptions of market conditions. Builders’ gauge of current sales conditions and buyer traffic climbed from January. But expectations for sales over the next six months hit a record low.

The Houston Association of Realtors says one in three homes sold last month had previously been in foreclosure. HAR says that contributes to a 8.5 per cent drop in the median price of Houston homes. The price fell for the fourth straight month, hitting $127,850 in January compared to $139,720 at this time last year.

Iraq’s oil minister says OPEC is “of course” weighing fresh production cutbacks to prop up prices when it meets next month. Hussain al-Shahristani says current crude prices don’t provide “sufficient incentives” for investors to put money into new projects. That, he warns, could set the stage for a “big shortage” in world supply once the global economy recovers. The 12-nation Organization of Petroleum Exporting Countries will re-examine demand forecasts ahead of the March 15th meeting. If those projections continue to show a downward trend, al-Shahristani says “then obviously you need to cut production.” OPEC members have already agreed to slash production by 4.2 million barrels from September levels.

Venezuela’s energy minister says world oil inventories are too high and may require new output cuts from OPEC in March. Minister Rafael Ramirez warns that past cuts have not balanced supply with demand, which continues to fall amid the world economic crisis. In comments published over the weekend on the energy ministry’s Web site, Ramirez says Venezuela is willing to support new cuts when OPEC meets in Vienna on March 15th. He said “secondary sources” show that OPEC member states have complied about 80 per cent with past cuts–the most recent of which came December 17th. The oil cartel has slashed output by an average 4.2 million barrels a day since September in a bid to boost prices. Prices have slipped 75 per cent since their July peak.

A private security official says gunmen have attacked two oil facilities operated by Royal Dutch Shell in Nigeria’s restive south. It is not known if anyone was injured in the attack early Tuesday, nor if oil production was affected. Military and Shell officials were not immediately available for comment. The security official says that a local militant leader claimed responsibility for the attack in a letter and threatened further violence. The security official spoke on condition of anonymity due to company prohibitions on dealings with the media. Nigeria is Africa’s largest oil producer but three years of militant attacks on the industry have kept the country’s daily crude production at about 25 per cent under it’s estimated capacity of 2.5 million barrels per day.

The Group of Seven finance ministers has pledged to avoid resorting to protectionism as nations try to stimulate their own economies in the face of the world’s worst economic crisis since the 1930s. The meeting in Rome was largely an affirmation of actions already being taken–from the importance of stimulus packages to the need to isolate bad assets. But the final statement didn’t indicate how that would happen. The meeting marked the international debut of U.S. Treasury Secretary Timothy Geithner, who assured his counterparts that President Barack Obama’s $787 billion plan to resuscitate the economy, approved Friday, would not violate in any way the United States’ commitment to free trade.

The government says it has provided $429 million to 29 banks in the latest batch of investments under the $700 billion bailout program. The Treasury Department says the capital infusions bring the total amount the government has invested in banks to almost $200 billion. Former Treasury Secretary Henry Paulson committed $250 billion of the first $350 billion in the financial rescue program to government purchases of bank stock. The largest investment in the latest round was $83.8 million to Westamerica Bancorporation, based in San Rafael, California. The smallest was $638,000 to Corning Savings and Loan Association in Corning, Arkansas.

Lennox Industries says 256 workers will lose their jobs at the company’s Arkansas plant that makes commercial heating and air-conditioning equipment. The Dallas area-based company announced the layoffs of 242 hourly employees and 14 salaried workers as part of difficult economic times. A news release from the company said the staffing cuts were in addition to 160 jobs previously eliminated at the Stuttgart, Arkansas, plant–which had employed more than 1,000 workers. The job reduction will leave the Stuttgart plant with 704 hourly and 125 salaried employees.

The recession is hurting sales of business jets. The General Aviation Manufacturers Association says shipments of general aviation planes fell 7.1 per cent last year. The trade group, which represents business aircraft makers, said Tuesday it was the first decline in shipments in five years. The group said, however, that the aircraft manufacturers’ revenue increased last year because of a backlog of orders. Still, aircraft makers are cutting jobs to deal with weaker demand.

Governor Rick Perry wants the federal government to waive or extend for 180 days the deadline for filing proof of loss requirements for flood insurance policyholders whose homes were damaged by Hurricane Ike. The Federal Emergency Management granted an extension of the 60-day proof of loss deadline. Currently policyholders are required to file proof of loss by March 12th. But Perry said Tuesday that’s unrealistic because of the extent of the damage. Many coastal homes were flooded with several feet of water during the September hurricane. Several factors have led to delays in proof of loss submissions. There’s been a shortage of insurance adjusters because there was so much flooding. And some damage won’t be fully known until walls are torn down and sheetrock and flooring are removed.

Liberty Media will invest $530 million in financially struggling satellite radio company SiriusXM radio. The move fends off the threat of a bankruptcy filing for the satellite radio company and blocks a bid by Dish Network CEO Charlie Ergen to take control of Sirius. Sirius had warned it could file for bankruptcy as early as today if it were not successful in negotiations with its debt holders. Sirius XM radio has 20 million subscribers who use the service to listen to sports, music of all kinds, and talk, including Howard Stern’s show and international radio. Ergen holds much of the batch of debt that had come due and had offered capital infusions and a restructuring of the loans in return for control of the company. Sirius Chief Executive Mel Karmazin rejected that offer and appears to have found an alternative in time to stave off a Chapter 11 filing.

Hundreds of television stations are turning off their analog broadcasts this week, even though the date for the changeover to all-digital signals has been pushed back to June. February 17th was to have been the day when analog broadcasts went away and viewers who lack cable or satellite would have to go digital. But when funding ran out for coupons to subsidize TV converter boxes, Congress became concerned that viewers wouldn’t be ready and the deadline was delayed for four months. At the same time, lawmakers left the door open to stations to keep the February 17th date. More than 600 stations still plan to switch off analog this week. No one really knows how many viewers will be affected. Station owners contacted by the Associated Press say they’re confident viewers are ready, despite the confusion.

Economic data being released this week includes January housing starts from the Commerce Department on Wednesday. The Fed reports on industrial production and releases the minutes from the January FOMC meeting. Thursday, the producer price index is released by the Labor Department, followed by the consumer price index Friday.

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