Pension Funds Beg Congress to Suspend Billions in Contributions
Instead of money, they want legislation to suspend a federal law that would make them pump billions of dollars into retirement plans to offset stock-market losses as many struggle to find enough cash just to stay in business.
So lets see, you minimally fund the pension plan for your workers and make optimistic projections about investing returns. The market goes down, and you are now so far underfunding your pension that the law requires you to add funds to the pension. Your solution, go cry to the politicians. How sad. If Pfizer or IBM are having cash flow problems that is amazing. They really should be able to manage their cash better than that. Their most recent quarterly reports do not indicate cash flow problems. Yes I understand we have a credit crisis so if GM were having problems I wouldn’t be surprised (but you know what – they aren’t, in this area).
…
GM was notably absent from the five-page list of companies and organizations asking Congress for relief from the asset thresholds. GM said its pension plans had a $1.8 billion deficit as of Oct. 31, down from a $20 billion surplus 10 months earlier. At that level, GM’s plans would top the pension law’s 2008 asset threshold.
I think companies need to meet their obligations. If they choose to minimally fund their pensions without understanding that financial market are volatile, then they will have to pay up as required by law. When times are good you see all these CEOs taking advantage of pension fund “excesses” to reward themselves. They need to learn that you don’t raid your pension funds (either by taking cash out or not funding current investments – because you claim the assets are already sufficient). Pension funds are long term investments and you cannot manage as though the target value is the minimum amount allowed by law (unless you are willing to pay up cash every time your investments don’t meet your predicted returns). This is very simple stuff.
I believe in the management at Google is doing as good a job as the management at any company. They are not afraid to pursue their convictions even if conventional wisdom says they should not. I believe in Google more than the conventional wisdom. And I have been buying Google stock as it has declined the last 6 months.
I am perfectly happy for Google’s stock price to continue declining: I will continue to buy. I have no intention of selling for decades. Things could change, that would lead me to sell but right now I am firmly a believer in owning a piece of Google for the long term. I am thrilled to have very smart engineers effectively guiding a company (including sustaining a culture where engineers can provide value without the amount of pointy haired boss behavior found elsewhere) to provide value to customers and users of their services while profiting quite nicely. And at these prices the investment opportunity looks great to me. I still believe in following prudent diversification practices (far less than 10% of my investments are in Google stock)
Google CEO defiant in defending energy interests
He was quick to add that Google has a material interest in lower energy costs to help power its crucial data centers. “We’re going to likely consume more [energy], and we’d like the prices to go down,” he said.
…
Schmidt said the bulk of spending on necessary research and development for Google’s ambitious energy plan will have to come from the government. The CEO added that he’s almost certain that an opportunity to tap government largesse is now at hand, as he believes a “stimulus package” will follow the $700 billion Wall Street bailout
I have written about Google’s focus on energy previously: Google Investing Huge Sums in Renewable Energy and is Hiring – Google.org Invests $10 million in Geothermal Energy – Reduce Computer Waste.
With most companies I would be very skeptical delving into area pretty far removed from their core business would likely not prove an effective strategy. But I believe Google can be successful with such efforts. Some will certainly fail but Google will manage that fine and have at least one or two payoff in such a large way that all the investments are paid off quite well.
Related: Google Believes in Engineers – Google’s Underwater Cables – Data Center Energy Needs – 12 Stocks for 10 Years Update – June 2008
Diversification overrated? Not a chance by Jason Zweig
For anyone with a sustainable ability to identify the hottest investment of the moment, diversification is a mistake. But if you really believe you’ve got that ability, you’re not just mistaken. You need to be hauled off in a straitjacket to the Institute for the Treatment of Investment Insanity.
Exactly right. As we posted previously Warren Buffett’s diversification thoughts are similar
You have to remember when Warren Buffett says “professional and have confidence” he doesn’t really mean just what those words say. He mean if you are Charlie Munger, George Soros, Jimmy Rodgers and maybe 10 other people alive today (maybe I am too restrictive, maybe he would include 50 more people alive today, but I doubt it).
Related: Dilbert on Investing – investment risks – Curious Cat Investing and Economics Search Engine
For me, giving back to others is part of my personal financial plan. As I have said most people that are actually able to read this are financially much better off than billions of other people today. At least they have the potential to be if they don’t chose to live beyond their means. Here are some of the ways I give back to others.
Kiva is a wonderful organization and particularly well suited to discuss because they do a great job of using the internet to make the experience rewarding for people looking to help – as I have mentioned before: Using Capitalism to Make a Better World. One of my goals for this blog is to increase the number of readers participating in Kiva – see current Curious Cat Kivans. I have also created a lending team on Kiva. Kiva added a feature that allows people to connect online. When you make a loan you may link you loan to a group.
I actually give more to Trickle Up (even though I write about Kiva much more). I have been giving to them for a long time. They appeal to my same desire to help people help themselves. I believe in the power of capitalism and people to provide long term increases in standards of living. I love the idea of providing support that grows over time. I like investing and reaping the rewards myself later (with investment I make for myself). But I also like to do that with my gifts. I would like to be able to provide opportunities to many people and have many of them take advantage of that to build a better life for themselves, their families and their children.
The photo shows Frew Wube, Haimanot and Melkan (brother and two sisters), an entrepreneur that received a grant from Trickle up. Trickle Up provides grants to entrepreneur, similar to micro loans, except the entrepreneur does not have to pay back the grant. They are able to use the full funds to invest in their business and use all the income they are able to generate to increase their standard of living and re-invest in the business.
“I also save every month,” says Frew, who has over $40 stored in a cooperative savings fund. The capital he has saved with other people in his group is used to provide loans to group members at a low interest rate. Frew, now able to access credit thanks to his Trickle Up clothing business, has taken progressively larger loans from the group, including his latest loan of $300 to start a candle business.
How to thrive when this bear dies by Jim Jubak
…
In the case of the 2000-02 bear, the initial rush after the end of the bear delivered a huge share of the 101% gain for the bull market that ran from October 2002 through October 2007. In the 16 months from the Oct. 9, 2002, low through Feb. 9, 2004, the S&P 500 gained 47%. The gains from the remaining years of the “great” bull market of the “Oughts” were rather anemic: just 9% in 2004, 3% in 2005 and 14% in 2006.
…
If I’m right about the arrival of a secular bear, emerging economies and their stock markets will deliver higher returns, despite relatively slow growth, than the even more slowly growing developed economies. If I’m wrong about the secular bear, emerging economies will still deliver stronger growth than the world’s developed economies. Under either scenario, investors want to increase their exposure to the world’s emerging economies, which deliver more performance bang for less risk than most investors think.
Jim Jubak is one of my favorite investing writers. He can of course be wrong but he provides worthwhile insight, backed with research, and specific suggestions. I am also positive on the outlook for stocks (though what the next year or so hold I am less certain) and on emerging markets.
Related: Why Investing is Safer Overseas – Rodgers on the US and Chinese Economies – Beating the Market – The Growing Size of non-USA Economies – Warren Buffett’s 2004Annual Report
The New Paradigm for Financial Markets is George Soros‘ newest book. Here is an interview with him in May of this year, on PBS, Financial World Shifts Gears Amid Economic Tumult, about the ideas in the book and the current crisis.
GEORGE SOROS: I think this is the most serious crisis of our lifetime. It’s not just a housing crisis, but a crisis of the financial system.
…
GEORGE SOROS: The regulators have failed to regulate, and they really have to — they left it to the market. That was this market fundamentalist philosophy, that markets will take care of themselves.
…
And I contend that there’s been what I call a super bubble that has been growing over the last 25 years at least, which basically consisted of an extension in credit, increasing use of leverage. That was the trend in reality.
And the misconception that credit is that markets can be left to their own devices. Now, in fact, they are given to excesses, and occasionally they create crises, but each time the authorities intervene and bail out the failing institutions, provide fiscal stimulus, monetary stimulus.
So it seems like the market corrects itself, but it’s actually the intervention of the authorities that saves the market.
Related: Soros on the Financial Market Collapse – Jim Rogers on the Financial Market Mess – Leverage, Complex Deals and Mania
With the recent turmoil in the financial market this is a good time to look at Dollar cost averaging. The strategy is one that helps you actually benefit from market volatility simply.
You actually are better off with wild swings in stock prices, when you dollar cost average, than if they just went up .8% every single month (if both ended with stocks at the same price 20 years later). Really the wilder the better (the limit is essentially the limit at which the economy was harmed by the wild swings and people decided they didn’t want to take risk and make investments.
Here are two examples, if you invest $1,000 in a mutual fund and the price goes up every year (for this example the prices I used over 20 years: 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 24, 26, 28, 30, 33, 36,39) you would end up with $40,800 and you would have invested $20,000. The mutual fund went from $10 a share to $39 over that period (which is a 7% return compounded annually for the share price). If you have the same final value but instead of the price going up every year the price was volatile (for example: 10, 11, 7, 12, 16, 18, 20, 13, 10, 16, 20, 15, 24,29, 36, 27, 24, 34, 39) you end up with more most often (in this example: $45,900).
You could actually end up with less if the price shot up well above the final price very early on and then stayed there and then dropped in the last few years. As you get close to retirement (10 years to start paying close attention) you need to adopt a strategy that is very focused on reducing risk of investment declines for your entire portfolio.
The reason you end up with more money is that when the price is lower you buy more shares. Dollar cost averaging does not guaranty a good return. If the investment does poorly over the entire period you will still suffer. But if the investment does well over the long term the added volatility will add to your return. By buying a consistent amount each year (or month…) you will buy more share when prices are low, you will buy fewer shares when prices are high and the effect will be to add to your total return.
Now if you could time the market and sell all your shares when prices peaked and buy again when prices were low you could have fantastic returns. The problem is essentially no-one has been able to do so over the long term. Trying to time the market fails over and over for huge numbers of investors. Dollar cost averaging is simple and boring but effective as long as you chose a good long term investment vehicle.
Investing to your IRA every year is one great way to take advantage of dollar cost averaging. Adding to your 401(k) retirement plan at work is another (and normally this will automatically dollar cost average for you).
Related: Does a Declining Stock Market Worry You? – Save Some of Each Raise – Starting Retirement Account Allocations for Someone Under 40 – Save an Emergency Fund
Would the Dow Dump General Motors?
…
At this point, it’s not clear if the government will be willing to take on the horribly mismanaged automaker. It’s one thing to save a financial firm that continues to make money and another thing to rescue a business that for decades has been unable to control labor and legacy costs or deliver a product that consumers want. GM could be allowed to declare bankruptcy.
…
But for some reason nostalgic Americans refuse to let the carmakers take a hit and learn from their mistakes. A bailout seems to be preferred. It worked so well for Chrysler.
…
Is it important to the Dow editors to keep an auto presence in the index?
…
And since the Dow is meant to be a barometer of the U.S. market, Toyota and Honda can’t be considered. Then again maybe they should leave a bankrupt company in the Dow. It might be the most accurate barometer of the market yet by tracking all the blue chips that have gone bankrupt.
I discussed dropping GM from the Dow Jones Industrial Average in December of 2005: “I agree removing GM makes sense, though I see no reason to wait.”
Related: Dow Jones Industrial Average Changes – Another Great Quarter for Amazon (July 2007) – Stop Picking Stocks – Curious Cat Investing Web Search
It doesn’t take much effort to notice the economic news is increasingly dire. And this is not just a few alarmist reports, the economy is in serious trouble. The decades of spending beyond their means (for consumers and those the consumers elected to run government) are creating a very difficult situation. And the credit crisis precipitating the current slide has brought to light many failures to properly regulate the economy. U.S. Slump May Be Longest in Decades as Growth Fell Off ‘Cliff’
The implosion of credit markets last month will cause the economy to shrink at a 3 percent annual rate in the fourth quarter and decline at a 1.5 percent pace in the first three months of 2009, according to the median estimate of 59 economists surveyed Nov. 3 to Nov. 11. Following last quarter’s 0.3 percent drop, the slump would be the longest since 1974-75.
…
Falling demand will cause an even bigger increase in unemployment than projected last month. Economists surveyed forecast the jobless rate will rise to 7 percent in the first quarter of 2009, up from last month’s forecast of 6.6 percent. The rate will climb to 7.7 percent by the end of 2009, the highest level since 1992, the survey showed.
The jobless rate rose to 6.5 percent in October, the highest since 1994
There is little doubt the economy is in for serious trouble. What investment moves are wise now is less obvious. I have been buying during the decline and continue to do so. I bought some Google yesterday at the same price I first bought Google for several years ago. I think in 10 years that will pay off quite well, but time will tell. My purchases of Google earlier this year would obviously have been better if I had made them yesterday than when I did.
I discussed the Economic Crisis on my Curious Cat Management Blog last month:
One of the challenges with personal financial matters is they are by nature long term issues. What you did over the last 5 years cannot be fixed in a few weeks, most likely it takes years.
Related: Stock Market Decline – Bad News on Jobs
In his blog Scott Adams, author of Dilbert, provides often quite intelligent and interesting thoughts. In a recent post he wrote on investing and Diversification:
I didn’t own much in the way of stocks for the past several years, thanks to not using professional advisors. A big chunk of my money has been in California Municipal bonds of various types, and all are insured.
…
In order to diversify more, I started migrating money over to the stock market during this recent plunge. The market could go a lot lower still, but this is either the beginning of the end of the United States as we know it, in which case it doesn’t matter how I invested, or it is a once-in-a-lifetime stock buying opportunity. It was an easy decision.
Related: Stock Market Decline – Warren Buffett on Diversification – Investment Allocations Make A Big Difference
