All about investment

by: Walter Rhett

The global credit crunch and capital market collapse drained over 2 trillion dollars of value from this year from American markets has also hit home for retired workers. Many retirees fear the loss of pension benefits as many public systems and private companies have seen significant declines in pension funds, in some cases, by billions of dollars.

If these declines continue, benefit checks to retirees could be frozen or cut. For public systems, states may have to fund shortfalls, making higher contribution to public pension funds from tax revenues. States and local systems may as a last resort issue bonds to cover legal shortfalls, but the current state of the credit markets make such bond offerings a difficult sale and an expensive fix.

Are pensions in immediate danger? No. But the decisions and strategies used by states and municipalities should be watched closely. Monitoring the investment changes in pension portfolios is a prudent course for citizens with a vested stake or an eye toward public fiscal responsibility.

Tight credit and falling values have created a new environment for pension fund directors to operate in, and it is important to know how your state and local managers are adapting their allocations and investments to the new market realities. Public pension funds have information or public affairs telephone numbers to answer inquiries.

Here are several examples of loses recently suffered as the markets plunged.

The federal agency that guarantees pensions (similar to the way Fannie Mae guaranteed mortgages), US Pension Benefit Guaranty Corp lost more than 3 billion dollars.

The Pennsylvania State Employees' Retirement System was down a billion dollars last June.

Allegheny County, Pa's 738 million pension fund down was recently down 5 percent.

Iowa's Public Employee Retirement system faces a short fall of 2 billion (the present market value of it fund is 22.4 billion).

In Wisconsin, the state pension dipped 3 billion. (current value, 80 billion).

In Georgia, the state employees pension fund for public employee and teachers lost more than 11 billion dollars in under four months.

A Texas fund dropped one billion dollars.

Mississippi Public Employees Retirement System has lost more than 10 percent of its value-more than 2.1 billion dollars-recently (17.6 billion, current value).

A 300 point drop in the Dow Jones Industrial Average stock index represents a loss of 450 million for the

Alabama Retirement Systems, an average of 1.5 million dollars per point.

Florida's public pension fund has been hit hard. It lost six percent in three months.

Some state see the current troubles as an investment opportunity. South Carolina, from February, can invest up to 45 percent of its 29 billion pension fund in hedge funds, real estate, and set aside 100 million dollars for purchases of sub prime mortgages! The state had no investments of this type a year and a half ago. One percent of the pension fund has also been set aside for invests in commercial real estate, to be resold as the market recovers. The state's treasurer has said these investment represent acceptable risks, and should benefit the state.

Check your state's fiscal health, especially its public pensions. Participation in a democracy requires each of us to be vigilant as citizens!

(also by the author, Walter Rhett, . . "Wading in the Water": Who Will Present the Better Plan for...). Thanks for reading!

Walter Rhett Walter Rhett attended Ohio State and writes from Charleston, SC. He is a Johns Hopkins University Fellow and a scholarship winner to the Johns Hopkins Summer Writing Institute. He has consulted for Japanese Educational Television and founded a civil war re-enactment unit, the 33rd USCT SC V. Walter contributes to 15 national blogs (LA Times, Seattle Times, Denver Post, Dallas Herald, Kansas City Star, Detroit Free Press, Chicago Tribune, ,Atlanta Journal-Constituion, Charlotte Observer, Washington Post, Philadelphia Inquirer, New York Times, Boston Globe, Christian Science Monitor and USA Today).

by John Reizner

This article might be titled, How You Can Make a Fortune by Investing in Strong Banks During a Credit Crunch. In my articleMonday March 5, 2007: Are Stocks Still Worthwhile Investments? I stated in reference to at that time lesser possibility of contagion in the subprime mortgage problem, "The only thing that I believe could affect the economy and equities would be for the authorities to starve the system of providing mortgage money to potential borrowers - in other words, a credit crunch."

This indeed seems to be unfolding, as only the most creditworthy persons are now receiving mortgages. As reported in The Wall Street Journal, one Bear Stearns rep stated that credit conditions are the tightest he has seen in 25 years. And the squeeze seems to be felt throughout the entire credit market, not just in subprime lending. I heard in a CNBC interview with Donald Trump that the Donald believes "cash is king." It remains to be seen whether the Federal Reserve will come to the rescue to the credit markets by lowering key rates and stating that the Federal Reserve will stand by its historic position as lender of last resort. This would be a huge sigh of relief.

Ken Heebner, a respected mutual fund manager, stated on CNBC that the price of housing on the two coasts could retrace to their levels at the turn of the century. Most people would weather this adjustment as only the most recent borrowers would be affected. I mention this somewhat severe prediction as Ken Heebner has a well deserved reputation for thinking outside the box, and I believe his opinion must be given credence. This of course, would place further downward pressure on banks and mortgage issues.

We are now seeing share prices of mortgage issues decimated, and even shares of strong banks such as Wachovia and Citibank are coming under heavy pressure. It is my opinion that weak banks with high subprime loan exposure could lose more than half to two-thirds of their value from their recent highs. But what may be less expected, the shares of strong banks with little such exposure may also see their shares cut substantially from their recent highs. If one takes the position of investing only in strong banks with less subprime exposure at much lower share levels, I believe you can profit over the coming years. However, it is probably going to take some time before all the bad loans are washed out of the bad banks before one should invest in the good ones. On a positive note, on Monday August 6th, 2007, many banks exhibited a key reversal, indicating a continuation of the positive share price behavior of that day in the short term.

I base the opinions in the previous paragraph on the share price behaviors of a wide range of banks during the last great banking crisis: the savings and loan/real estate crisis of the late 1980's-early 1990's. I also stated in March 2007 in my above referenced article, "Many people are pointing to a "debacle" in sub prime mortgage loans as a possible threat to the banking system and to our stock market. You may recall the savings and loan crisis which reverberated through our banking system and stock market in the late 1980's and early 1990's. This crisis was portrayed by bank failures, plummeting bank share prices, and a real estate collapse. This was enough to cause a general bear market, punctuated by Saddam Hussein's invasion of Kuwait."

During the early 1990's real estate crisis, bank shares, both good and bad banks saw their shares under severe pressure. Many banks went belly-up, and even Citibank was thought to be a candidate for failure. However, the height of that crisis would have been the ideal time to buy shares of strong banks - as from the early 1990's until recently they have been outstanding performers. This strategy permitted me to multiply my original investments in Wachovia and Wells Fargo from the 1990's forward. Lessons can be extrapolated from that time to the present day.

No one can foretell precisely how long this credit crunch will endure, but if we keep our powder dry and keep our eye on strong banks, then the past may indeed be prologue to the future.

This article contains the opinions and ideas of its author and is designed to provide useful general information to the reader on the subject matter covered. The author may or may not have current positions in the investments mentioned in this work, and the author may from time to time make investments in a manner that is not described here. Past investment performance is no guarantee or prediction of future results and any investments made, based on the opinions and ideas contained in this work, may or may not be successful. The strategies contained herein may not be suitable for every investor or situation, and the author is not engaged in, and should not be construed to be, rendering legal, accounting, investment advisory or other professional services to the reader or any other person. Readers should consult their own advisers for advice particular to their individual circumstances.

About the Author

ohn Reizner was first exposed to financial markets when he started reading the stock quotes out of the newspaper to his businessman grandfather. His current e-book, A Way to Wealth - the Art of Investing in Common Stocks, is available at his website, http://www.ReiznersWay.com

source:goarticles.com/