"...
The people who manage the funds find themselves in the position of not being able to figure out exactly what the assets are worth, because they don't trade, or don't trade much, and no one seems to know what the stuff is.
Got that? Neither do I. Let me try this again. These state and county-sponsored pools invested in highly rated short-term securities that were subsequently downgraded really fast or even went into default because of the subprime disaster.
When word somehow gets out that the pools own this stuff, either because the pools themselves 'fess up or because some enterprising reporter drags the information out of them with open-records requests, pool participants withdraw their money.
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
This means that not everyone will get all their money back. On Nov. 30, an advisory panel of local governments in the Florida pool held a conference call with members of the State Board of Administration.
The SBA put out a Preferences Survey'' for discussion, and Question No. 1 wasWhat percent of your current holding would you withdraw in December 2007, if it meant you would receive 99 cents on the dollar?'' The next three questions were exactly the same, except with 98 cents on the dollar, 95 cents on the dollar and 90 cents on the dollar.
The municipal officials on the call would have none of it. They want 100 cents on the dollar. Anything less, they said, would be unacceptable.
They were a pretty conciliatory and reasonable bunch. They kept saying that what was needed was to restore confidence and trust in the fund. Most said they did not have immediate needs - -such as covering payroll or making debt-service payments -- and that they thought some provision should be made for the smaller municipalities among them who did.
The key word here, of course, is trust, and that is in very short supply at the moment. The state might make a real statement today, and assure municipalities that the great subprime meltdown of 2007 won't swallow them up.
Or it can let them all dangle. I have a feeling other municipalities across the nation will be watching, ready to reach for the telephone and bring their own deposits home."
Gee, this might end Cerebus's streak of acquiring the worst possible companies on the face of the earth: Chrysler right b/f an auto recession, GM Rescap right before a mortgage depressions, etc..
Well, Dan Quayle and company can always start hunting for overpriced Chinese exporters.
Looks like Cerberus is running scared again. United Rentals caused them to blink with contruction rentals way down, I guess just buying anything with OPM does not always make for a winning trade.
I just reviewed Vanguard's performance profiles for the period ending 9/30/2007. Its official. Over the last ten years, Vanguard's Long Term Treasury fund has outperformed both the S&P 500 fund and the Total Stock Market fund. Vanguard's once vaunted U.S. Growth fund (a darling during the internet boom) has returned a measly .66%/year over the last decade. So much for Mary Meeker and Henry Blodgett. When you consider that the majority of funds under perform the S&P 500, it really makes you wonder. Despite all the hand wringing about the Fed and the Gov't, the reality is that the Gov't has treated investors far better than the so called "wall street professionals." Further, housing is in the tank. Money markets, who knows. Eventually, you have to question the financial innovation thesis. You just can't make this stuff up.
I put all my 401K in Principal fixed income option which is a groud annuity contract, backed by Principal Financial. My understanding is it is as good as Principal goes. If Principal goes under, there is no more protection. Is it right?
Thanks.
BTW this the safest thing I have for 401K. Others include high yield bond, mortgage security, and equity.
MAB-
The post-tech bubble Henry Blodgett had a series of columns the ran over at Slate.com not long ago that basically laid out why stock picking and market timing efforts are futile and that retail investors should ignore stock touts like, for example, the 1999 version of Henry Blodgett.
You should be able to find it in slate's archives.
Funny that today's Blogett basically agrees with the point you make.
"The SBA put out a Preferences Survey'' for discussion, and Question No. 1 wasWhat percent of your current holding would you withdraw in December 2007, if it meant you would receive 99 cents on the dollar?'' The next three questions were exactly the same, except with 98 cents on the dollar, 95 cents on the dollar and 90 cents on the dollar.
The municipal officials on the call would have none of it. They want 100 cents on the dollar. Anything less, they said, would be unacceptable."
Very interesting. I don't get what is so bad about .99. Also, if it was .99, couldn't they just reduce the yield? I guess if they calculate interest daily, 1% annualizes to 400%.
OvA Watcher, sometimes you gotta answer the question, "A tax haircut now weighed against a risk of a shorter haircut due to a reduction in 401K assets, possibly??? now?"
Is there no LTFirstQualityMainlyUSTBondFund? Vanguard offers one.
For those who refuse to accept the tax haircut, just note one thing: the store of value repeatedly moves. It's in equities and then in bonds and then in foreign equities and then in single sectors. IMO, it's your responsibility to monitor the choices and move your store of value from lily pad to lily pad.
BTW, NW, yours is the worst 401K range of options I've heard of.
From Andrews post at 11:05 Or it can let them all dangle. I have a feeling other municipalities across the nation will be watching, ready to reach for the telephone and bring their own deposits home."
I cannot for the life of me understand why they havent done this already. With the clear lesson being that those who withdraw first get all their money, why would any sensible manager not withdraw now? Is the small incremental yield (not a sure thing in the first place and for a short period of time) really worth the risk of being frozen out? I just dont get it.
The state might make a real statement today, and assure municipalities that the great subprime meltdown of 2007 won't swallow them up.
. . . however, the Alt-A, Jumbo, HELOC, second mortgage, commercial construction, credit card, auto lease and installment loan critters are waiting in the wings. And they look very hungry.
More Vanguard info. The Vanguard High Yield Bond fund has a ten year annual return (as of 11/30/07) of 5.05%. Not good by any means, but not a train wreck in my opinion. That is until you consider the after tax annual 10 year return is 2.21%. Sadly, this trails money market returns. To me Vanguard is a great shop, but clearly investors have not been compensated for risk. Where did the returns go?? Start with wall street fees (record bonuses and all). Employee stock options (consume 78% of buybacks according to Mish). Executive compensation, absolutely. Private equity shops (2 & 20 is good work if you can get it). Maybe the liquidity crisis is an investor buyers strike.
"Gee, this might end Cerebus's streak of acquiring the worst possible companies on the face of the earth: Chrysler right b/f an auto recession, GM Rescap right before a mortgage depressions, etc..
Well, Dan Quayle and company can always start hunting for overpriced Chinese exporters."
They've had quite a streak, no doubt about that. Maybe they should merge with FIG.
MAB,
I was working at a client that had Money Magazine's #1 fund. Right after that issue came out, the phones were ringing constantly in the customer service pit. The fund degraded into one of the worst performers within 2 years. All those late-comers were hosed out of a large chunk of their life's savings.
In addition to the fact that almost no managed mutual fund has ever outperformed the index over 10 years, people chasing yields move their money around to underperform the underperformers.
I've noticed that those mutual fund companies have some cool marketing brochures, though.
This is a good time to look at the prospectus. I could guess that this is a GIC type of investment option.
Principal is an insurer, not a bank, and GIC's have been around a long time without many problems. Banking is a different industry then insurance and I wouldn't panic unless A.M.Best downgraded them.
Can you borrow from your 401k? If so, another option.
I don't think you can rely on advice here, even though there are a number of extremely intelligent posts.
Read the prospectus.
If you are worried, try to get some objective financial advice.
My 403(b) allows purchase of all 250+ Fidelity funds. For the past few years to the current time, I have been overweight energy and foreign stocks, especially China region and emerging markets. Since summer, I have added a good pile of select gold. If I get a market sell signal, I'll reduce to 50% stocks. In the mean time, being moderately agressive has been worth 30% in the last two years, including 10% YTD. Although I tend to be bearish with options, being too conservative also has it's cost.
Even more Vanguard Info: The Vanguard Total Bond Market fund, a staple of many investors, has a 10 year annual return of 5.69%. After tax, the 10 year annual return is 3.54%. The after tax returns do not include state taxes. Folks, I own this stuff. OUCH! Maybe privitizing social secuity isn't such a great idea after all. By the way, Stagflationary Mark's TIP call is looking juicy. YTD, Vanguard's Inflation Protected Securities fund is up 12.2%.
Why would one even think about investing in an economy where the predominate mindset has become that corporate profitability is evil? We haven't been competitive in ages. Check out, inter alia, the returns on the Fidelity Diversified International Fund.
yal - some investors view the option one shutdown as a good thing - it might allow hrb to focus on core business. but the real questiion is how much liability hrb faces for oomc's mortgages. maybe hrb will answer this question at their conf call on tuesday.
Inflation fund since inception (6/29/200) = 7.62% per year.
My point is that depite the multi-year bull market, its been a decade of modest stock market returns at best. If you stress test dollar cost averaging through the bubble, equity returns are ugly. An inconvenient truth!
At the Lender Fair in September, the Option One Rep said they'd become a prime lender with sub prime rates -- not a good formula for keeping the doors open. I'll miss them, though -- their tins of sugar free mints were the best.
O-joe, it's a little premature to be celebrating. The S&P 500 has invaded wave 2 space, a bad sign if you believe in technicals. That 11,400 on the Dow could come awfully quick if we re-test S&P 1406 and Dow 12,7 or therabouts.
I can understand why things are being shut down with h & R block with the way things are being ran...I don't know what site i need to be under but i will go to every site until some one does something , about the advance loan.
Great Tanta's Ghost, i'm first!
Off with their heads!
Cerberus . . . a dog that's learned coprophagia is bad?
Damn you, Unsympathetic!
BTW, that's a catchy phrase I'm sure we'll hear more of.
Gary
Let's hope so.
Buffett got out of H&R Block early last year, but added to his Wells Fargo position. One out of two.
I would no more let H&R Blockhead sell me a mortgage than I would let them do my taxes.
OT - An interesting Bloomberg opinion article by Joe Mysak on the Florida Investment Pool meltdown.
Florida Just First to Face National Run on the Bank: Joe Mysak - Bloomberg.com
"...
The people who manage the funds find themselves in the position of not being able to figure out exactly what the assets are worth, because they don't trade, or don't trade much, and no one seems to know what the stuff is.
Got that? Neither do I. Let me try this again. These state and county-sponsored pools invested in highly rated short-term securities that were subsequently downgraded really fast or even went into default because of the subprime disaster.
When word somehow gets out that the pools own this stuff, either because the pools themselves 'fess up or because some enterprising reporter drags the information out of them with open-records requests, pool participants withdraw their money.
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
This means that not everyone will get all their money back. On Nov. 30, an advisory panel of local governments in the Florida pool held a conference call with members of the State Board of Administration.
The SBA put out a Preferences Survey'' for discussion, and Question No. 1 wasWhat percent of your current holding would you withdraw in December 2007, if it meant you would receive 99 cents on the dollar?'' The next three questions were exactly the same, except with 98 cents on the dollar, 95 cents on the dollar and 90 cents on the dollar.
The municipal officials on the call would have none of it. They want 100 cents on the dollar. Anything less, they said, would be unacceptable.
They were a pretty conciliatory and reasonable bunch. They kept saying that what was needed was to restore confidence and trust in the fund. Most said they did not have immediate needs - -such as covering payroll or making debt-service payments -- and that they thought some provision should be made for the smaller municipalities among them who did.
The key word here, of course, is trust, and that is in very short supply at the moment. The state might make a real statement today, and assure municipalities that the great subprime meltdown of 2007 won't swallow them up.
Or it can let them all dangle. I have a feeling other municipalities across the nation will be watching, ready to reach for the telephone and bring their own deposits home."
Gee, this might end Cerebus's streak of acquiring the worst possible companies on the face of the earth: Chrysler right b/f an auto recession, GM Rescap right before a mortgage depressions, etc..
Well, Dan Quayle and company can always start hunting for overpriced Chinese exporters.
Looks like Cerberus is running scared again. United Rentals caused them to blink with contruction rentals way down, I guess just buying anything with OPM does not always make for a winning trade.
I just reviewed Vanguard's performance profiles for the period ending 9/30/2007. Its official. Over the last ten years, Vanguard's Long Term Treasury fund has outperformed both the S&P 500 fund and the Total Stock Market fund. Vanguard's once vaunted U.S. Growth fund (a darling during the internet boom) has returned a measly .66%/year over the last decade. So much for Mary Meeker and Henry Blodgett. When you consider that the majority of funds under perform the S&P 500, it really makes you wonder. Despite all the hand wringing about the Fed and the Gov't, the reality is that the Gov't has treated investors far better than the so called "wall street professionals." Further, housing is in the tank. Money markets, who knows. Eventually, you have to question the financial innovation thesis. You just can't make this stuff up.
OT, but I desperately need to your help.
I put all my 401K in Principal fixed income option which is a groud annuity contract, backed by Principal Financial. My understanding is it is as good as Principal goes. If Principal goes under, there is no more protection. Is it right?
Thanks.
BTW this the safest thing I have for 401K. Others include high yield bond, mortgage security, and equity.
Is option one the plan where you can borrow against your anticipated tax return?
MAB-
The post-tech bubble Henry Blodgett had a series of columns the ran over at Slate.com not long ago that basically laid out why stock picking and market timing efforts are futile and that retail investors should ignore stock touts like, for example, the 1999 version of Henry Blodgett.
You should be able to find it in slate's archives.
Funny that today's Blogett basically agrees with the point you make.
"The SBA put out a Preferences Survey'' for discussion, and Question No. 1 wasWhat percent of your current holding would you withdraw in December 2007, if it meant you would receive 99 cents on the dollar?'' The next three questions were exactly the same, except with 98 cents on the dollar, 95 cents on the dollar and 90 cents on the dollar.
The municipal officials on the call would have none of it. They want 100 cents on the dollar. Anything less, they said, would be unacceptable."
Very interesting. I don't get what is so bad about .99. Also, if it was .99, couldn't they just reduce the yield? I guess if they calculate interest daily, 1% annualizes to 400%.
OvA Watcher, sometimes you gotta answer the question, "A tax haircut now weighed against a risk of a shorter haircut due to a reduction in 401K assets, possibly??? now?"
Is there no LTFirstQualityMainlyUSTBondFund? Vanguard offers one.
For those who refuse to accept the tax haircut, just note one thing: the store of value repeatedly moves. It's in equities and then in bonds and then in foreign equities and then in single sectors. IMO, it's your responsibility to monitor the choices and move your store of value from lily pad to lily pad.
BTW, NW, yours is the worst 401K range of options I've heard of.
From Andrews post at 11:05 Or it can let them all dangle. I have a feeling other municipalities across the nation will be watching, ready to reach for the telephone and bring their own deposits home."
I cannot for the life of me understand why they havent done this already. With the clear lesson being that those who withdraw first get all their money, why would any sensible manager not withdraw now? Is the small incremental yield (not a sure thing in the first place and for a short period of time) really worth the risk of being frozen out? I just dont get it.
The state might make a real statement today, and assure municipalities that the great subprime meltdown of 2007 won't swallow them up.
. . . however, the Alt-A, Jumbo, HELOC, second mortgage, commercial construction, credit card, auto lease and installment loan critters are waiting in the wings. And they look very hungry.
More Vanguard info. The Vanguard High Yield Bond fund has a ten year annual return (as of 11/30/07) of 5.05%. Not good by any means, but not a train wreck in my opinion. That is until you consider the after tax annual 10 year return is 2.21%. Sadly, this trails money market returns. To me Vanguard is a great shop, but clearly investors have not been compensated for risk. Where did the returns go?? Start with wall street fees (record bonuses and all). Employee stock options (consume 78% of buybacks according to Mish). Executive compensation, absolutely. Private equity shops (2 & 20 is good work if you can get it). Maybe the liquidity crisis is an investor buyers strike.
"Gee, this might end Cerebus's streak of acquiring the worst possible companies on the face of the earth: Chrysler right b/f an auto recession, GM Rescap right before a mortgage depressions, etc..
Well, Dan Quayle and company can always start hunting for overpriced Chinese exporters."
They've had quite a streak, no doubt about that. Maybe they should merge with FIG.
MAB,
I was working at a client that had Money Magazine's #1 fund. Right after that issue came out, the phones were ringing constantly in the customer service pit. The fund degraded into one of the worst performers within 2 years. All those late-comers were hosed out of a large chunk of their life's savings.
In addition to the fact that almost no managed mutual fund has ever outperformed the index over 10 years, people chasing yields move their money around to underperform the underperformers.
I've noticed that those mutual fund companies have some cool marketing brochures, though.
Damn that's a good line, MAB
Maybe the liquidity crisis is an investor buyers strike.
BTW, NW, yours is the worst 401K range of options I've heard of.
GaudiaRay
Gaudia,
How is Dow 11,400 doing?
O-Joe
Fitch: H&R Block Remains on Rtg Watch Negative Following Potential Changes to Option One Sale
this is from the past.
Does anyone knows why HRB is not down ?
NoVa:
This is a good time to look at the prospectus. I could guess that this is a GIC type of investment option.
Principal is an insurer, not a bank, and GIC's have been around a long time without many problems. Banking is a different industry then insurance and I wouldn't panic unless A.M.Best downgraded them.
Can you borrow from your 401k? If so, another option.
I don't think you can rely on advice here, even though there are a number of extremely intelligent posts.
My 403(b) allows purchase of all 250+ Fidelity funds. For the past few years to the current time, I have been overweight energy and foreign stocks, especially China region and emerging markets. Since summer, I have added a good pile of select gold. If I get a market sell signal, I'll reduce to 50% stocks. In the mean time, being moderately agressive has been worth 30% in the last two years, including 10% YTD. Although I tend to be bearish with options, being too conservative also has it's cost.
Even more Vanguard Info: The Vanguard Total Bond Market fund, a staple of many investors, has a 10 year annual return of 5.69%. After tax, the 10 year annual return is 3.54%. The after tax returns do not include state taxes. Folks, I own this stuff. OUCH! Maybe privitizing social secuity isn't such a great idea after all. By the way, Stagflationary Mark's TIP call is looking juicy. YTD, Vanguard's Inflation Protected Securities fund is up 12.2%.
O-Joe,
I believe it's hiding out with your ATH rally
MAB,
And what's the YTD for the Total Bond Fund and the ten year return on the TIPS? The comparison you provided is misleading without the same time frame.
I guess we could say that H&R is
now out of ... Options?
ba bum bum
NoVa:
http://www.principal.com/about/facts/companyprofile_jun07.pdf
Personally I wouldn't worry about a Principal GIC. Insurance companies are not banks and are highly regulated.
Talk to an accountant before you take a 10% penalty.
Accountant like a CPA. Not H&R Block.
So a cut of 600+ jobs = 2491 jobs with the Birth-Death Model. Any takers?
Why would one even think about investing in an economy where the predominate mindset has become that corporate profitability is evil? We haven't been competitive in ages. Check out, inter alia, the returns on the Fidelity Diversified International Fund.
Does anyone knows why HRB is not down ?
Yal,
There is enough buying pressure to keep the price up?
yal - some investors view the option one shutdown as a good thing - it might allow hrb to focus on core business. but the real questiion is how much liability hrb faces for oomc's mortgages. maybe hrb will answer this question at their conf call on tuesday.
thanks everyone. I will do more homework.
energycon,
Total bond fund ytd = 5.13%
Inflation fund since inception (6/29/200) = 7.62% per year.
My point is that depite the multi-year bull market, its been a decade of modest stock market returns at best. If you stress test dollar cost averaging through the bubble, equity returns are ugly. An inconvenient truth!
At the Lender Fair in September, the Option One Rep said they'd become a prime lender with sub prime rates -- not a good formula for keeping the doors open. I'll miss them, though -- their tins of sugar free mints were the best.
O-joe, it's a little premature to be celebrating. The S&P 500 has invaded wave 2 space, a bad sign if you believe in technicals. That 11,400 on the Dow could come awfully quick if we re-test S&P 1406 and Dow 12,7 or therabouts.
Anybody know if First Option Asset Management Services Inc will be felled as well? If so, I'll be really underemployed.
I can understand why things are being shut down with h & R block with the way things are being ran...I don't know what site i need to be under but i will go to every site until some one does something , about the advance loan.