Monday, March 30, 2009

Market timing (or do you want something else to worry about?)

Today's lesson showing the difficulty in market timing comes from the good people at the Pension Benefit Guaranty Corporation. It seems that just prior to the market collapse they decided to go INTO stocks.

From the Boston Globe:
Pension insurer shifted to stocks - The Boston Globe: "
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks."
Since September that have been quiet as to their losses (yeah, no transparency here either, do you see a pattern?), but given their assets are no doubt down and their potential claims are up (firms going bankruot etc), it has the look of a bad situation (and probably many billions more of bailout money).

Again from the Boston Globe:
"...analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.

"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency."

Trivia aspect of story: "Charles E.F. Millard, the former agency director who implemented the strategy" was "a former managing director of Lehman Brothers...."

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