Monday, December 15, 2008

Pension Shortfalls & Earnings Estimates/AEGON FLOATER (AEB)/Madoff Strategy Improbable

After returning to HQ this evening I saw that Goldman Sachs had downgraded AT & T and Verizon from buy to neutral, based in part on the large pension shortfalls caused by the market meltdowns.  Barron’s Online :  The analyst estimated a 26 cents hit to AT & T's service in 2009 due to this pension issue.     Once you know the asset allocation, it is possible to make an educated guess of the losses suffered in the pension plan.  The Goldman analyst estimated the AT & T plan to be down 28% this year with Verizon plan falling 33%. 

I own some senior debt in TC form issued by VZ and T.  I am not concerned about a hit to earnings caused by a significant decline in the value of pension assets. I would also have to say that AT & T customer service is just awful.

Pension shortfalls may also prove to be extremely problematic for state and local governments over the next several years and the problem is likely to become acute during the decades to come. Reuters   $2-Trillion Fiscal Hole 

At first, I thought news about Aegon's decision to refrain from seeking TARP fund sent the Aegon floating rate preferred stock  (AEB) down today.   Reuters  Aegon said it would "start" 2009 in a strong capital position. It earlier participated in a Dutch government financial aid plan that I have previously discussed. Notable News 10 28 2008  After closer inspection I noticed that other Aegon preferred issues rose so the fall in AEB today was most likely related to a supply/demand issue for this particular Aegon preferred stock.  This news does not cause me to change my position in the Aegon floater but I will of course continue to monitor its preferred dividend capabilities hoping that I do not misjudge the situation.  Possibly, on further weakness I may buy another 50.

There was an article in the WSJ today that some investors were arguing that the VIX had stabilized.  WSJ.com  My view is that the VIX continues to be in an unstable elevated pattern consistent with on ongoing  and seriously bad bear market.

Delek had experienced an explosion at its Texas refinery in November.  It announced last Friday that the refinery would not be back into operation until May 2009.   The cost of repairs and lost business was estimated at 100 million, with the company claiming that all but 5 million would be covered by insurance. Reuters  Before the accident, I had initiated a small position in Delek and this accident will not cause me to abandon the position.   GM FORD CITIGROUP/ DELEK (DK) BUY THIS AFTERNOON

Reports are starting to filter out that professional option traders would have been skeptical of anyone professing to consistently engage in collar strategy that Madoff claimed to be his bread and butter, with consistent 10% to 12% returns. Assessing Bernie Madoff's Strategy - Barrons.com
Rather than assuming Madoff was the Albert Einstein of option trading, the embodiment of a once in a century master money maker, achieving consistency where consistency was impossible, maybe the more rational judgment would be that no one could implement a strategy as he claimed to be able to do.  As noted in the Barron's column by Steven Sears, it would have required impeccable market timing  and pristine information by Madoff, as wells as the ability to hit the bid price on a basket of blue chip that he would buy while selling out of the money calls against them.  This would have to be done consistently, year after year.  I wish that I could buy at the bid price all of the time myself.   But why exactly would I believe someone whose strategy depended in part on hitting the bid price when buying?  New York Post  There was a report that Madoff did send out detailed records contradicting an earlier news report.    New York Times  Looking back on it, the philantrophy was part of Madoff's shtick, for philantropists are more likely to be trusted and how much of his philantrophy was funded by other people's money?  see also DealBook - New York Times

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