Monday, November 17, 2008

What Do Mark Cuban and American Pension Funds Have in Common?

They're both in a world of trouble.

A) I won't spend too much time on the Cuban SEC case. Mr. Cuban is a knucklehead as an owner and literally fell into his money (selling Broadcast.com - yeah what the heck was that - for billions at the top of the dotcom bubble), but he's been pretty good at seeing tops in the markets. Two things jump off the page with regards to this case -

1) $750k? You're worth $2 billion and you make a blatant trade the day before a PIPE is priced to save $750k? That's either stupid or arrogant or both.

2) How in the world did it take the SEC FOUR YEARS to gather enough evidence for this case?? The guy is a 6% holder and he sells the stock the day before the PIPE prices and it takes 4 years to prove that he had inside info?!?!?!? I think the SEC might need a bailout too.

Cuban has probably learned from the lessons of Martha. Tell the truth, pay the fine, and go back to being the worst fan in the NBA. If you lie about trading under oath, you'll go to jail. That won't happen here.

B) Pensions are getting crushed. The 100 largest US pensions were slightly overfunded (had more assets than projected liabilities) at the start of 2008. Pensions are currently underfunded by about 7% and that number is expected to continue to fall through the balance of the year.

"In October, pensions faced a record asset value loss -- more than $120 billion -- and after adjustment for liability gains, surrendered a total of $59 billion, dropping pension funding to 92.7%, a 12-percentage-point decline from the funded ratio at the beginning of the year."

Pension accounting is perhaps the least understood aspect of financial analysis, but suffice to say that this firm that focuses on US Pensions, estimates that earnings will take a $40 billion hit in 2009 from underfunded pension liabilities. I don't think this is factored into 2009's earning forecasts. This will be another headwind facing the stock market in 2009.

C) GM is apparently the third rail of economic blogging. I'll avoid making any judgements on the validity of a bailout because I can really only comment on the financial viability of the Big 3 (which is really, really bad) but I thought I'd pass along some new news on the GM front as they are delaying making incentive payments to dealers in an effort to conserve cash.

Mr. Market is right back around this 8,250 level. The last time we were here (WAY, WAY back on WEDNESDAY!) stocks sold down under 8,000 before soaring almost 1,000 points. Even traders are starting to feel a little fatigued by this action. I'm a little concerned by the lack of coverage of this latest sell-off - if we close at new lows and no one notices, it might cause a rapid retracement (or they might try to buy the bounce again and make 10% in a day!). Crazy times.

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