Insider purchases at lowest level since 1992 / State Pension Problems
I started to write a post on the common stock of a company that is sitting within shouting distance of its 52 week low, pays a solid 3.5% dividend that is easily covered by its cash flow, that has a great management team, actually might benefit from a slowdown in consumer spending, certainly would benefit from a fall in the U.S. dollar, and that has been a solid performer for decades before I shocked myself and actually pulled the trigger on my first purchase of common stock in months.
I was hesitant to pull the trigger because I am about as positive as can be that we're due for a pullback in the major indices, but this stock had not participated much in the recent rally I decided to pull the trigger because it was too juicy to pass up. TMF disclosure rules prevent me from talking any more about this company for the next ten days but I plan to do so in the future.
So for now I will tell you about two things that caught my eye this weekend. The first is an excerpt from Alan Abelson's piece in this week's Barron's. According to a recent study, insiders have sold $353 million in stock thus far in April. That's 8.3 times more than insiders purchased this month. In fact, the $42.5 million in insider purchases that have been made so far put April on track to be the weakest month for insider purchases since July 2002. Not exactly a bullish sign.
The other piece of news that I wanted to mention is actually from an obscure newspaper, Central Pennsylvania's Centre Daily Times. I took my family to Penn State University this weekend for its annual Blue - While Spring Football scrimmage. We had beautiful weather, Penn St. is a beautiful college, and State College is a beautiful town. A great time was had by all.
On Sunday morning, I went to the door of our hotel room to grab a copy of the local newspaper to read the articles on the game and see what the sports writers thought of some of the new players. The front page contained three articles. One on the game and two on problems with Pennsylvania's state pension funds. Arrgggg, I can't get away from this financial mess for even a day ;).
I found it particularly interesting how the implosion in the stock markets has such wide-spread implications that even a newspaper that would never normally lead with financial news on a day that was huge for the area still has to talk about financial problems.
For those of you who are interested in the details, here's the into to the piece. I couldn't find it on-line.
Pennsylvania's day of reckoning over its multibillion-dollar pension promises to government employees and teachers has been pushed back for the better part of a decade.
But long-expected increases in costs are scheduled to kick in three years from now, and meeting those retirement obligations could cripple state government and school boards.
Depending on what happens in the stock market, taxpayers could soon find themselves stuck paying more than $5 billion in additional annual payments.
The figure is a moving target. But in a March presentation to a state House panel, the state's two large public-sector pension plans estimated that the $821 million a year they currently get in "employer contributions" - the vast majority of it from taxpayers - will need to grow to $5.7 billion a year by 2012.
Even more frightening is that those numbers involve assumptions that could be overly optimistic.
For example, the state government pension system's numbers assume it will earn 8.5 percent this year, but its 2009 investments are currently about 6 percent in the red.
The Bloomsburg Area School District last week offered a sign of how bad things may get for the property owners who pay about half of the teacher's pension subsidy.
To cope with its growing pension liability, Bloomsburg officials are talking about imposing eight straight years of tax increases.
"Absent stratospheric returns that are hard to imagine and certainly can't be counted on, there's a big liability that has to be paid," said Bob Grentzel, spokesman for the state government pension system. "Are there things that can be done to sort of ease the slope of the increase? Probably so, but there's nothing to be done that can make the unfunded liability go away."...
You get the idea. Underfunded pensions are going to be a serious problem going forward. I mentioned a number of companies that have underfunded pension plans the other day, but this is a public problem as well. This pension fund shortfall means one of two things:
1) Retirees are going to get less money than they were counting on and they are going to have less to spend in retirement than they had hoped.
2) Taxes will increase to make up for the shortfall in pension plans. These higher taxes will take money away from working people who in turn will spend less.
Either way, underfunded pension plans are going to serve as a on a drag on economic activity in the U.S., which is heavily dependent upon consumer spending, going forward. This is one of a number of reasons why I expect the U.S. economy to grow at a much slower rate over the next decade than it did over the past several decades.