Friday, March 20, 2009

Sail back into safe harbor

Amid the glut of bad news, it is heartening to hear that some Asian pension funds have recently sold down their equities holding and switched to the safer Government bonds (equivalent to Treasuries or Gilts). Perhaps recent wild swings in the stock markets and the past six months’ huge evaporation of wealth are more than what their trustees can endure, or perhaps they have wizen up to the fact that it is better to be safe than be sorry before the huge losses in their books mount.

(Or perhaps they should wait for the heavily arm-twisted FASB of the US to provide for the new standard for false, oops, marked-to-make-believe accounting for long term - toxic or depleted – assets to replace the existing marked-to-market one.)

Collectively, pension funds across the world have lost several trillions of dollars in the recent global stock market meltdown. It has been reported that on average most have lost between twenty to thirty percent on their investments.

While the Asian pension funds (excluding Japan) are much smaller compared to those in the US, Japan and Europe, their trustees would have a similar fiduciary duty to protect the lifetime savings of members and retirees. Would the members mind a lower dividend on their savings in these times of crises? I don’t think so. But if they find out that the pension fund has lost a large part of their lifetime savings, then there is hell to pay. And Governments will have another crisis on their hands. (Take note of that.)

There is a reason why I say that the recent switching of funds from the stock markets to Government bonds by Asian pension funds is good news. They could be saving a lot of pain and heartaches (read further losses) going forward.

Compared to the giant pension funds in the US, Japan and Europe which account for about 83% of global pension fund assets, the Asian ones (excluding Japan) are smaller but faster sail boats in the flight to safety. That is they have relatively smaller holdings in equities. And perhaps they are sailing back into safe harbor where they can anchor before the next financial tsunami hits. (Reading future news today?)

Like big ships, tankers and ocean going cruise liners still out at sea, the giant pension funds would take a much longer time to unwind their equities holding to reach safety. And can therefore be subjected to violent storms and winds. If they can withstand the ferocity of this tsunami, well and good, if not many could sink - another disaster in the making.

If the expected stampede to get out of the global stock markets happen, curious individuals (investors) watching at the shore line could be swept away by the financial tsunami, possibly losing their lives or lifetime savings.

The accurate card reading lady fortune teller was correct, more than a decade ago, when she predicted and kept insisting that I was like a fast boat which will sail back to safe harbor every time before the big storms hit (stock market collapses).

The only thing when asked, she could not answer was how did I know? Possibly she is still trying to figure out the reason like some readers after all these years. How would I know?

My late parents did know, my close friends do know, those who sold their Malaysian stock investments every time I went overseas during the Bull Run in 1993 knew something, and probably by now some regular readers too.

Shush! Heaven's secrets!


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