Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Finance - Investments
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions


Upload your resume securely at https://www.dwsimpson.com
to be contacted when new jobs meet your skills and objectives.


Finance - Investments Sub-forum: Non-Actuarial Personal Finance/Investing

Reply
 
Thread Tools Search this Thread Display Modes
  #61  
Old 06-05-2011, 09:11 PM
Klaymen's Avatar
Klaymen Klaymen is offline
Member
CAS
 
Join Date: Oct 2001
Studying for AINS 21 & 22
Posts: 19,265
Default

http://www.msnbc.msn.com/id/43259512...ons/?gt1=43001

Summarized... and it still feels long.

Quote:
He is struck by how many USPS executives started out as letter carriers or clerks. He finds them so consumed with delivering mail that they have been slow to grasp how swiftly the service's financial condition is deteriorating. "We said, 'What's your 10-year plan?' " Herr recalls. "They didn't have one."

Congress gave him until the end of 2011 to report on the USPS's woes. But Herr and his team concluded that the postal service's business model was so badly broken that collapse was imminent. Abandoning a long tradition of overdue reports, they felt they had to deliver theirs 18 months early in April 2010 to the various House and Senate committees and subcommittees that watch over the USPS. A year later, the situation is even grimmer. With the rise of e-mail and the decline of letters, mail volume is falling at a staggering rate, and the postal service's survival plan isn't reassuring. Elsewhere in the world, postal services are grappling with the same dilemma — only most of them, in humbling contrast, are thriving.

It takes an enormous organization to carry out such a mission. The USPS has 571,566 full-time workers, making it the country's second-largest civilian employer after Wal-Mart Stores. It has 31,871 post offices, more than the combined domestic retail outlets of Wal-Mart, Starbucks, and McDonald's. Last year its revenues were $67 billion, and its expenses were even greater. Postal service executives proudly note that if it were a private company, it would be No. 29 on the Fortune 500.

Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx's budget and 61 percent of United Parcel Service's pay go to employee-related expenses. Perhaps it's not surprising that the postal service's two primary rivals are more nimble. According to SJ Consulting Group, the USPS has more than a 15 percent share of the American express and ground-shipping market. FedEx has 32 percent, UPS 53 percent.

The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms.

On Mar. 2, Postmaster General Patrick R. Donahoe warned Congress that his agency would default on $5.5 billion of health-care costs set aside for its future retirees scheduled for payment on Sept. 30 unless the government comes to the rescue. "At the end of the year, we are out of cash," Donahoe said. He noted that the unusual requirement was enacted five years ago by Congress before mail started to disappear.

This should be a moment for the country to ask some basic questions about its mail delivery system. Does it make sense for the postal service to charge the same amount to take a letter to Alaska that it does to carry it three city blocks? Should the USPS operate the world's largest network of post offices when 80 percent of them lose money? And is there a way for the country to have a mail system that addresses the needs of consumers who use the Internet to correspond?

The USPS has historically placed the interests of its unions first. That hasn't changed. In March it reached a four-and-a-half-year agreement with the 250,000-member American Postal Workers Union, which represents mail clerks, drivers, mechanics, and custodians. The pact extends the no-layoff provision and provides a 3.5 percent raise for APWU members over the period of the contract, along with seven upcapped cost-of-living increases. The union is happy. "Despite the fact that the postal service is on the edge of insolvency, the union and management have reached an agreement that is a 'win-win' proposition," said APWU President Cliff Guffey on the union's website. A USPS spokeswoman said the agency agreed to the raise because it feared the decision would otherwise be made by an arbitrator who might be even more deferential to the union.

Herr thought it made more sense to compare the USPS to postal services in other countries. Last summer he sent a small team of analysts to Finland, Sweden, Germany, Switzerland, Austria, and Canada. He was fascinated by what they discovered.

Three decades ago, most postal services around the developed world were government-run monopolies like the USPS. In the late '80s, the European Union set out to create a single postal market. It prodded members to give up their monopolies and compete with one another. The effort roused an industry often thought to be sleepy and backward-looking.

Many countries closed as many of their brick-and-mortar post offices as possible, moving these services into gas stations and convenience stores, which then take them over—just as the USPS is trying to do now, only far more aggressively. Today, Sweden's Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.

Some of these newly energized mail services used the savings to pursue new business lines. Deutsche Post bought DHL, a package deliverer that competes with FedEx and UPS. "More than half of our workforce is outside of Germany," says Markus Reckling, executive vice-president for corporate development at Deutsche Post. "It's pretty much the same thing for our profits."

Many used their extra cash to create digital mail products that allow customers to send and receive letters from their computers. Itella, the Finnish postal service, keeps a digital archive of its users' mail for seven years and helps them pay bills online securely. Swiss Post lets customers choose if they want their mail delivered at home in hard copy or scanned and sent to their preferred Internet-connected device. Customers can also tell Swiss Post if they would rather not receive items such as junk mail.

Sweden's Posten has an app that lets customers turn digital photos on their mobile phones into postcards. It is unveiling a service that will allow cell-phone users to send letters without stamps. Posten will text them a numerical code that they can jot down on envelopes in place of a stamp for a yet-to-be-determined charge.

Anders Asberg, Posten's head of marketing and development, says the service is experimenting with these initiatives, and he expects some will prove to be lucrative. "The customers are all on these digital interfaces now," he says. "That's where the growth is going to be in the future."

Posten can afford to take chances. In 2009 the Swedish mail carrier merged with Post Danmark, the Danish postal service, creating PostNord, a company with $6.2 billion in net sales and $320 million in EBITDA. In 2010 the latter rose by 43 percent, to $490 million.

Herr traveled to Sweden, Switzerland, and Finland last summer. He met with Posten executives who told him how hard they had worked to sell their plans to close post offices to a skeptical public. Not everyone approved. Some Swedes were very upset. Eventually, they got over it. In the end, they got their mail as efficiently and reliably as before.

In Switzerland, Herr met with Swiss Post executives who demonstrated the digital mail service. "You can say, 'Here's what I want,'" he explains. "'No, thank you, I'd rather not have that seed catalogue. But I would like to have my bill from Citibank and my mortgage.' Well, maybe the advertising mail people wouldn't be too excited about that."

Herr returned to America full of excitement. In February he delivered a 40-page report to the House subcommittee that oversees the postal service. It makes two major points: The USPS needs to close post offices, as many foreign postal services have done despite real opposition. And the USPS needs to create products for its wired customers if it wants to play a role in the future of communication. He acknowledges some foreign digital services are in early stages, but they are in demand, and in some cases the digital technology reduces delivery costs.

Joseph Corbett, the American postal service's chief financial officer, thanked Herr for his efforts. At the same time, he said the agency was sticking to its plan. Postmaster Donahoe says he isn't so sure about the digital mail initiatives emerging outside the U.S. "The value added there might not be as much as everybody thinks," he says. Joanne Veto, a USPS spokeswoman, said in an e-mail that the USPS had hired outside consultants who examined some of these digital mail offerings and advised the agency not to pursue them: "While foreign posts did make money by diversifying their products, it took as many as 20 years before a profit was realized. In the short term, there was limited or no profit. We do not have 20 years."

Under Donahoe, the USPS is focused instead on trying to slow the migration of its customers to the Net. The man in charge of this task, which brings to mind King Canute's attempts to hold back the incoming tide, is Paul Vogel, a former letter carrier who is now the postal service's chief marketing sales officer. He is less spirited than his boss and understandably so; his job is to persuade banks to keep sending paper statements in the mail. It's a losing battle, and Vogel knows it. "Inevitably, it's going to go to those new technologies," he sighs.

Herr couldn't agree more. The other day he got a notice in the mail from the U.S. Senate Federal Credit Union. It said it was going paperless in August. Customers who still want to get their statements mailed to them would have to pay a fee. He dropped by the office on Capitol Hill to find out how much. "I have a disproportionate interest in things like this, given the work I've been doing lately," Herr says.

A credit union worker told him the fee was $5 a month. Herr was astonished. "I thought to myself, that's $60 a year," he recalls. "Who's going to want to do that? What happens when Bank of America (BAC) or Citigroup says you are going to have to pay to get your statement on paper? That's going to change a lot of behavior. It's going to affect the postal service. That's how they make most of their money."

The USPS was slow to react to shifts in the industry. In the late '70s, Congress prodded it to allow private companies to carry letters needing urgent delivery. FedEx and UPS built enormously valuable businesses on the USPS's turf. They weren't required to visit every doorstep in the country on a daily basis. They set their own rates and had no qualms about extracting concessions from their unions. The postal service tried to compete, without much success. "They just cleaned the postal service's clock," says Tad DeHaven, a budget analyst at the Cato Institute, a libertarian think tank in Washington. It didn't matter at the time. The agency had its slower-moving letter monopoly, and mail volume kept climbing.

At the same time, e-mail took hold. By 2000 the USPS was losing money. The GAO warned that the service might not be able to cover its retiree health-care costs.

Congress came up with what it thought would be a fix. In 2006 it relieved the postal service of $27 billion in pension liabilities for workers with military service. At the same time, the USPS agreed to make annual payments of $5.5
billion for the next 10 years to build up a fund for future retirees. John E. Potter, the Postmaster General at the time, was ecstatic when the bill was signed into law. "We're planning for the future right now," he said. "Today the postal service is operating in the black."

The USPS was O.K. that year. Then, over the next three years, the economy collapsed, and the service lost $12 billion.

The USPS, however, still seems to be in denial. "The postal service is already carrying more junk than first class," says postal consultant Campbell. "Pretty soon it's going to be a government-run advertising mail delivery service. Does that make any sense? It doesn't make any sense."

There are still flaws in the USPS's junk-centric plan. The service now predicts that total mail volume will decline from 171 billion pieces annually in 2010 to 150 billion in 2020. That's a best-case scenario. The worst-case, according to its own projections, is 118 billion.

That's still a lot of stamps to sell. The problem is that costs keep rising. The number of addresses the USPS services climbs at an average of roughly 1 million a year as the population grows. Meanwhile, the agency continues to raise the salaries and benefits of its clerks and mail carriers even with periodic freezes.

"I really believe that the USPS is going to get to a point where, regardless of what it does with the prefunding [of retiree health care], it is going to implode," says R. Richard Geddes, an associate professor of policy analysis and management at Cornell University. "It is either going to default on those obligations to its retirees or we are going to have to give it a direct bailout from the United States taxpayers."

The implosion could happen this year because of the stalemate in D.C. Maybe that's what it will take for Americans to get a modern mail service. Even Donahoe, who advocates something less, sounds as if he would welcome it because there's no other way out. "Some people say if you crash the system," he says, "then people will pay attention to you."
__________________

You make known to me the path of life; you will fill me with joy in your presence, with eternal pleasures at your right hand. (Psalm 16:11)

Last edited by Klaymen; 06-05-2011 at 09:22 PM..
Reply With Quote
  #62  
Old 06-27-2011, 02:45 PM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,142
Default

http://www.hbs.edu/research/pdf/11-129.pdf

Quote:
Why fears about municipal credit are overblown
Daniel Bergstresser*
Randolph Cohen**
(First version April 2011. Current draft June 2011. Comments welcome)
Abstract

Highly publicized predictions of 50-100 municipal defaults have caused anxiety among municipal bond investors. While there is some chance that negative investor sentiment will lead to further spread widening, the probability of the kind of widespread default that would be required to justify current municipal bond yields is low. In this paper we document the reasons why the fears of widespread municipal default during the current recession are overblown.
Keywords: Municipal bonds.
__________________

Now offering online seminars, live seminars, and everything else under the sun and over the moon for actuarial exams.
Reply With Quote
  #63  
Old 07-19-2011, 05:45 PM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,142
Default

http://www.investmentnews.com/articl...edate=20110719

Quote:
Time is running out on the credibility of Meredith Whitney, who has yet to acknowledge that her eight-month-old prediction of widespread defaults this year in the market for state and local government debt is proving unfounded.

Defaults fell 60 percent in the first half of 2011 compared with the same period last year, including a $12.5 million Austin, Texas, apartment project that made a late payment in June, according to Distressed Debt Securities Newsletter.

....
Dirt-Bond’ Bubble

The failure of property developments financed with tax- exempt debt led to a record $8.15 billion of municipal defaults in 2008, the middle of the 18-month recession that ended in 2009, and accounts for the slowing pace, according to Jack Colombo, who edits Distressed Debt newsletter. There are simply fewer of the so-called dirt bonds left to falter, he said.

Jefferson County, Alabama, was the last local government to trigger a default, when it couldn’t meet payments on about $3 billion of securities tied to a sewer system in 2008 after the complex financing unraveled, he said. The county is home to Birmingham, the state’s biggest city.

Communities such as Georgia’s DeKalb County have sought to cope with financial stress by raising local taxes, while in municipalities such as Newark, New Jersey’s biggest city, mayors have slashed jobs to cut costs. In some cases, such as New York and Pennsylvania, state governments have intervened to prevent fiscal meltdowns at the local level.

Standard & Poor’s counted 28 municipal-market defaults totaling $511 million in the first six months of 2011, compared with 53 totaling about $1.55 billion in the first half of last year, according to a report from the New York-based credit- rating company.

....
Rare Events

Municipal defaults are rare. Moody’s Investors Service said in a study released in February 2010 that the 10-year average cumulative rate in the municipal market was 0.09 percent from 1970 to 2009 for the securities it ranks, compared with 11.06 percent for corporate debt. Most were concentrated among nonprofit health-care and housing projects. Just three were general-obligation bonds, out of 54 in all, Moody’s said.

....
“A locality is going to lay off a teacher before they default on their bonds,” said Iris J. Lav, a senior adviser at the Center on Budget and Policy Priorities, a nonprofit research group in Washington. “There are other things they can do.”

....
Debt service is generally less than 10 percent of a state or local government’s budget, and in many cases it’s much less, Richard Raphael, an analyst at Fitch Ratings in New York, said in a report last November.

....
“That’s why we invest in municipal bonds -- municipalities have the ability to get through this,” he said. “They have that taxing power.”

__________________

Now offering online seminars, live seminars, and everything else under the sun and over the moon for actuarial exams.
Reply With Quote
  #64  
Old 07-20-2011, 10:36 AM
Irish Blues
Guest
 
Posts: n/a
Default

People are going to crucify her on the timing call [which is the one thing she shouldn't have made]; if/when the rest of it proves to be correct 2-3 years from now, they'll forget that she sounded the warning and simply retort that it didn't happen in 2011.
Reply With Quote
  #65  
Old 07-26-2011, 03:03 PM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,142
Default

Sizable default possible:
http://politicssouth.com/news/jul201...nkruptcy-in-us

Quote:
Jefferson County, Alabama is on the verge of setting a record. Not a record you would want to be known for setting, but a record nevertheless. The county is preparing to declare bankruptcy on $3.2 billion in sewer debt it borrowed in 2008 if a settlement is not reached with JPMorgan and other creditors.

Commission President David Carrington, members of Governor Bentley's Finance Department staff, and Kenneth Klee, the lawyer that took Orange County, Ca. into Chapter 9 bankruptcy in 1994, met last Friday to discuss moving forward with Chapter 9 if settlement talks are not resolved by next Friday. Jefferson County Commissioner Sandra Little said there is an "80 percent chance" that the county will file for bankruptcy protection.

Klee, who is being paid $975 an hour to consult on the bankruptcy, said really, the county's general fund problems would probably drive it into bankruptcy faster than the sewer debt, however, the county wants the sewer crisis resolved before going into special session to resolve the general fund problems.

And by "sizable", I mean largest ever.

So they've got that going for them.
__________________

Now offering online seminars, live seminars, and everything else under the sun and over the moon for actuarial exams.
Reply With Quote
  #66  
Old 07-26-2011, 03:59 PM
Irish Blues
Guest
 
Posts: n/a
Default

They didn't borrow the money in 2008; it was borrowed back in 2002. However, the rest of the article underscores a point made 3 years ago and which only now is becoming evident - there's NWIH the county will ever be able to pay that money back. FWIW, the bonds have already been downgraded well into junk status and the county has been in technical default for over 3 years since failing to post collateral as required when interest rates ramped up.

What should happen is that JPM and others who negotiated the interest rate swaps that brought this about should be taken behind the woodshed - and paying $75 million in penalties and agreeing to give up $647 million in future fees was never sufficient enough. But, that would require the U.S. to have an actual Department of Justice that's interested in justice; as it is, they seem more inclined to sit on their collective ass and just collect a salary.
Reply With Quote
  #67  
Old 07-26-2011, 04:01 PM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,142
Default

The previous record was set back in 1983, by the way. I'll let you google it.
__________________

Now offering online seminars, live seminars, and everything else under the sun and over the moon for actuarial exams.
Reply With Quote
  #68  
Old 07-27-2011, 10:14 AM
satogaeru's Avatar
satogaeru satogaeru is offline
Member
 
Join Date: Mar 2005
Posts: 1,161
Default

More Mayhem for Munis?

I think maybe the title's a bit much. The upshot of this light, short article is that a US debt downgrade will affect muni prices and might cause another muni bond selloff.

Thoughts?
Reply With Quote
  #69  
Old 07-27-2011, 10:38 AM
Irish Blues
Guest
 
Posts: n/a
Default

Muni's that are AAA-rated are implicitly as safe as U.S. Treasuries; if Treasuries get knocked down to even AA+, it's hard to make an argument that AAA-rated munis are safer ... so they probably get downgraded by association. That pushes other munis that are already lower-rated down by association as well, ... you get the idea from there. If you've issued a municipal bond and you're in any kind of a financial pinch, any downgrade just puts more pressure on you and in some cases pushes you right over the edge. Enter Meredith Whitney's call on huge losses in the muni bond market; she's probably right on the size, but off on the timing.

Will a downgrade of the U.S. directly cause a sell-off in munis? No - it's the flow-through effects that will do it, and that may take a few years to be felt.
Reply With Quote
  #70  
Old 07-27-2011, 03:10 PM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,142
Default

Some of that credit watch, though, isn't specifically related to a Treasury downgrade, but that the feds may reduce cash flows going to states (no more BABs, of course...) -- and this can happen whether or not the whole debt ceiling thing gets resolved.
__________________

Now offering online seminars, live seminars, and everything else under the sun and over the moon for actuarial exams.
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 03:17 AM.


Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.32699 seconds with 9 queries