Using gold to lessen risk
In a Dec 25 page 1 article, Chris Clair reported that 2000 was the worst year ever for liabilities. Quoting from a report by Ryan Labs Inc., he noted, ominously, that the pension fund situation this year does not look good either.
In these uncertain times, one can only empathize with those investment managers who are entrusted with maintaining the financial health of pension funds.
For some years now, the World Gold Council has sought to persuade pension fund managers to include gold bullion in their portfolios. As portfolio managers around the world feel the effects of stock market volatility and other signs of financial instability, studies have concluded that gold brings many benefits to an institutional portfolio. More specifically, we contend that gold has become a pre-eminent portfolio diversifier that tends to perform well when other classes do not.
Given some analysts' views that the U.S. dollar might be peaking, combined with continued stock market uncertainty, it is understandable that portfolio managers are now turning to alternative assets, including gold. But there are other reasons to hold gold.
It has a greater liquidity than many alternative assets like venture capital and real estate. It can be traded 24 hours a day and at very narrow spreads. There are few mainstream investments for which one can say the same, and many may remember that gold proved to be the most effective means of raising cash during the 1987 stock market crash.
Using the most reliable and painstaking research we can find, we have demonstrated that gold is an effective tool for controlling risk and protecting portfolios from major stock market declines. The deceleration in pension fund asset growth brings with it a reminder that there are sometimes safer roads for pension fund managers to travel, and that more often than not, these roads are paved with gold.
chief portfolio strategist
World Gold Council
Thank you very much for including excerpts from SEC Chairman Arthur Levitt's Oct. 9 speech to the Securities Industry Association in recent issues of Pensions & Investments (Other Views, Nov. 27 and Dec. 11).
I believe his speech includes very important information for all fiduciaries (whether functioning as investment advisers, plan trustees, pension consultants or mutual fund directors). And I believe there are brokerage alternatives that reduce fiduciaries' exposure to liability.
As Mr. Levitt mentions, "bundled commissions" can obscure the relationship between who is paying and who is rewarded for payment. As most investment professionals know, there is an alternative to bundled commissions. The alternative is known as "soft-dollar brokerage." Soft-dollar brokers provide itemized statements of services rendered for commissions received. The disclosures in the statement allow interested parties to evaluate the benefits received for their commission dollars. Another interesting point, most soft-dollar brokers don't participate in investment banking, distribute mutual funds, provide wrap account introductions, perform manager searches or "act as principal" in transactions; so there is little opportunity for conflict of interests.
So it seems a solution to many of the issues mentioned in the chairman's speech is for fiduciaries to be certain their brokers' statements offer disclosures like the disclosures now provided by soft-dollar brokers.
Firearms and Wal-Mart
In a March 5 letter to the editor, Denis Meinert criticized a Feb. 19 Other Views commentary about "social investing" that suggested Wal-Mart's policy of selling firearms is socially irresponsible. He reasoned that since the Constitution guaranteed the right to bear arms, and that Constitution had "laid the groundwork for freedom and prosperity without parallel in the history of the world," Wal-Mart is doing no wrong by mass merchandizing weapons.
Mr. Meinert's arguments are ill-conceived. They attempt to take two unrelated matters - the Second Amendment and America's prosperity - and associate them by wrapping them up in an American flag. America's success has nothing to do with the Second Amendment, and everything to do with the market economy, a liberal democracy tradition, geography, the skills and work ethic of its people, and the Constitution's guarantees of intellectual freedom. The Second Amendment is outdated, and a testament to a different time. It was conceived 200 years ago when the West was still to be won and basic survival in frontier lands required the protection of a gun. This is no longer the case. America's founding fathers would cringe to think that we were clinging to outmoded concepts because we are unable or afraid to change and move forward. Change, the parting of ways with the past and the adoption of progressive ideas, is the very essence of America's success.
The preponderance of handguns in the United States is one of the largest barriers to its one remaining achievement - to place human development and social prosperity on par with economic prosperity. The world's richest country has a handgun mortality rate (per capita) many times higher than all other industrialized nations, an infant mortality rank of 30th in the world, a life expectancy rank of only 12th in the world, and 25% of the world's incarcerated people. Clearly, there is still much work to be done. Accepting the Second Amendment for what it was - not a permanent, unassailable truth, but a granted right that has long outlived its purpose - will go a long way towards realizing that last elusive goal.