This from Investor’s Daily Edge:

The election’s over. President-elect Barrack Obama won, and some people are worried that he’ll start taxing dividends like income. Have I got news for you… that’s the least of our worries on the dividend front.  Put it in the drawer for next year’s hand wringing.

Because just when you thought the financial news had exhausted all the bad stuff and you had found safety in dividend stocks, I have to give you a heads up. Your stock could be getting a pension fund “margin call.”

I love dividend stocks. These companies have cash, pay cash, and keep the faith with investors for the most part. But some are on the verge of breaking that faith this year. It has nothing to do with mortgages or credit markets – it’s about pension funds in trouble.

And when pensions are sucking up cash flow, your dividends could suffer. Mercer, a pension consulting firm that is part of Marsh & McLennan (NYSE:MMC), already estimates that pension shortfalls will lead to a 10% cut in stock dividends this quarter compared to a year ago.

That’s a big deal. Even the 2003 squeeze on pension funds after the three-year-long post-dot-com bear market didn’t cause that. In fact, this could be the first time pensions have been hit so hard since 1958.

Pension plan contributions are a normal expense that companies handle just as they pay the electric bill and management bonuses. But pension plans are special. The funds are separate from the general coffer and there are rules on how much money the plans must have compared to the benefits they’ll have to pay out. This is true in the U.S., Canada, UK and Europe. And though I will use U.S. examples, British and European stocks are also under pressure.

In the bull market years of the 90s, keeping a pension fund properly funded was no problem for most companies. Their funds were flush with stock, and stocks were going up. In fact, before Enron spoiled everyone’s party, some pension funds were loaded with roaring hot company stock. (The post-Enron limit is 10% in company stock in the company pension fund.) Pension funds were making money.

Obligations were fully covered and then some. Some funds were so flush the companies were able to stop putting money in them for several years. They even showed earnings from pension funds as “other” income on balance sheets, making their earnings look better than they should.

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GE (NYSE:GE) was famous for smoothing its earnings by including pension fund surpluses in its figures. Some critics called this maneuver “vapor earnings.” These vapor earnings fattened the bottom line sufficiently to bring fortunate GE execs an extra 9% in their bonuses.

Now comes today… after a bear market… into a recession. Vapor earnings are vaporizing. As of September 30, S&P 500 companies’ pension funds have lost an average of 11.6%, according to CFO magazine. They are now about 92% funded. That’s just barely OK… for a couple more months.

For many years, U.S. companies only had to keep 90% of the present value of expected obligations in their accounts. The Pension Protection Act of 2006 will raise that “coverage ratio” gradually to 100%. For 2008, the magic number is 92%. And it goes to 94% in 2009. So this 92% funding estimate means that some companies pass muster, and a lot don’t.

Standard and Poor’s says S&P 500 pension plans were $200 billion short of minimum funding levels by the end of September this year. Worse, they were on target to surpass the $219 billion record shortfall of 2003.

Who’s in trouble? What stocks to avoid? Remember that funding a pension is a normal business expense. So it’s not every company that shows a pension obligation that should bother you, but the ones that show likely shortfalls that could overwhelm earnings.

Among the companies with big pension plans that are likely to need a large shot of hard-to-find money are Lockheed Martin (NYSE:LMT), United Technologies (NYSE:UTX), Aetna (NYSE:AET), Boeing (NYSE:BA), IBM (NYSE:IBM), Eastman Kodak (NYSE:EK), Goodyear (NYSE:GT), Ford (NYSE:F) and GM (NYSE:GM).

Those are just the big names. By industry, the most underfunded pensions are concentrated in information technology and healthcare. Utilities also slipped from overfunded last year to coming up short this year.

The good news is that companies have to give you a warning in their financial reports—the bad news is that you have to read the suckers. At least if you do it online, you can use a search and go straight to the “pension” part of Management’s Discussion.

Source: Another Fancy Disaster You Didn’t Need – Pension Fund Vapors

Over the past decade, inflation has been tamed, with an operationally independent central bank keeping it below 10% for almost all of the past decade, compared with 2,500% in 1993. Growth is running at 4%-5% a year, external debt has declined dramatically, commodity exports are underpinning large trade surpluses, and foreign reserves have ballooned to $200bn. All this makes Brazil far less vulnerable to global crises.

And the country has just received a “strong vote of confidence” from ratings agency Standard & Poor’s (S&P), says Economist.com. S&P awarded Brazil’s foreign-currency-denominated debt investment-grade status. It claims Brazil’s pragmatic policies have created a “sounder foundation for economic growth and fiscal improvement over the past five years that should continue”.

The upgrade, which in due course seems likely to be followed by upgrades from the other major ratings agencies, Moody’s and Fitch, will gradually lower the cost of capital in Brazil – as borrowing costs fall with a better credit rating and money flows into the country – boosting growth prospects.

International funds that are barred from buying sub-investment-grade bonds will now be eyeing up Brazil and interest among global equity investors should mount amid optimism over future growth; with new fixed-income and equity flows and more foreign direct investment on the cards, the move is a “strong long-term positive for Brazil’s financial markets”, says Citigroup’s Geoffrey Dennis. The stockmarket has gained over 8% since the upgrade and the Bovespa index is at a new record of around 70,000; it has risen sevenfold since 2002.

There is ample scope for further gains in the long-term. Brazil is ideally placed to cash in on the secular commodities boom, given its own oil, a thriving ethanol production sector – thanks to its sugar cane – world-beating iron-ore production and “one of the most efficient agricultural sectors in the developing world”, says Stephen Foley in The Independent.

Bulls also point to the fact that exports comprise just 14% of GDP, shielding Brazil from “changes in the export environment”, as Daiwa puts it; growth has been led by domestic demand as job and household income growth has fuelled consumption among the expanding middle class. Retail sales were up by an annual 12.2% in February.

But now short-term interest rates are rising, says Dennis. In April, the central bank hiked rates by 0.5% to 11.75%, and with growth strong, inflation back to 4.7% and inflation expectations rising steadily, rates may have to go higher than the 13% economists are pencilling in. He also points to “notably rich valuations”, with the market’s forward p/e of 12.4 42% above the historical average and the price to book value ratio at a record 3.5.

Moreover, as the past year has shown, Brazil will not be immune to a likely relapse in global markets amid fears over the American and global economies – note that the Bovespa index is highly cyclical, with the energy and materials sectors comprising 60% of the index. There will probably be better long-term buying opportunities in the months ahead.

Source: Brazil Is Well Placed for Triumph, But Wait for a Better Time to Jump In

If you are watching all of this subprime, Alt-A, CDO derivatives crap lose money by the ton and wonder how badly you are going to be hurt since that toxic crap is seemingly everywhere, then you will be interested in Junior Mogambo Ranger (JMR) George P. sending me the news from Bloomberg.com that “Standard & Poor’s lowered its assumptions for how much money investors will recover after defaults of mortgage-tied collateralized debt obligations.”

Naturally, I am curious as to what “lowering assumptions” means to these S&P people, as I have recently been told by my family that they have “lowered” their assumptions again, too, and that they now collectively assume that I have hit bottom, and am now “the worst husband and father in the whole world”, and that they have decided that they will all be forced to live out their stupid little, pathetic lives in “anger, hate and misery”, which sounded about right to me, too, as in “welcome to my world, chumps!”

But this is not about me and my family – who have so discerningly figured me out – but about how people are going to be losing their butts with the stupid idea that they can “invest for the long-term” by letting “investment professionals” invest their money for them in things that pay high commissions. Now it has turned out that “The most-senior bonds from the CDOs originally rated AAA should recover 60 percent of principal owed, while securities rated A or lower will get nothing, S&P said.” Yikes! Nothing! What in the hell kind of long-term investing is that? Hahaha!

People in the office started complaining about the disgusting way I sat there, apparently paralyzed but perversely drooling and humming the theme from Gilligan’s Island, as I tried and tried in vain to fathom how much money that is, but it is measured in trillions of dollars! Trillions!

And getting back a measly 60 cents on the dollar for some CDO assets, and zero cents on the dollar on others, is a lot of money, measured in untold numbers of trillions of dollars (with knock-on effects), too, which means a LOT of money, which I will further emphasize by using several exclamation points, as in “that’s a freaking lot of money to lose!!!”

And these hotshot S&P analysts are not through dispensing terrifying news, as they go on, “Investors should recover 35 percent of principal after defaults on securities from the CDOs junior to their so-called super-senior classes but also originally rated AAA.”

And, even more, “Recoveries on the most-senior originally AAA rated securities backed by Alt-A, subprime, or home-equity loans or tax liens will likely be 80 percent, while for junior AAA securities they should be 65 percent. Alt A bonds initially rated A should recover 35 percent, while similar securities backed by the other types of loans will recover 10 percent.”

By this time, all these numbers add up to, as I previously indicated, “a freaking lot of money to lose!!!”, with three glorious exclamation points for emphasis which, now that I think about it, is entirely too few to convey the true horrific, cataclysmic impact, and it should more correctly read “a freaking lot of money to lose!!!!!”

And where is a lot of this soon-to-be-worthless CDO stuff going? Well, Junior Mogambo Ranger (JMR) George asks, “Isn’t the Fed taking in some of this so-called AAA CDO crapola as security” against Treasury bonds as a blatant attempt to shore up banks’ balance sheets and other nefarious purposes? I sagely nod my head “yes”, and he asks “at what valuation?” Hahaha!

Laughing too hard to reply, and being too stupid to know even if I weren’t, I extend one Long Bony Mogambo Finger (LBMF) to point to the S&P analysis (above), and then (to win both the prize for Understatement Of The Week (UOTW) and Mogambo Dry Humor Award (MDHA)), he says with a deadpan look on his face, “The Bernanke balance sheet may be an even bigger fiction than we think.”

I laugh, and I realize that all the rest of that economic crap is thus a fiction, too. I tried to keep laughing, but I could not. Fortunately, I tried to eat a cheeseburger, and I could. Fries, too! And then I felt better.

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