Filed under: Elections, Politics, Progressive | Tags: Alabama PACT, Alabama Prepaid Affordable Tuition Fund, PACT
Two questions that have been plaguing me since the PACT fiasco started are:
“Was the money invested conservatively?”
“Was it invested responsibly?”
I’ll make my best effort to answer these questions here.
Variability of returns is one way to measure risk. Let’s begin with that.
The chart below shows PACT’s percentage return on investment (ROI) for the last 18 years. I also added percent funded. I assume that means the percentage of the program’s total obligations (i.e. NOT just payouts due that year) that are funded at each interval.
Look at the average (mean) ROI. That’s pretty close to the official projection of an 8 percent per year return.
With a conservative strategy, you would see lower returns than this in the good years. You would also see a smaller difference between the best and worst years.
Here’s another way to evaluate the variability. What happens when we put the annual return on investment in order from best to worst?
Only five years below the projected 8%. If we divide the 13 good years by the 18 total years, it gives us a success rate of 72.22%. In ten of these years the ROI exceeded the projected 8% by more than 50 percent. That’s a “highly successful” rate of 55.55%. All that success still isn’t enough to make up for the five bad years. Note the range between the best and worst years, too – it’s more than 45 points!
This amount of variability is a red flag. Based solely on the variability, If someone says PACT has been conservative with this money, we may want to ask them: Are you ignorant, or are you lying? But let’s not be too hasty about that. Let’s look at this from another angle, first.
Investment Strategy Evaluation
Here’s a second way to evaluate the risk. We can compare the investment strategy adopted for PACT to the strategies recommended for 529 funds participants.
One way to do this is to look at Van Kampen’s strategies for Alabama’s 529 savings fund. This one is explicitly described as a mutual fund with all the risks attendant. I hope this comparison will make it clear that the PACT monies were invested irresponsibly.
According to page 4 the actuarial report, (see page 9 of the pdf file) more than 60% of all contracts have anticipated enrollment dates in 2011 or before. An additional 15% have enrollment dates between 2012-2014.
Now, check out the “years to enrollment” investment strategy distribution from page 4 of the 529 brochure (pdf). See how stocks make up only 10% of the portfolio for those entering college within 2-3 years? And 50% for those enrolling in 4-6 years?
Compare the 529 strategies to the investment strategy in the actuarial report (p.9):
U.S. Stocks: 51%
Non-U.S. Stocks: 21%
Fixed Income: 28%
According to the report, fully 72% is invested in stocks! That is only a few points less than the percentage recommended by the 529 program for those who are expected to enroll in 9-7 years under an “aggressive” (highest level of risk) investment strategy.
While it may be legitimate for a wealthy person to pursue an aggressive “high risk/high return” strategy and hope for an annual growth rate of 8.5% over an 18 year period of time, we’re talking about the money of average Alabamians here. This group of people just can’t afford to take these kinds of risks with their childrens’ college money.
And keep in mind what the “moderate risk” investment strategy for the 529s looks like. It includes a maximum of 60% stocks for those who are enrolling in 10 years or more, then cuts back to 50% for those enrolling in 9-7 years.
So it appears that PACT engaged in an investment strategy that would be considered an appropriate “high risk” strategy for those entering college in 7-9 years, despite the fact that approximately 75% of their contracts are for students enrolling in 2014 or earlier.
It is unacceptable for 72% of these investments to be in stocks, given the a general rule that the closer you get to “paying out”, the less you put in stocks, and the more you put in non-volatile or insured investments like bonds and certificates of deposit. And given the near-term obligations of the fund.
Further Questions
Based on what I’ve seen here, this money was handled neither conservatively nor responsibly.
Alabamians deserve to know why the custodians of this money thought it was a good idea to invest it the way they did.
This is the basic analysis. We haven’t even begun to consider the difficult questions. Here are a few questions I think the citizens of Alabama deserve to have some answers to, just for starters:
Who adopted this investment strategy, and on whose advice?
How long has this investment strategy been in effect, and what did the strategy look like before it was adopted?
What are the details of these U.S., Non-U.S., and Fixed-Income portfolios? Which companies and which bonds is this money invested in?
What is the role of the securities lending program mentioned on page 4 (pdf page 6) of this report? What type of securities are being lent, and to whom? Where is the collateral being invested?
Reporters and Legislators ought to ask these questions. The PACT board ought to answer them.
– I am indebted to Paul Lukasiak for his patient analytical assistance, and for the many words he has exchanged with me over the last couple of weeks on this issue.
– Data source for the tables
Cross-posted at Left in Alabama
Filed under: Elections, Media, Politics, Progressive, Surveillance State | Tags: Alabama, Karl Rove, Tennessee
In just a little while, we will be heading over to Broad Street with a video camera to try and find out if it’s true that the key evidence against Bush administration officials in their perversion of democracy is still backed up on computer servers with the company that produced and stored Websites and e-mail accounts for the presidential campaigns of George W. Bush and the Republican National committee.
Smartech still boasts on its Web site about being the “official hosting provider” for the 2008 Republican National Convention and brags that they “will ensure the site is always up and available. Smartech’s infrastructure gives companies that host with them the most security and redundancy, ensuring that their website is always up and running.”
So if they are so reliable, they must have saved backup copies of all those e-mails from Karl Rove on that RNC Blackberry he used to run the administration’s political ops from the White House. Like the Zen Master said, “We will see.”
I’m doing my best to keep my expectations low and my fingers crossed on this one.
Filed under: Elections, Mississippi, Politics | Tags: advertising, Travis Childers
h/t WriteChic
That’s a lot of money for the NRCC to be putting into the First District of Mississippi — especially for ads of such poor production quality. It’s always difficult to tell how ads will be received, but in the one above, I think people are going to find the narrator condescending . The animation looks like it was done with PowerPoint.
“Groovy” is just silly. It’s a sign that whoever produced the ad believes Mississippians are still living in the 1980s. Using the hippie stereotype as a smear just doesn’t have the same effect it did 25 years ago, and there are going to be a lot of voters participating in this election who simply don’t have the emotional baggage from the Vietnam Era that’s required to make it work. “That dog won’t hunt” makes it even more obvious that the genius behind this ad thinks we’re all smoking corncob pipes and have cotton growing up to the edge of our porches.
Having donated money to John Kerry may be a good thing for Childers at this point. Kerry ran against Bush in 2004. To a lot of people, that’s all that matters, and it’s a plus. If this ad has any positive effect for Republicans at all, it’s going to come from stirring up some homophobic bigots who might otherwise stay home. I think that’s what the mention of S.F. and having Pelosi’s name in pink are really about.
This one, from the Davis campaign, is a bit more dangerous and a lot more dishonest.
It’s been thoroughly deconstructed elsewhere by now. Rev. Wright’ statement is being distorted here, and Obama wasn’t ridiculing rural people with his statement about guns and religion. This one could do some damage, though. It’s no secret that we still have lots of racism in Mississippi. However, it seems to me that the ad is preaching to the choir and could backfire. I think more people than you would expect are going to say the same thing about Rev. Wright’s speech that Buelahman said the other day in this post, which includes several minutes of video that helps to put Rev. Wright’s speech into its proper context.
The ad from the Davis campaign is, I think, designed to incite the base and get some people who would otherwise stay home to turn out. The problem I see with it is that it’s probably going to turn some people off, too. It’s fairly well-accepted that negative advertising reduces turnout in general more often than not. Since it tends to hurt the target’s turnout more than the sponsor’s, and since high turnout so often favors Democrats, I think the GOP strategy here is to depress turnout as much for possible and hope for the best.
It’s significant that the word “Republican” isn’t mentioned anywhere in the ad. That’s because the Republican brand is pretty much dead, at least for this election cycle. If someone in the Childers campaign asked for my advice, I’d tell them to brand Davis as a big-money, pro-war Republican. One who doesn’t want us to have jobs or our children to have health insurance. Just like Bush and McCain. They should also do everything possible to question his credibility as a conservative.
To me, these ads make Davis seem desperate. As nervous as that second ad makes me, I’m glad the NRCC is spending this kind of money here, and I hope it turns out to be a waste of resources for them.
Jeff Walters has a roundup on the MS-01 race over at the excellent Cotton Mouth, including a link to a post that discusses the FEC filing that the dollar figure comes from.
Will Bardwell has invented a fun new game called “Childers said Nothing.”
Filed under: Elections, Katrina, Mississippi, Politics, Religion | Tags: Alabama, bigots, homophobia, John McCain, Travis Childers
My comment from Mooncat’s recent Left in Alabama post on McCain’s visit is too good not to share.
Democrats fell less than two percent short of flipping the Mississippi-01 with six candidates on the ballot. The two Dem candidates combined got 50.6 precent of the vote. The NRCC outspent the DCCC two-to-one on this race. This is a Republican +10 Congressional District.
And McCain draws 100 people here[Selma].
DNC is attacking McCain (finally!). The video of the ad is worth a look, but even if you can’t handle video you should check out the link just to read the headline.
One more positive sign, and I might just move into the “McCain has nowhere to go but down” camp.
I am hoping that the GOP race-baiting is finally going to backfire. And that none of their strategists will realize McCain is coming off as a cranky old man who’s out of touch with everyone except Joe Leiberman.
How Insane is John McCain? So insane he’s happy to be endorsed by a bigoted pastor who says, more or less, that God damned New Orleans because some homosexual people like to hang out there. Now that’s insane.
Rye flour to be exhausted by June/July, wheat stocks running below normal level.
Tent cities in L.A., food rationing on both coasts.
Got no time to look into this further or draw any conclusions, but you might want to start with those two links and look into this yourself.
No comment on encounters with the male prostitutes. Filming them? Not such a good idea.
Alabama Republicans refuse to disclose big money donors
Filed under: Civil Liberties, Economy, Elections, Iraq, Politics, war | Tags: John McCain
“Compassionate Conservatism:” it’s ba-a-a-a-a-ck!
The military is building a wall around Sadr City.
90 percent: Teh economy sucks.
Americans agree to leave political discussion to their betters.
Homeland Security wants your DNA
Filed under: Civil Liberties, Elections, Human Rights, Media, music, Politics | Tags: Barak Obama, John McCain, unions
I found this last night while I was looking for that Billy Bragg video I posted earlier today. I was going to save it for a post on labor organization, but then I remembered our conversation from earlier in the week. So, this is for Go Blue and union-loving leftists everywhere. 
And here’s a story that confirms Herding old cats’ take on the campaign coverage:
John McCain and Barack Obama both appeared before the nation’s newspaper editors yesterday. The putative Republican presidential nominee was given a box of doughnuts and a standing ovation. The likely Democratic nominee was likened to a terrorist.
It wasn’t just any member of the AP who likened the good senator to a terrorist — it was the chairman. The story was all over the blogosphere for about 5 minutes earlier in the week. I don’t remember where I first saw it, but I picked up the WaPo link from Joshua Davis Photography. I think we can rule out the “stuck on stupid” theory and attribute actual malice to a sizeable percentage of the political press corps.
In an effort to put more information at your fingertips than you can possibly use, we’re going to start doing a roundup of blog roundups from time to time. So, here we go:
Mike Finnegan at C&L links to several articles, including one about the Secret Service running black ops against progressive groups.
Sideshow: Businessmen bribe universities to make the work of crackpot Ayn Rand required reading; McCain wants to privatize Social Security.
Blue Girl: Political rallies banned in Zimbawe; Colony Collapse Disorder threatens agriculture in Washington.
Alaska has a surprising number of progressive blogs.
Texas Blue links to several news items, including Colin Powell on withdrawing troops from Iraq.
The Today show is like nails on a chalkboard to me, but I watch a few minutes of it before work anyway to see what the MSM is doing. This morning they interviewed Obama about the war. I thought the did an o.k. job, but not a great job. He seemed to agree that the surge worked (it didn’t) which is not something a Democratic candidate ought to agree to. And, he talked about what happened in Basra last week, but not what’s happening in Baghdad today.
Also, Meredith Vieira took him to task for “misrepresenting” McCain’s 100-year remark. I didn’t think he handled that well – he argued back-and-forth with her over it – and I think most people who watch this foolishness for its news value will side with Meredith.
I’ve got nothing against Obama. He’s just the one I happened to see today. I’ll certainly be voting for him
in November if he wins the nomination. But, I think he has to do better than this on T.V. spots if he hopes to win the general election.
Digby says the Democratic Party is having difficulty raising the money needed to go after McCain. I agree with her that this is pretty pathetic, and leaving too much top chance. In fact, I said on a comments thread somewhere not long ago that if we don’t see an effort to attack him under way by mid-June or early July at the latest, we’re in serious trouble. I stand by that assessment.
John McCain: still insane. (video of his Memphis speech).
