Does "American Airlines" Need To Terminate Its Pensions in Bankruptcy?

American Airlines' parent company AMR corp, which is currently in bankruptcy, wants to eliminate its four pension plans, which it says is a "multibillion dollar liability on its balance sheet".

The Pension Benefit Guaranty Corp. disagrees, and says that American can emerge from bankruptcy without terminating its pensions.

They say that American still has $3 billion in cash and Delta, which has higher pension costs, is currently profitable. Also, Continental did not have to terminate any of its pensions during its bankruptcy.

The Pension Benefit Guaranty is the federal agency that takes over pensions when the original companies can no longer run them. Instead of tax money, they are funded by premiums paid by companies with pension plans.

However, the premiums that Congress allows them to charge aren't enough, and they are currently running a $26 billion deficit which, according to a "Chicago Tribune" article, would become $35 billion if they took over AMR's pensions.

Because of this deficit, they would only be able to pay each American Airline pensioner up to $54,000/year. This would short change some retirees, such as pilots.

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Kindle Version Of "Stock Trading Riches" Reaches Top 100 Business and Investing Best Seller List

Today, the kindle version of my book Stock Trading Riches reached the top 100 on the Kindle Business and Investing best seller list.

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To Be A Good Trader Or Investor, You Must Learn To Control Your Emotions

To succeed while trading the stock market, you need to be able to control your emotions. You can't become angry or fearful when you are on a losing streak. Alternatively, you can't become euphoric or greedy when you are winning.

Individual stocks, the stock market itself, and trading systems all run on cycles. They will enter money-making modes some of the time and then, without warning, switch.

The only thing we can predict 100% is that, whatever the current state of the market, it will eventually switch, and then eventually return.

If you jump out of the market when it is down, there is a good chance that you will miss the rebound. Similarly, if the market has been strong for a long time, and has reached fantastic heights, you can't become greedy and buy a lot, because the market may fall.

To keep myself from trading impulsively on emotion (and losing), I developed a simple trading plan that lightens my positions as they reach high levels, and starts scaling in as my positions go down.

As a result, I built up my positions at good prices, and scale out as the market goes higher.

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Introduction to Market Capitalizations For Stocks

A stock's market capitalization (market cap) is computed by multiplying the stock price by the number of shares outstanding. So, if a stock's price was $50 and there were 10 million shares, the stock's market cap would be $500 million.

Stocks can be separated into 4 groups, according to their market capitalization:

1. micro caps - below $300 million

2. small caps - between $300 million and $1 billion

3. mid caps - between $1 billion and $5 billion

4. large caps - over $5 billion

I talk in more detail about market cap analysis in my book Stock Trading Riches because it's important for investors to allocate their portfolios among all market caps to provide diversification, avoid cyclical returns, and take advantage of "regression to the mean" (e.g. one market cap segment outperforms another, but then they converge).
Market cap is calculated by multiplying the number of shares outstanding by the share price. For example, if stock ABC issued 6 million shares, and the price of each share is $6, then ABC has a market capitalization of $36 million.

In general, micro caps are new companies that are just hitting their stride. Small caps tend to have their infrastructure in place and are in growth mode. Mid caps are big regional or national companies. Large caps tend to be established multinational corporations.

Stocks within each market cap share important characteristics in the areas such as growth rate, risk, dividends, visibility, and international exposure.

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For Many, Trading Dreams Turn Into Frustrations

Many people get interested in trading after hearing about rich hedge fund managers, or getting a slick sales brochure from a "trading guru" trying to sell his latest system.

They see the well-chosen examples from the sales literature, understand how the system works, and then day-dream about the fortune they will make.

Then, they start trading and either under-perform the markets (if involved with un-leveraged stocks / funds), or else lose a substantial portion of their principal (through futures and options).

I know this, because it also happened to me. When I first started trading, I read all the gurus' literature, and decided that making a living from trading would be easy. I started day dreaming about what I would spend the money on.

Of course, I since learned that it's not that easy to get rich quick trading.

On the other hand, many frustrated would-be traders then completely quit trading and investing. This is a mistake because everyone needs some exposure to stocks and the stock market - otherwise your retirement savings will suffer "losses" through not keeping up with inflation.

I found the middle-ground between aggressive and conservative investing: I created the Stock Trading Riches system.

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Aon Insurance's Move to London: An Example of How Shareholder's Votes Aren't Always Simple Decisions

A month or so ago, Aon Corp. (one of the world's largest insurance brokers) announced that they would move their headquarters from Chicago to London. Even though only a few jobs would be affected, it was considered a blow to Chicago's prestige as an international financial capital.

Aon's board said the decision was made to lower their corporate tax rate and allow them to access $300 million of cash they have outside of the U.S. They made it seem like a simple, cut-and-dry issue.

On the eve of the shareholder vote, however, they had to comply with SEC regulations, and disclose the risks of the move:

1. Some shareholders might get taxed during the switch from a U.S. to U.K. company.

2. The IRS might fight the U.S. to U.K. switch. If Aon lost, the projected cost savings may not occur.

3. The litigation might take so long that, if Aon lost and the U.S. to U.K. move was undone, it might be too late for investors to file an amended 2012 tax return to claim a refund of the taxes from risk #1.

4. Shareholders like companies to buy back stock, but English companies face more restrictions than Delaware corporations for stock buy-backs. For example, they may have to get 75% of shareholders to vote in favor of it.

5. They may not be allowed to continue to pay their dividend until they built up "distributable reserves".

6. Finally, there is the risk that Aon may get removed from the S&P 500.

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The Fuggerei - Really Long, Long Term Investing

The Wall Street Journal had an interesting article about people living in the Fuggerei - a Roman Catholic housing settlement for the poor in Augsberg, Germany. People who live here still pay the same rent that was set when the Fuggerei was first opened - in 1520!  Then, the rent was 1 Rhein Guilder a year and 3 daily prayers for the well being of the Fugger banking family (make up your own jokes about "Fugg"ing bankers ;-) ). Today, the equivalent to 1 Rhein Guilder/year is 0.88 euros ($1.23) per year. The founder of the Fuggerei was Jakob Fugger "The Rich": Jakob the Rich was Wall Street long before it existed. He minted coins for the Vatican, bankrolled the Holy Roman Empire and helped steer Europe's spice trade in the early 16th century to become one of the wealthiest and most powerful financiers in history. He left more than seven tons of gold to his successors -- and a good deed. Much of the Fugger business empire crumbled over the next 150 years, battered by wars and soured credits. But the walled Fuggerei, with its picturesque lanes and seven gates in the heart of this onetime European banking capital, still stands. The Fuggerei is a good testament to the power of long term investing - even at conservative rates of return. In the late 17th century, after losing money in riskier investments, the bulk of the trust was invested conservatively - in old forest holdings.  Since then, over the last 200 years, the trust has never lost money.  The returns have ranged from 0.5% - 2%.

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