Posted by: conservativecritic | May 14, 2012

401(k)’s…an Update on a Disaster in Progress…

The 401(k) Mutual Fund Retirement Plan: A Failed Experiment, a Recipe for Disaster and a Greater Fool Pump and Dump Ground for Wall Street 

 

(Hampton, NH, May 10, 2012) Barry James Dyke, author of The Pirates of Manhattan and the sequel The Pirates of Manhattan II: Highway to Serfdom concludes that the 401(k) mutual fund retirement plan is a failed experiment, a recipe for disaster and a ‘pump and dump’ ground for Wall Street products. http://www.thepiratesofmanhattan.com. 

 

The author states, “When the 401(k) was introduced in the 1980s, it was only intended to be a side-dish of the retirement savings puzzle. Today the 401(k) is the main course retirement vehicle for 72 million Americans in 483,000 plans. Yet the 401(k), without any guaranteed returns is a recipe for disaster. According to the New York Times only 22 percent of the population over 55 has $250 thousand or more in their 401(k). Sixty percent have less than $100 thousand. The 401(k) is a speculation bonfire—over 77% of the savings in these plans are invested in volatile equities and mutual funds—which dumps all of the investment risk on uninformed retirement savers (Source: ICI). Tying all of retirement income to the stock market is insane. It will likely lead to another economic bubble right out of scripture.” 

 

“401(k)s are a labyrinth of fees and a hidden world of revenue sharing agreements—which the American public is clueless about. In 2011, an AARP study found that 71% of plan participants thought they paid no 401(k) fees. Of the people who are aware that they paid fees, only 39% were aware of how much. [A January 2011 GAO report documents the revenue sharing problems. http://www.gao.gov/products/GAO-11-119. Another January 2011 GAO study on target-date funds, a fund-of-funds hybrid mutual fund, the most-favored retirement account for 401(k)s has proven be a disaster as well http://www.gao.gov/new.items/d11118.pdf.%5D 

 

“Mutual funds, which get their cash from regular Americans in their 401(k)s, are a major source of capital—the greater fool—for Wall Street’s questionable offerings. Tragically, mutual funds are an ideal dumping ground for hot-issue, sleight-of-hand, over-hyped initial public offerings (IPOs). With the national media chiming in with the Wall Street bandwagon [because of the advertising revenue it receives from banks], the upcoming Facebook IPO, like other recent social media IPOs, will be the most-hyped IPO ever. The Facebook IPO will make Mark Zuckerberg, Sheryl Sandberg, institutions, venture capitalists and others billionaires, while the retail investor will be holding the bag if Facebook does live up to its hype.” Dyke concludes, “a few recent examples of the pump and dump greater fool theory help illustrate this problem.” 

 

The Blackstone Group LP (NYSE: BX), the giant private equity firm whose owners include billionaires Steve Schwarzman and Peter Peterson was brought public in 2007 around $21.89 a share. Schwarzman’s payday in that IPO alone was $702 million. By May 1, 2012 Blackstone was trading at $12.93, a 40% plus loss for mutual fund shareholders. Major mutual fund owners include AIG, Waddell & Reed, Credit Suisse, Fidelity, Ariel, Janus and Alliance Bernstein. 

 

The Fortress Group LLC (NYSE: FIG), the private equity/hedge fund firm which paid former Presidential candidate John Edwards $479 thousand for consulting services, performed an IPO in 2007 at $27.63 a share. On May 8, 2012 Fortress was trading at $3.47 a share—an 87% loss. While the founders of Fortress Group are worth hundreds of millions, retail shareholders from Legg Mason, Fidelity, Fred Alger, Morgan Stanley, Credit Suisse, Goldman Sachs and others were taken to the wood shed. 

 

Social media, Wall Street’s latest fad in the IPO world, appears like the 1999 high-tech bubble all over again. Zynga (NASDAQ: ZNGA) and Groupon (NASDAQ: GRPN), two 2012 social media IPOs are barely six months old and have lost 16% and 41% of their value respectively. 

 

Marc Pincus, CEO of Zynga, however, cashed out for $109 million in a private deal before the company went public getting $14 a share. By May 8, 2012, Zynga was trading at $7.93—46% less than Pincus got. Major holders for Zynga? Mutual fund holders from Morgan Stanley, T. Rowe Price, Federated, Janus, Franklin Templeton, Pacific and Fidelity. 

 

Groupon founders Eric Lefkosky and Bradley Keywell sold $300 and $130 million in Groupon stock respectively, and Andrew Mason sold another $10 million. When Groupon went public, in November 2011, it came out at $17.50 a share, by May 8, 2012, it was down to $10.33, a 41% loss. Major holders of Groupon stock are American Funds, Fidelity, Legg Mason, Morgan Stanley, Pacific and Goldman Sachs. 

 

General Motors (NYSE: GM), the automotive company rescued by the American taxpayer, was brought public in November 2010 around $34.20 a share. By May 8, 2012 GM is trading a $22.23 a share, a 35% loss. Major mutual fund holders in GM? American Funds, T. Rowe Price, JPMorgan, Alliance Bernstein, Vanguard, Franklin, BlackRock and UBS. GM is run by Wall Streeters who claim they should be paid more. CEO Daniel K. Akerson was formerly with The Carlyle Group. Steven Girsky, Akerson’s chief lieutenant, was a Morgan Stanley automotive analyst. Daniel Amman, the current chief financial officer at GM, had been an investment banker at Morgan Stanley for fifteen years. 

 

The author concludes, “Wall Street, corporate executives, private equity and the mutual fund industry—all who portray themselves to be the smartest guys in the room—are not always the smartest but are masters when it comes to using other peoples money and the government purse to enrich themselves. It is a biblical transfer of wealth.” Barry James Dyke recently released The Pirates of Manhattan II: Highway to Serfdom-The Hijacking of America’s Savings. The book documents how Wall Street and corporate insiders have accumulated vast fortunes while taking Main Street America to the cleaners through mutual funds in general and target-date mutual funds in particular. The book also documents how lobbying controls the government and how the media has a co-dependent relationship with Wall St. Please visit http://www.thepiratesofmanhattan.com. You can reach him directly castleassetmgmt@comcast.net or telephone 603-929-7891.

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