News&Notes: Equity Mutual Fund Performance, Briefing.com, Pension Reform, & Trends/Innovation

Trim Tabs - It has been a brutal year for the mutual funds industry. We estimate that assets in equity mutual funds dropped to $3.2 trillion on November 19th from $6.5 trillion at the beginning of the year. Only 7.8% of the drop comes from net redemptions. If we had been told at the beginning of the year that mutual funds would lose more than half of their value, we would have thought redemptions would be 10-15% of assets. In short, we have not seen panic yet, and selling could get a lot worse.

...Selling pressure from mutual funds could get even worse. Redemptions from US equity mutual funds totaled only 3.5% of assets so far in 2008, against 4.3% of assets during the 2001-2003 bear market. Projecting a similar redemption rate, another $38 billion could leave US equity mutual funds. Also, redemptions from global equity ETFs account for less than 21% of the assets gathered in the three prior years.

After losses, pensions ask for a change - NY Times
NY Times reports stung by outsize investment losses, some of the nation's biggest companies are pushing Congress to roll back rules requiring them to put more money into their pension funds, just two years after President Bush signed a law meant to strengthen the pension system. The total value of company pension funds is thought to have fallen by more than $250 billion since last winter. With cash now in short supply for companies, they are asking Congress to excuse them from having to replenish the required amounts. Lawmakers from both parties seem receptive to the idea, and there was talk of adding a pension relief provision to the broad fiscal stimulus package Congress considered for this week's lame-duck session. Late Wednesday, several senators announced that they had reached agreement on a bill that would provide pension relief. Even if it is not completed this week, some Congressional leaders say they will seek support for a pension relief bill in January.
RCM Comment: Instead of dealing with the root of the problem Congress continues to change rules, which simply weakens the fabric of the system.

Briefing.com - ... And once the major averages breached the key support level marked by the Oct-Nov lows two days ago, we immediately started to see a whole new round of forced selling by funds and market risk-reduction efforts by insurance co's. Hartford (HIG) essentially confirmed that insurance co's have been major sellers last night, when it stated that "The company's investment management team is taking a series of actions aimed at repositioning the portfolio in light of current economic outlooks, with plans to enhance the overall credit quality of the general account. The company is currently investing in treasuries and other high-quality securities, and maintaining higher levels of liquidity than it has in recent quarters."

...And earlier in the week a major story emerged that kicked out the one remaining leg of the stool that the financials were sitting on: There was an announcement that two separate operators, a shopping mall and a hotel, were past due on their payments to their creditors. The commercial property space (as opposed to residential) had been the one remaining "safe" area in real estate, so this announcement caused a rush by lenders to insure themselves in case of default, thus causing the CMBS market to rocket higher, which in this environment is a recipe for panic (we saw an identical panic develop with LIBOR rates a few months ago when FNM, FRE, and LEH were on the brink). As a result, all financial stocks and REITs are getting thrown overboard, the former on concerns of additional portfolio writes-downs and the latter due to concerns that REITs will have extreme difficulty rolling over debt.

Trends and Innovation: There is a world outside of the financial markets.
Transplant of windpipe grown from stem cells heralds new era in medicine - Daily Telegraph
Daily Telegraph reports The science of healing is developing so quickly that it has become almost a cliche to describe a particular operation as a "breakthrough". Yet there is no doubt that the first successful transplant of a human windpipe, constructed partly from stem cells, is an astonishing milestone -- one that could indeed mark the start of a new era in medicine... The venture was a textbook example of international collaboration, drawing on the talents of teams in Spain, Italy and Britain. To recap; the operation, on 30-year-old tuberculosis patient Claudia Castillo, took place in Barcelona, where doctors also had collected a three-inch segment of trachea from a 51-year-old donor who had died of a cerebral hemorrhage. They used a technique developed in Padua to strip the windpipe of its donor's original cells, a procedure that took six weeks, to create a "scaffold". At the same time, a team in Bristol used a "bioreactor" dreamt up in Milan to grow stem cells removed from Castillo's bone marrow. These cells were "seeded" into the donated windpipe, disguising the 'foreign' tissue that remained so Castillo's body would accept it as her own.