Sushi Money

***Update***  Prudential warned today stating third quarter earnings will be down on investments, and the company cancelled future planned stock buybacks.  The stock took a beating today, closing down over $10 per share.  But the company remains strong according to the CEO.   In today’s market climate however, investors are running for the exits in a “shoot first, ask questions later” approach to the financial sector.  

“While our results have been negatively affected by current financial market conditions, we are comfortable with our risk profile and believe that we are in a strong position to manage through the current environment,” said Chairman and Chief Executive John Strangfeld.”

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It’s a beautiful day outside… sunny and cool, blue skies and calm winds.  But the weather in the markets is still pretty stormy, and a lot of folks are stressed out. So many of us are immersed in our computers or day jobs, with noise and commotion all around us.  Or we sit at home, staring at the same screens, wondering “when” the markets or financial crisis will subside. 

This morning I took a break and went for a walk.  It was not only refreshing, but helped put things in perspective.  I don’t know where the markets or financial issues are headed, but I know there’s a lot of good folks working pretty hard to get it straightened out.  In the meantime I’ll just focus on taking care of business with work and home. 

An amazing stock story this morning was Prudential Financial (PRU).  I watched the stock open around $41 per share after getting hammered the past week.  Here’s a stock that was $60 per share just a few weeks ago.  And before my eyes today I watched it plummet over $16 dollars a share down below $26.   Incredible.  I’m thinking “either something really bad is going on with this company, or the shorts are having a field day.”  

Interesting that the shorting prohibitions against financial institutions were lifted by the SEC effective at midnight last night, October 8th.  Coincidence?  Sure, why not, but Prudential Financial was on the SEC’s short ban list until last night.

 I’m not going to examine the arguments for “market efficiencies” with shorting, but somehow it just doesn’t seem appropriate that in the name of free market capitalism we can allow huge pools of money to step in and destroy a stock over a period of days, or even intraday.   That’s the kind of market action that destroys any sense of the word “investment” for many people, and it makes you wonder how that degree of volatility happens.    

Of course I don’t really know the extent to which Prudential suffered a shorting attack on its shares today, but as I write this even before noon on Thursday, October 9th, Prudential’s share price is already back up to $39.  I’m sure the volatility will continue both ways. 

Admittedly, folks are afraid that the financial contagion might affect the insurers just like banks and other financial companies.  So that volatility is borne of panic and wholesale capitulation in certain areas.  But most of the insurance company stocks are very conservative companies with long term liabilities and strong balance sheets.  Maybe they do have some problems, but not to the extent to which the panic (and short selling) has gripped the markets and their share prices.

All I know is that if the insurers are truly at great risk of failure or default then we’re really in trouble.  These guys manage everything from life insurance to pension funds and annuities.  Their bread and butter is to manage risk very conservatively in case of the exact economic and other financial crisis that we’re seeing today.  Well perhaps the crisis of the past few weeks is indeed unprecedented, but could they have prepared for this?  Yes, to a great extent.  And no, with regard to collateral investments that may have gone south, and cross-party liabilities with companies such as Lehman Brothers.  They may even have to raise extra capital through stock offerings, or even borrow from the government. But my argument is that if the insurers can’t work through this mess, then who can?   Perhaps mom and pop with cash in the mattress… for a little while.

Having said all that I am reminded of a little family history.  My folks grew up through the Great Depression, and lived by and large quite frugally throughout their lives.  The lessons from that hard time were not lost on them.  One of my parents has a life insurance policy that was purchased by their parents.  The policy was called a “nickel policy” back then because each week the insurance representative would come by the house to collect .05 cents to pay for the insurance. 

I am told that on several occassions they didn’t even have a nickel to pay for the insurance, and my grandmother would hide in the house peeking out the window until the insurance rep went away.  One time my Mom, age 4 or 5, answered the door, with her Mom whispering in the background, “I’m not here!” and when asked by the insuance rep, “Honey, are your parents home?” she replied smiling, “Yes, Mommy’s behind the door!”   True story.  

That insurance policy was lost over the years after my grandmother passed away.  Mom didn’t really know about it.  But a few years ago she learned of its existence through a relative, where it was held in trust with a state government.  Lo and behold it was the same policy purchased by her Mom and paid on for many years at a very low price.  She was pleased to find that it was paid up, and worth over $5000 today, having grown in value from pennies to a respectable sum over the course of 70+ years.  What company was it from?  Prudential.  And when she spoke with the company, they assured her the policy was worth every penny.

It may be rough going for a while, but I suspect that if Prudential made it thorugh the Great Depression, the Second World War and many other turbulent times, that they’ll make it through these times as well.  Have a great day.

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