Community Perspective
Alaska Permanent Fund is more than a dividend
Published Sunday, September 7, 2008
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Stumble It!In the past, News-Miner articles by former writer Fred Pratt were marvelous and devoted witness reports to the evolution and progress of the Alaska Permanent Fund. I miss Fred’s probing and dedicated writing about all things related to the Permanent Fund. Fred dutifully attended Permanent Fund board meetings and told us what was of importance when we needed to know. Since this year’s PFD is the biggest ever and it is arriving early, more people may want to know more about this wonder. I always enjoy looking at its record and seeing the patterns. It is good to keep an eye on such a wondrous public pile of money. Our Permanent Fund board is good, but nothing tops someone with a critical eye and a head for numbers, doing what Plato asked of Socrates: “Who is watching the watchers?”
No one does this in the press anymore, so I wanted to take the time to report some observations which I think Alaskans should know about. Lately I have sensed that most folks aren’t paying attention to this wonderful and unique legacy we have, the Permanent Fund and its many dividends. Everything I know and will discuss here is from the Permanent Fund Web site, so any interested person can check my facts (www.apfc.org). I’ve noticed some very interesting and important changes. Some of them might provoke some probing questions.
During the past four months or so, Exxon Mobil Corp. has become the single highest valued stock holding of the Alaska Permanent Fund. You might recall this same corporation is the one that just escaped the vast majority of liability for the Exxon Valdez oil spill in a recent Supreme Court decision. Some folks may think this is just fine, but it irks me a bit. The reason for this leap to the top of the heap (Exxon has always been among the top five investments of the Permanent Fund) is the company’s recent soaring stock value, a direct result of their enormous profits of late, the most in any quarter for a corporation in the history of the world. For many quarters, Microsoft was the top investment for the fund, and at times General Electric, but no more. Just for information, the other two active oil corporations in Alaska, ConocoPhillips and BP, are both in the top 50 listed holdings, and are numbers 23 and 44 respectively.
But there is a pattern in the latest quarterly information which I have not noticed in the past. Many of the investments in the list of the top 50 are now worth less than the amount for which they were purchased (9 of 50, to be precise). This has happened in the past, but never in the amount and to such a degree in specific types of companies. But when I say what those companies are, you’ll have a good clue as to the “why” of this observation. They are mainly global banking corporations (Citigroup, JPMorgan-Chase and Wells Fargo), an insurance company (American International Group, AIG) and some pharmaceutical corporations, particularly Pfizer and Merck and Co.
My observations are my own and I am no investment expert. I am just noticing something that I haven’t seen before which I think is a warning. Some of these declines are likely due to the fall in stock prices from the fallout of the mortgage default crisis. How exposed are we? Not very, but things don’t seem promising in the global banking stocks, because the mortgage default crisis may not have fully played out. And the pharmaceuticals? I can’t say. I am just observing a pattern.
The Permanent Fund has lost value during the past 12 months, a decline of 3.6 percent during the fiscal year ending June 30. Not awful, but the decline totaled about $1.44 billion. Since we also took more than $1.3 billion from the Fund to pay the best-ever dividend, it should be recognized by all that the Permanent Fund has diminished more than 5 percent just this year. That is not a good pattern.
The Permanent Fund deserves more attention than it gets. It is a unique treasure, with a widely misunderstood purpose (by both Alaskans and outsiders). It was meant to provide a means for Alaska to remain solvent and provide government funding for services as oil and other non-renewable resources were depleted. And to protect it, the clever device of the dividend was included. I consider my attention to the fund paid for (quite generously) by the dividend. The Permanent Fund has worked, but we are entering a period unparalleled in history, as oil resources decline worldwide and in Alaska, and there is economic strain everywhere in the global capital system. At the same time, we are receiving marvelous revenues from our remaining but dwindling oil resources. For now, that is taking center stage. But let us not ignore our bigger treasure, the Alaska Permanent Fund. It is more than a dividend, and it deserves your nurture and wise stewardship. We ignore it at our peril.
Rich Seifert of Fairbanks is an energy and housing specialist.
Community Discussion
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The other interesting point is that all the cry babies winning about "big oil" and how they are being ripped off because they are making so much money, bla, bla .... are happily spending their unearned PFD checks that are paid for by the same ... LOL.
Anyone who has money in the stock market be it a 401k or your private investments have seen red this year even if you energy related stocks there has been a 40% decline. The PFD is no exception.
One caveat regarding looking at individual investments in a portfolio - for example, GE or ExxonMobil, which you cite as large winners - and Citigroup and AIG, which you mention as in the red - is to note also whether they represent long-term holdings or whether they have entered the portfolio recently. I make no claims as to whether this is the case or not, but it could be possible that the fund's managers are adding these latter financial stocks at this time because they view them as undervalued, good investments for the long term, and are willing to take the possibilities of short-term (unrealized) losses.
Such an understanding takes more time to accomplish - one would have to track the fund's holdings over any number of dates to glean what the managers have been doing in terms of adding to and deleting holdings, but it can be an interesting and even worthwhile exercise.
BigOldMooseHunter ... good points and well explained.
The people who voted for the constitutional amendment to create the permanent fund those many years ago understood that the fund itself, and by extension the dividends we get each year are, as Governor Jay Hammond would say, "Money for a rainy day." It was the governor's intent that the PFD was one of the few ways individual Alaskans would benefit from the state's ownership of natural resources, to spend, individually as each saw fit. The PFD program has a "socialist" feel to it, but was really set up to make sure everyday Alaskans also got some of the funds to use, for better or for worse, just as the state government spends money for better or for worse. It would help if the school system would, perhaps as part of the Alaska History curriculum, explain the importance of the Fund in the lives of every Alaskan. It is "free" (unearned) money, but there is an important history, which, if lost, will trivialize the benefit the PFD was designed to provide. The fund does need careful and diligent management and oversight. I too miss Fred Pratt's coverage and insight. Thanks to Rich for reminding us of the Fund's role in our lives.
Don't forget, the legislators vote to give the people a check each year. They could just as easily vote to spend the money to government. The fund was not set up just for individual checks, it was there for the day that the oil money ran out that paid for government. The socialistic argument is flawed. The truth is, Hammond probably thought that by now it would have been used to support the government. Back then, we all were told that oil would only last 30 years.
The writer should stick to housing, it is apparent he doesn't understand the financial world.
Big Pharma has had it rough lately, not as bad as the financials but still rough.
As pointed out earlier, the article doesn't state when the stocks in the red were purchased. JP Morgan and Wells Fargo are two of the best run financial institutions in the world and both have solid balance sheets. WFC even raised its dividend 10% last quarter when most banks were maintaining or slashing them.
And that leads me into my main point, dividends. I personally use a dividend income investment strategy, I purchase stocks for their dividends and their history and ability to grow that dividend. I couldn't care less about the share price changes, I don't intend to sell them unless they cut or eliminate their dividend. Then I reinvest those dividends into more dividend payers or increase my position in current holdings. The PFD works, in the area of dividend payers, in much the same way. Unrealized losses (or gains) don't matter when it is the cash recieved each quarter that is the reason for the investment.
I have holdings that, for me, have a 60%+ yield due to the dividend growth. The PFD, as long as it has been around, has investments that pay it more each year in dividends then they initially paid for the shares.
All those companies in the red listed are dividend payers. Yes, C cut their dividend this year but it still has a rather hefty yield. WFC, AIG, JPM, PFE, Merk all pay cash out each quarter.
I just hope the PFD didn't own any shares of Fannie or Freddie, those shares just got wiped out by the Feds taking over.
Pavel, regardless of Mr Seifert's understanding of investment finance, I think this was well-used space in the News-Miner. Most Alaskans don't have a tenth of the awareness that was presented here. Thanks Rich.
Yes, very few here know about the Fund. Most were probably not here when it first paid a dividend, much less when it was established. Jay Hammond will be remembered for doing this forever. We need to be ever vigilant to insure that the Constitution is always followed in regards to the legislature and them getting their hands on the money.
It was, in my opinion, wasted space. He doesn't properly qualify anything and he makes no comparisons to any of the standard benchmarks like the S&P 500, DJIA or the Russell 2000.
The S&P 500 has simply been crushed over the past year (down about 20%), yet the PFD declined only 3.6%. That is simply stellar investing no matter how you slice it. He doesn't give that information, he plays up how much it has lost. 1.4 billion? Sounds like a lot but it isn't in the scheme of the PFD. There is a hedge fund that lost 2.5 billion just on oil futures in the span of a couple months.
He also includes the distribution payout as a loss. He doesn't mention that the PFD is required by law to be inflation proofed with earnings BEFORE any distributions are made.
His article is reckless in that it sensationalizes the losses. It is that kind of writing that scares people out of investing and back into filling mattresses with cash.
This article would have been better served to tout the greatness of the people who created the PFD, the intelligence of those who oversee the investments made in the name of Alaskans and the simply smashing returns that PFD has supplied.
Might just be me, but he turned the positives into negatives and then wrote a crappy article.
@ Pavel-your right in the sense that this article raises some flags about what the OP is trying to say. Is it a crappy article? That's your opinion, and even though it stinks, your allowed to have one.
It is my opinion that this article gives the saying,
"Things that make you go Hmmmm", new meaning.
The OP states,"The Permanent Fund has worked, but we are entering a period unparalleled in history, as oil resources decline worldwide and in Alaska, and there is economic strain everywhere in the global capital system. At the same time, we are receiving marvelous revenues from our remaining but dwindling oil resources."
In my opinion...
If the President got out of bed with Israel, after Kuwati and
allowed more exploratory drilling in Alaska...especially the HUGE reserve (Larger then the North Slope) located in the NANA region, near Kotzebue, or ANWAR even. We would not be in the situation we are in right now.
As for "dwindling oil resources," that's simply not true.
In the early 50's the US Gov. was drilling up here. Using radioactive waste to melt the permafrost. They found oil and seized subsurface rights to stop development of the resource.
Kotzebue Alaska, is sitting on top of the worlds largest oil reserve, on property owned by the local native corporation.(Kikitagruk Inupiaq Corporation),
Located on the Northwest Arctic Native Allotment region.(NANA Region)
But, neither Native company has been given an opportunity to develop the oil resources.
Thanks, "Q"
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