PeopleProfitsPensions.com

By: Robert F. Abbott

Any contemporary discussion about stock markets must now include references to institutional investors.

Institutional investors have a tremendous amount of clout in the markets (although they often argue they don’t have nearly enough). By buying and selling huge volumes of shares, they can literally move stock markets up and down.

And who are these these institutional investors, these giants of the stock markets? Essentially, they are you and me, anyone who saves for retirement through pension funds, mutual funds, and some life insurance policies.

Every time our employer deducts a few bucks from our pay check under the line item Pension (and perhaps contributes an equal amount), we’re part of institutional investing. Every time we invest a few dollars by buying mutual funds, we’re adding to our stake as institutional investors.

You see, pension funds and mutual funds take that money of ours and invest it on our behalf. Or invest at least some of it. They may withhold some to pay pensions to current retirees or to cover mutual fund management fees, and so on.

But they still have some money left for investing. While our individual contributions to pension funds or mutual funds may be small, even as little as a few dollars a month, there are an awful lot of us, about a billion people around the world now. And, we’re almost all institutional investors, because we invest through pension funds and mutual funds.

So, collectively, we are institutional investors, and we’ve become the giants of the modern investment world.

You’re reading the commentary section of People, Profits, & Pensions. There’s also a book section, where you can read excerpts from my forthcoming book by the same name, visit http://www.people-profits-pensions.com . In addition to reading, you can also be a book critic and give me your thoughts on what you’ve read.

By: Robert F. Abbott

As elections come and go, there’s one central theme that comes up time and time again, anywhere free elections (and sometimes not-so-free elections) occur.

And that theme is prosperity. Voters want ever higher standards of living for themselves, and they want their children to enjoy even higher standards.

And, politicians promise to deliver or at least to try to deliver that prosperity, “A chicken in every pot,“ as the saying used to go. Getting from the idea to reality has always been a challenge, though, in more ways than one.

Probably the single best way to increase prosperity is to increase productivity. By productivity, I use the standard definition, which means getting more done or more made while using the same amount of time, invested money, or resources.

However, productivity increases often come at a cost, specifically existing jobs and sometimes wage rates. For example, a company invests in new equipment and that new equipment does the job of a number of workers. The company may then lay off the unneeded workers, or cut their wages.

Consider factories and how they’ve changed over the past century: Once, workers stood shoulder to shoulder on assembly lines, but now a few better-trained workers use machines to do the work that hundreds of lesser-trained workers used to do.

So, there’s a price to pay when we, as a society demand to be ever more prosperous. That price is the ongoing pruning of jobs or the reduction of wages in an existing sector.

And, it’s a price worth paying. Overall, society comes out ahead when productivity increases take precedence over the maintenance of jobs that no longer make economic sense.

[You’re reading the blog version of People, Profits, & Pensions. In the book version, you can read excerpts from the forthcoming book of the same name, at http://www.people-profits-pensions.com ]

The recent dust-up between Democratic Presidential candidates Hillary Clinton and Barack Obama over the North American Free Trade Agreement (NAFTA) has, once again, brought out a one-sided view of free trade.

Their argument revolves around jobs, and the claim that free or freer trade hurts the country.

But, if we are to intelligently discuss free trade, we also need to consider its impact on consumers. That is, essentially everyone in the U.S.A., including manufacturing workers who lost or may lose their jobs.

You see, free trade makes many products less expensive, whether they’re domestically made or imported from another country.

Freer trade increases competition, competition increases productivity, and as USA Today noted (in a slightly different context), “…this increased productivity has led to rising living standards and made the American economy more competitive.“

These rising living standards have been good for every American, and especially the poor: single parents struggling to keep their families clothed and fed, welfare recipients, and everyone who exists from paycheck to paycheck.

No one gains more when the cost of essential products go down, or go up less than they would otherwise. When a poor person saves a dollar or two, it’s a big deal, a good deal.

Yes, it’s true that some people sometimes lose their jobs, regardless of which country is involved in free trade. But almost everyone else in the country gains something. And, because there are so many ‘everyone elses,’ freer trade is a positive policy.

Trying to turn back the clock, as Clinton and Obama suggest, would exact a serious price on the country. And, as the campaign continues, they should, in what might be the equivalent of a truth in advertising obligation, tell Americans in other states that they will pay a price for trying to protect jobs by rolling back freer trade.

Bottom line: The candidates may wish to curb free trade to protect highly paid manufacturing workers in Ohio, but doing so means they’ll also lower standards of living for residents of all 50 states. And, that would be very bad news for the poor.

As I was listening to the news - the regular news, not the financial news - I heard about ExxonMobil’s quarterly profits. Very high profits.

And, that was followed by an interview with a well-intentioned spokesman for a well-intentioned organization who deplored those profits. It was a shame, he said, that ExxonMobil (stock symbol XOM) was making such an enormous amount of money while regular folks were paying so much at the pumps.

But something was missing from his comments — the identity of the big oil company’s owners. Had he identified these greedy owners, his opinions might have changed, and changed a great deal.

You see, much of ExxonMobil (and most other big oil companies) is owned by those very same regular folks who the well-intentioned interviewee thought he was representing.

Yes, it’s true. Much of big oil is now owned by working people, through their pension funds, mutual funds, and whole life insurance.

Take for example California’s public employees, both past and present. The California Public Employees’ Retirement System (CalPERS) owned 30-million shares of ExxonMobil, worth a whopping $2.5 billion in May 2007. That represents slightly more than 1% of its entire portfolio of assets. Or to put it another way, ExxonMobil’s profits matter to the people who have or will retire from state and local government service in California.

Sure, some rich people do own oil stocks, and they’ve done very well, too. But, it’s a fact of life that rich people are vastly outnumbered by working people (most of whom usually don’t know they’re owners, either).

The 800 pound gorillas of the investing world these days are pension funds and mutual funds, known collectively as institutional investors. With billions and billions of dollars at their disposal, they invest widely and deeply. In other words, they invest in a lot of companies, and invest a lot in many of them.

Bottom line: Much of the profit earned by ExxonMobil and other oil companies will end up funding the pensions of working people across the USA and other countries.

Don’t be misled by well-intentioned critics of the oil industry or business. If their came true, we’d all have less prosperous retirements.

Almost every day, we hear complaints about corporate profits: about oil companies with windfall earnings, about pharmaceutical companies with monopolies on new drugs, and many others.

But, do you know who owns the corporations that make those big profits?

Well, you’re probably one of them. If you belong to a pension plan, invest in mutual funds, or own a whole life insurance policy, you’re one of the capitalists getting those huge profits.

Working people — through those pension funds, mutual funds, and insurance companies — now own much, if not most, of big business. Simply put, modern corporations exist to make it possible for you and me to enjoy a retirement income beyond what the government pays.

Actually, many government pension funds now invest in corporations, too, so even your government pension may depend in part on corporate profits.

This blog explores the connections among working people, corporate profits, and pensions (retirement income, whether formal pensions or not). As the title of the blog suggests, I’m interested in the ways that working people get the profits of big corporations through their pension plans: People, Profits, Pensions.