Kelly King, Chairman and CEO of BB&T (BBT), a large U.S. regional bank and vocal critic of the government’s bank bailout plan, described its participation in the TARP program as “destructive.” King went on to say “Our plan is to repay the TARP funds as soon as it is humanly possible. It creates excessive controls, it has a negative impact on our people and our strategies and it runs a great risk of politicizing the lending process, which is very unhealthy.”

On May 11th, BBT announced that it would sell $1.5 billion of stock and reduce its dividend by 68 percent so that it can repay a $3.1 billion investment. Goldman Sachs & Co (GS), JPMorgan (JPM) and Morgan Stanley (MS) are arranging the stock offering.

Having previously increased its dividend for 37 consecutive years, this is a tough pill for a once-proud Dividend Aristocrat to swallow.  King said the decision marked “the worst day in my 37-year career,” and pledged to increase the payout when he can.  Like most dividend cutters, BBT’s shares plummeted falling over 7.5% on the day of the announcement and another 7.5% on the following day.

BBT wasn’t the only one running from the government’s “help”. Two other large U.S. banks that passed the government’s “stress test” announced stock offerings on Monday to raise capital in order to repay their TARP debt.  U.S. Bancorp (USB), the parent company of U.S. Bank, said Monday that it has launched a $2.5 million public offering of its common stock and Capital One Financial Corp. (COF) also announced a public offering of 56 million shares of its common stock.

As with all individual income stocks that cut their dividends, I immediately sold my entire position in BBT after reading the announcement.

Full Disclosure: No position in the aforementioned stocks.  See a list of all my income holdings here.

Case in point, the Forbes article Buy-And-Hold In Disrepute by Robert Lenzner. He tries to tie the buy-and-hold strategy to a risky BRIC (Brazil, Russia, India and China) investment:

They lost even more in Russia and other emerging markets–to the tune of 70% or more–if they bought into the “BRIC” investing concept promoted hard by Goldman Sachs (GS) in the early part of the decade. You needed to buy and sell, not buy and hold. If you bought and held, you had the pleasure of the run-up followed by the pain of the collapse.

A true implementation of buy-and-hold would include a reasonable asset allocation framework in which emerging markets would never command anything more than a small percentage of total invested assets. Since, the individuals investing their hard-earned money should not be responsible in any way, who can we blame Mr. Lenzner?

The truth is that the public was badly served by its investment advisers, like Alliance Bernstein, or their big public mutual funds, which stayed 100% invested all through the lead-up to the worst financial crisis since the 1930s. They took little or no money off the table. They never called your Aunt Sadie to advise her to take profits in 2006 and 2007 before the bottom dropped out.

So, the brilliant investment advisers should immediately sell as the investment peaks, then buy back in as it hits bottom? I thought we were talking about buy-and-hold. This sounds a lot like market timing.

Investors beware: You have to watch over your money like hawks, read your monthly statements and ask questions. You must be active, not passive, when dealing with commoditized investment firms…

Finally, we agree on something. Maybe I should stop reading on a high note.

Were you told to sell your General Electric (GE) or your Citigroup (C) before they became single-digit stocks? Many value-oriented funds were buying Fannie Mae (FNM) months before it became Uncle Sam’s property.

No, but then again we should take personal responsibility for our market losses. Actually, the article would have been a lot better if it was titled “Professional Money Managers In Disrepute” and the unneeded references to buy-and-hold were omitted. But then again mentioning (or taking shots at) buy-and-hold and Buffett (I spared you from that remark) helps with the search engines and garners clicks.

Full Disclosure: No position in the aforementioned securities, but I did lose money in GE and C, in which I take full responsibility.

When President Obama announced a $500,000 salary cap on pay for executives at institutions receiving bailout funds this caused a great deal grief for our friends working in Manhattan. It was pointed out in a recent article just how difficult it is to live in the heart of NYC on a measly half-mill a year. With Harvard Club dues at $2,000 a year per couple, and Westchester County golf clubs typically charge $16,000; food and entertaining tabs are another $15,000, what’s the well-to-do to-do on a paltry $500,000 per year?

Well at least those guys have a job. What about the poor Joe’s (and Jane’s) that spent a mint ($32k/year out of state) to attend at a top flight institution with hopes of landing a job on Wall Street? As this article points out, for decades, investment banking was a well-worn path to affluence for business-school graduates. As big banks including Citigroup (C), Bank of America (BAC) and Goldman Sachs (GS) cut tens of thousands of jobs, MBA students who just a few years ago would have been aggressively recruited by companies now expect to fight for the handful of positions available.

How about those those less-fortunate wealthy families – those only earning six-figures. As noted in this article, the Lower Hudson Valley’s small, wealthy communities have not gone unscathed in the troubled economy. The six-figure household incomes earned by many residents in such places as Harrison, Mamaroneck, Yorktown and New City have declined or risen less than 5 percent since 2000 while mortgages and rents have risen by double-digit percentages in many of these communities.

Still not convinced the wealthy are having difficult times?

This Wall Street Journal article shows just how bad it has become for the upper-tier. “Rich people are getting hit, and they’re all expressing the need to curtail unnecessary spending,” said Russ Alan Prince, president of Prince & Assoc., a wealth-research firm based in Connecticut. “Lovers are part of the same calculation.” According to a new survey by Prince & Assoc., more than 80% of multimillionaires who had extra-marital lovers planned to cut back on their gifts and allowances. Still, only 12% of the multimillionaire cheaters said they plan to give up on their lovers altogether for financial reasons.

See, the wealthy are just like you and me. They are feeling the pain of this economic downturn, but they just haven’t been here before. As I work on getting my tongue out of my cheek, I’ll leave my wealthy friends with 21 Suggestions for Success to consider while they work on getting their lives back together.

Full Disclosure: No position in the aforementioned securities.

After the collapse of AIG driven by derivatives, many investors fear the same could happen to other insurance companies including BRK.A. Berkshire could have to pay as much as $37 billion between 2019 and 2027 under some derivative contracts if the S&P 500 index and three other stock indexes are lower than when Berkshire entered the contracts.

Most insurance companies shares are significantly down since October 1st compared to the S&P 500. During that period, AFLAC Inc. (AFL) is down 41.9%, Manulife Financial Corp (NYSE:MFC) is down 60.5% and BRK.A is down 34.7%, while the S&P 500 is down 31.1%.

Derivative exposure is not the only problem facing BRK.A. The stock price of General Electric Co. (GE) and Goldman Sachs Group Inc. (GS), have fallen, rendering Mr. Buffett’s warrants to buy common shares worthless for the time being.

Personally, I think the situation is playing to BRK.A’s strength – a strong balance sheet. As its competitors lose capital, they will be more conservative in writing new business. BRK.A may well step in and fill the void. What BRK.A currently owns may be worth less, but Buffett will get more opportunities to buy things at cheap prices and once again come off looking like a genius.

Full Disclosure: Long AFL, MFC, GE

Reference: Has Warren Buffett lost his touch?

1. Be afraid — be very afraid – Instead of looking at how much you can make by buying a stock, examine all the ways that you can lose. Bruce Berkowitz, who manages the Fairholme Fund, swears by this strategy. He tries to think of every possible scenario that can kill a company — and if he can’t find any, then he’ll buy. In today’s environment a case can be made not to buy virtually any company. Consider General Electric (GE), a company that increased its dividend for 32 consecutive years, but chose not to increase it in 2008.
2. Avoid black boxes – Be suspicious of companies you don’t understand or whose financials are opaque. In fact, unless you understand the business model, don’t buy it at all. Buffett has invested in Goldman Sachs (GS) . However, if you don’t understand what GS does, you are better off looking elsewhere for an investment.
3. Invest only money that you don’t need soon – Assume that the near-term market will remain volatile — even after it smoothes out. That approach will prevent you from investing money you need in the near term, and thus protect you from losses you can’t sustain.
4. Ease in – And all of that means you should be suspicious of how your chosen investments will perform initially. When the market’s this volatile, don’t put all of your money into a stock all at once. Instead, put a portion in when you see an attractive opportunity, but save some cash to buy more if it falls. I have had the “pleasure” of purchasing BB&T (BBT) as it declined over the last year. My first block was purchased at $41.27 (July/2007), then $34.07 (November 2007) and finally $30.56 (August/2008). BBT can be purchased now at around $28.
5. Buy at a discount – Make sure you’re buying shares that are actually cheap. Many companies are trading at prices far lower than they were a year ago — but that doesn’t mean they’re cheap. One year ago Exxon (XOM) was trading at over $90. Friday, it closed at $62.36. My buy below price is $40.93. From my perspective, XOM is still very expensive.

The article concluded by saying:

There’s blood in the streets, so if you can handle the volatility, it really is a great time to invest — but invest suspiciously and fearfully. It will do your portfolio good if you do.

Source: Why You Should Fear the Future

Disclosure : Long BBT and GE