PhillyDeals: Obama budget knocks down Sallie Mae

After a month of begging for cooperation on his stimulus package, President Obama let loose with his main agenda yesterday with a monster budget that calls for boosting health-care subsidies, trimming the deficit by restoring some of the wealth taxes Bush cut, funding continued land wars in Asia, and trying to reshape the stricken economy in many ways.

For example: Shares of SLM Corp. (Sallie Mae) fell 30 percent as traders figured out that the budget would kill the private student-lending subsidy program the firm depends on, in favor of direct student loans by the government, which Obama says would save taxpayers $4-billion-plus a year.

That's an old Democratic position, but "this announcement essentially blindsided the industry - ourselves included," FBR Capital Markets analyst Matt Snowling told investors in a note.

The Art Museum's $90 million investment loss, and the resulting 30 staff layoffs, reported by my colleague Peter Dobrin on Wednesday, shocked Montgomery County investment manager Robert Costello.

"They must have owned a lot of stocks," he told me. "That's pretty aggressive. Why are they funding operations from speculative investments? They should have cut back on spending, invested the money more conservatively, and lived within their means just like you, me, and every other American."

Tax records show the museum invested 70 percent of its endowment in U.S. and foreign stocks in 2006, and 68 percent as of mid-2007.

That's more than the average of 55 percent stocks bought by a group of cultural institutions surveyed by the Common Fund Institute in 2006, said research director Bill Jarvis.

Was the museum radical? It was only high in stocks because, compared with its peers, it mostly avoided private equity and other limited partnerships, which conservative investors consider risky, Jarvis said.

Isn't it unusual to depend so much on endowment profit for daily operating costs, instead of saving it for capital projects? Not anymore, Jarvis says: Museums have followed universities in depending more and more on investment profit - and suffering when the flow of gold stops.

New Jersey, whose pension system has shrunk nearly $30 billion, or one-third, since its peak in the late stock market boom, was one of the last big pension plans to start buying hedge funds and other "alternative investments."

It pumped more than $9 billion into private fund managers in the mid-2000s, over the initial objections of public employee unions, Republicans, and some veterans of the state investment staff.

New Jersey has dumped at least three hedge funds since the market blew up, citing poor results. Yet hedge funds as a group actually made money for the state in January, while other investments continued to lose value, director William G. Clark told his board at its Feb. 13 meeting.

Unlike Pennsylvania, which buys "hedge funds of funds," New Jersey buys its funds directly, and, as a group, they've declined at roughly half the rate of U.S. stocks, state officials say.

"While the hedge fund results are obviously deeply disappointing, if the hedge fund money had remained in the account, New Jersey would have lost much more," state Investment Council chairman Orin Kramer, hedge fund manager and political fund-raiser, told me yesterday.

Pennsylvania Liquor Control Board chairman Patrick "PJ" Stapleton on Wednesday told legislators that he supports Commonwealth Court's decision to let a few big upstate Wegmans grocery stores sell beer from in-store distributors, according to www.capitolwire.com.

Maybe that means Acmes and convenience stores will be selling beer, too, as if this were Florida, or some other less-serious state.

We asked Philly.com readers if supermarket beer is a good idea, and 17 of the first 20 to post agreed.