Look, i'm not saying AMP will go definately go to $2.00,...

Look, i'm not saying AMP will go definately go to $2.00, however, if the status quo is maintained (ie. maintaining their current unhedged position in the FTSE), and if the FTSE goes below 2,500.... AMP will be trading close to $2.00.

This is certain in my mind.


My negative view on AMP is also because of:

1. Mass margin squeeze. With negative rates of return for most super funds, the whole industry is going to be forced to reduce management fees drastically --- i'd estimate that the standard 1/1.5 % fee will be around 0.5% in a few years.

2. Negative returns in most funds will also lead to outflows --- people will start withdrawing or closing down current AMP agreements (and this affects most underperforming fund managers).

3. The remaining funds under management will also fall--- why? --- because the total funds invested (mostly in overvalued equitiy markets) will fall in value.


As an example.

Say AMP is currently managing $1000 for an individual.


During the 90s, AMPs earnings would have functioned as follows:

AMP would earn $1000 x 1.5%= $15 in the base year.

In the following year they would earn $1000 x 1.1 (growth in funds) x 1.1 (additional inflows) x 1.53% (increase in performance fee) = $18.50 in the year following the base year.

ie. growth in earnings of $3.50/$15 x 100 = approx 23%



The new paradigm (as a result of the existing and continuing bear market)...

AMP would earn $1000 x 1.5%= $15 in the base year.

In the following year they would earn $1000 x 0.9(decline in value of funds) x 1.1 (additional inflows) x 1.30% (decrease in performance fee) = $12.87 in the year following the base year.

ie. negative earnings growth of -$2.13/$15 x 100 = - 14%.



See the point?

If the FTSE gose below 2,500 (and AMP have not still hedged at that time), their UK operations will be worthless --- infact they'll have MASSIVE liabilities there.

At the same time the entire managed funds industry will be going through a recession.