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Better to give AXA the ax


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Dear Mr. Berko:

Please tell me what you think about AXA’s variable annuity. I may invest one-third of our assets, or $78,000, in this as a hedge against inflation because I think we could experience hyperinflation in the coming 18 months. Our broker says AXA is the finest annuity I can own and the best hedge against inflation I can buy. However, I noticed that AXA stock collapsed from $40 to $7.50, and this makes me worry about the safety of the annuity. My broker told me that the reason AXA fell so much is that all financial stocks have done poorly this year. The broker insists AXA is as strong as a horse. Please give me your thoughts on AXA’s variable annuity and its potential as a hedge against hyperinflation. If you don’t like AXA for annuity inflation protection, what would you own?

T.S., Wilmington, N.C.

Dear T.S.:

Several readers told me that they had recently received a 1,000-page, impossible-to-read annual report from AXA Equitable Life Insurance Co. Holy cow and got dandy eyes! No wonder AXA (AXA-$15.86) collapsed from $40 a share to $7.20 this year. Something’s wrong — bad wrong — if an insurer was advised that it had to send its variable annuity policyholders a 1,000-page, single-spaced, very-small-type annual report. That annual report, probably sent to 1 million policyholders, must have consumed 1,000 acres of beautiful forest. Oh, my!

For those who might not know, AXA is a $155 billion revenue insurer, home-ported in Paris, where the two dominant languages are French and Arabic. AXA sells life insurance, health insurance, property and casualty insurance, marine, aviation and special risk policies. AXA also sells annuities, variable annuities, mutual funds, pension funds and portfolio guidance. In 2008, AXA had 620 billion euros, about $800 billion U.S., under its management. Sanford Bernstein and his sister, Alliance Bernstein, manage all those investment products.

But a 1,000-page annual report that must weigh three pounds and isn’t worth spit on a sidewalk really concerns me. It suggests that AXA’s CEO must be feeling as guilty as a bishop in a brothel. I know the Dow Jones industrial average did poorly in 2008, and so did AXA’s investment products. Some say AXA’s Wall Street lawyers wanted this report to cover every base and the spaces in between as insurance against potential client claims.

But 1,000 pages is overkill and management knows very well few annuity owners will read it thoroughly, which gives cause to pause. I’ve seldom read such unintelligible, confusing financial and legal poppycock. This kind of corporate posturing makes me nervous because hugely thick, 1,000-page reports can precede a bad omen.

I don’t agree with your broker that AXA is “without question” the finest annuity you can own. Yes, it’s a fine annuity. But there are others of equal or better quality.

Inarguably, some variable annuities of equal quality could be more suitable for your needs. By way of example, I prefer Barron’s to the content of Money magazine. Nor do I agree with your broker that the AXA variable annuity is “the best inflation hedge” you can buy. Stocks and bonds, variable annuities and mutual funds are miserable inflation hedges and all have failed ignominiously in the past to protect investors against hyperinflation or just inflation.

Certainly, gold bullion, gold coins, hard assets and the Swiss franc have always been good inflation hedges, while Treasury Inflation Protected Securities, or TIPS, might be the safest and most direct hyperinflation hedge. And I agree with you. I think our burgeoning debt is a perfect recipe for inflation in the coming 18 months. I believe you would be guilty of an egregious error owning an AXA variable annuity as an inflation hedge.

I’d really rather recommend a combination of: 50 percent in TIPS; 25 percent in the DWS Global Commodities Stock Fund Inc. (GCS-$6.06), a closed-end fund that trades at a discount to net asset value; and 25 percent in SPDR Gold Shares (GLD-$85.17), a “pure” gold, exchange-traded fund with a $30 billion market cap.

If you’re concerned about hyperinflation — and you should be — then these three could provide the protection you need.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2009 Creators Syndicate Inc.

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