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Thread: Pensions

  1. #1
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    Default Pensions

    http://market-ticker.denninger.net/a...ions-PBGC.html

    "Under Millard's strategy, the pension agency was directed to invest 55 percent of its funds in stocks and real estate. That included 20 percent in US stocks, 19 percent in foreign stocks, 6 percent in what the agency's records term "emerging market" stocks, 5 percent in private real estate and 5 percent in private equity firms.

    What I warned of was the potential loss of your private pensions a few months back, if you remember.

    Here's the formula for your impending doom, if you forgot:

    The S&P 500 goes to 300 as the "bailouts" and "handouts" collapse the economy.
    The PGGC's equity investments are worth 20 cents on the dollar, the private equity and REITs are zeros. This puts the fund 40% underwater across-the-board.
    It is unable to pay and goes to Congress.
    Congress can't fund additional borrowing because the bond market has dislocated.
    You get 10 cents on the dollar for your supposedly 'guaranteed' pension.
    Oh, and your Social Security and Medicare are cut by half (or more) too due to #4 at the same time.

    Congratulations America, this is the price of remaining asleep while the robber barons fleece the Treasury.

    Still think you ought to watch American Idol eh?

    I give this two, maybe three years before it plays out."

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    Banned Melonie's Avatar
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    Default Re: Pensions

    I saw Karl Denninger's latest rant. Ultimately this will be yet another bailout candidate for the US taxpayer ... i.e. further increasing income taxes on working Americans in order to bail out poorly invested gov't employee pension plans. And the final bailout ... social security ... will face certain failure. Paraphrasing Margaret Thatcher's famous quote - ' the problem with socialism is that sooner or later you run out of other people's money' !

    PS today Bloomberg Sat Business News reported that the total dollar amount of US gov't guarantees / bailouts / backstops is now worth somewhere around 11-12 TRILLION dollars ... which coincidentally equals the Gross Domestic Product of the entire USA !!!

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    Default Re: Pensions

    Quote Originally Posted by Adelina View Post
    Congratulations America, this is the price of remaining asleep while the robber barons fleece the Treasury.

    Still think you ought to watch American Idol eh?

    I give this two, maybe three years before it plays out."
    I don't think the people were asleep, but actually believed what our elected officials were telling them. Even Allan Greenspan believed that bankers would never, ever lie to him. Then Greenspan comes back and says (approx) "I never saw this coming. I thought the bankers would act in their own best interests."

    Well, they did act in their individual best interests. They just sacrificed the entire financial system in the process.


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    Default Re: Pensions

    I don't think the people were asleep, but actually believed what our elected officials were telling them
    Unfortunately, this is all too true. Case in point Obama's promise to cut taxes for those earning less than $250k per year ... which is technically true but not true in real life terms, because unfunded federal mandates have forced states to increase income taxes / property taxes / sales taxes etc. with those state and local tax increases vastly exceeding the comparatively tiny federal tax reduction. The unemployment and medicaid provisions of Obama's stimulus bill promise to only make this situation worse (which is the reason many state governors are refusing the stimulus money)

    Obviously, breaking the pretense that Social Security is a retirement program and imposing the 7.6% social security tax on all levels of income (instead of stopping at $104k) has already been discussed by Obama as well.

    Combining this point with after the fact TARP restrictions and Denningers point about retirement fund bailouts waiting in the wings, this is the reason that I have always been very wary about putting a ton of money into pretax retirement accounts i.e. 401k, SEP IRA etc. While these programs appear to be a good idea in the short term, they are wide open to after the fact restrictions being added. The most likely future restriction of course will be dicking around with the taxable income exclusion on 401k and IRA earnings if the person's income exceeds X dollars per year. Possible future game changers also include federal 'seizure' of 401k and IRA account balances by the gov't in exchange for an involuntary conversion into US gov't bonds ( if and when the US gov't stimulus / bailout spending makes it impossible for the US to continue selling bonds to foreign investors).

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    Default Re: Pensions

    Quote Originally Posted by Paris View Post
    I don't think the people were asleep, but actually believed what our elected officials were telling them. Even Allan Greenspan believed that bankers would never, ever lie to him. Then Greenspan comes back and says (approx) "I never saw this coming. I thought the bankers would act in their own best interests."

    Well, they did act in their individual best interests. They just sacrificed the entire financial system in the process.
    I am reminded of Ronald Reagan's dictum "Trust but verify." During the 1990s and 2000s, we had plenty of trust, but no verification. Specifically, we had very little enforcement of the laws and regulations on the books. Deregulating derivatives was another bipartisan bad idea too that falls under the lack of verification aspect of the problem.

    Of course, we as investors bear some blame. For the most part we (and I include myself) chased the numbers seeking the best return for the dollar invested with little care about what the company did to earn that dollar. We, as investors, must be at the start of a return to value based investing. We must look carefully at the companies we invest in. We must understand their business as well as management. And, we must demand the information from management.

    HTH
    Z

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    Default Re: Pensions

    ^^^ If you really believe what you said, I can highly recommend that you read "Supercapitalism" by Robert Reich. It is about that very issue.

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    Default Re: Pensions

    i have primarily chosen companies that sought stable, long term income where investors, employees and management benefited. i was never after 20% year after year.

    sadly, my 50s-style investment pattern was not the norm and, well, here we are.

    on the other hand, i am doing well enough with the companies that didn't chase growth and instead pay dividends. under such a model, the dotcom and housing bubbles would never have occurred. go figure.

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    Default Re: Pensions

    ^^^ the 'downfall' of dividends actually resulted from the Bush 1 / Clinton administrations increasing tax rates on ordinary income = dividends, while allowing much lower long term capital gains tax rates to stand. This provided a strong incentive for companies to take measures that would increase the price of their stock shares in order to attract investors, as opposed to taking measures that would pay larger dividends per share. The ultimate 'mainstream' example is probably the use of some portion of annual profits to fund a 'stock buyback program' where the company itself would purchase its own shares on the open market in order to increase the price of the remaining outstanding shares. And as you imply, the 'hot money' investors also stood to benefit from lower capital gains tax rates if they could execute mergers, takeovers, spinoffs and other 'fun and games' that resulted in an increase in stock share price rather than fully taxable dividend or 'cash' profit payments.

    Like it or not, government tax policy can and historically has caused market 'distortions' by creating situations where certain decisions / actions are penalized while other decisions / actions are rewarded - nonwithstanding the frequent fact that such penalties and rewards may not be in the long term best interest. This is true of high dividend payments (versus share price increases). It is also true of high salary payments (versus payment in stock options). It is also true of high savings rates (versus high levels of debt).

    ~
    Last edited by Melonie; 04-04-2009 at 04:49 AM.

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