A senior pension fund manager sent me a link to a Washington Examiner blog entry, Europe starts confiscating private pension funds:
The U.S. isn't the only place that's facing a major pension fund crisis. The Christian Science Monitor has this alarming report:
retirement savings are a convenient source of revenue for governments
that don’t want to reduce spending or make privatizations.
pension schemes in Europe are organised by the state, European
ministers of finance have a facilitated access to the savings
accumulated there, and it is only logical that they try to get a hold of
this money for their own ends. In recent weeks I have noted five such
attempts: Three situations concern private personal savings; two
others refer to national funds.
The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse.
They could either remit their individual retirement savings to the
state, or lose the right to the basic state pension (but still have an
obligation to pay contributions for it). In this extortionate way, the
government wants to gain control over $14bn of individual retirement
The article goes on to detail other
pension grabs in Bulgaria, Poland, France and Ireland. Obviously, this
is a cautionary tale for America. If fiscal austerity becomes a real
issue in the U.S. the way that it's been reaching critical mass in
Europe -- don't think that U.S. lawmakers regard your either your
personal wealth or money they might owe you as sacrosanct. Government
has a habit of looking out for itself.
While some governments are "Hungary for pensions",
I wouldn't worry too much about a big US pension grab -- at least not
yet. I am more worried about legalized theft taking place in the markets
every single day. Yahoo Finance posted a CNBC article, Investing Dying as Computer Trading, ETFs & Dark Pools Proliferate:
an old Wall Street adage meant to inspire investors that goes "it's
not a stock market, but a market of stocks." Consider that dead.
trading, dark pools and exchange-traded funds are dominating market
action on a daily basis, statistics show, killing the buy and hold
philosophy still attempted by many professional and retail investors
alike. Everything moves up or down together at a speed faster than which
a normal person can react, traders said.
frequency trading accounts for 70 percent of market volume on a daily
basis, according to several traders' estimates. The average holding
period for U.S. stocks is now just 2.8 months, according to the
Crosscurrents newsletter. In the 1980s, it was two years.
theory that buy-and-hold was the superior way to ensure gains over the
long term, has been ditched completely in favor of technology," said
Alan Newman, author of the monthly newsletter. "HFT promises gains are
best provided by holding periods measuring as few as microseconds,
possibly a few minutes, or at worst, a few hours."
problem is only made worst by the proliferation of exchange-traded
funds, traders said. The vehicles, which make trading a group of stocks
as easy as buying and selling an individual security, passed the $1
trillion in assets mark at the end of last year, according to
BlackRock. This is probably why all ten sectors of the S&P 500
finished in the black for two consecutive years, something that's only
happened one other time since 1960, according to Bespoke Investment
"The capital raising stock market of the past hundred
years has morphed in just the last 10 years into a casino," said Sal
Arnuk of Themis Trading and a market infrastructure expert who advised
the SEC after last year's so-called Flash Crash. "Who is doing the
fundamental work analyzing stocks? In the end, we've greatly increased
Another factor jumped
into the fray in December: dark pools. Off-exchange trading accounted
for more than a third of the trading volume in December, says Raymond
James. While these trades are eventually reported to the public
markets, they further damage price discovery, an essential element for a
fair securities market, investors said.
"This was a record high
market share for off-exchange trading and we believe the SEC will
ultimately be forced to react to support the price discovery process by
limiting off-exchange trading for all traces except for large block
trades," wrote Raymond James analyst Patrick O'Shaughnessy in a note to
capital markets," said Jon Najarian, co-founder of TradeMonster and a
'Fast Money' trader. "Hidden trading venues, where some participants
get to peek at the orders as they are entered so long as they agree to
'interact' with a minimum percentage, is not an exchange, it's a
license to steal."
While many see these
forces aligning to cause a sort of self-correcting powerful drop in
the market down the road, others feel like it's creating an opportunity
for the stock pickers to mount a comeback.
At the end of last
year, something strange happened. After tracking the S&P 500 for
most of 2010, the Russell 2000 Index, made up of many small companies
with very different characteristics and merits, broke away in the final
three months to double the gains of large cap benchmark for the year.
cap outperformance in the last quarter is a very good sign this trend
is ending," said Joshua Brown, money manager and author of The Reformed
Broker blog. "Winners and losers are starting to separate themselves
after a year of the whole risk-on (buy anything), risk off (sell
everything) of the last year."
also feel that all these dark pools, ETF flows, and high frequency
trading platforms are wreaking havoc on the market, but they do present
opportunities for stock pickers. This is because if things get really
out of whack, long-term investors (like pension funds) will move in, and
in extreme cases, they may even take a company private.
the reality is that investors are struggling to make sense of wild
market gyrations caused by high frequency trading and dark pools. Over
at Zero Hedge, they have been writing on this subject
for a long time, but only now is mainstream media waking up to the fact
that markets are routinely being manipulated by a few large and
powerful players in this space. Some will dismiss this as "part of the
liquidity game", but I think large pension funds should also be asking
some tough questions on how these new "sophisticated" trading methods
impact their holdings.
For me, this is all a license to steal.
Sure, it's legal, but it's still theft using multimillion dollar
computers that are able to trade faster than the speed of light. And
I'm not so sure that the CNBC article got it right. I think Michael Hudson got it right,
the average stock is held for 22 seconds and foreign currency
investment for 30 seconds. As sad as this sounds, this is the reality of
our "new and improved" markets. Computers have taken over, and while
there are limits to these trading platforms, they are increasingly
dominating the way markets react to fundamental news.