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QE2 Bad For Pensions?
Drew Carter of Pensions & Investments reports, More quantitative easing may cause more funding damage — Mercer:
The
recently approved second round of quantitative easing could further
deteriorate the funded status of U.S. corporate defined benefit pension
plans if long-term interest rates are lowered, putting continued
funding pressure on companies, according to Mercer.
In
the near term, lower rates on Treasury debt will bring down yields on
high-quality corporate bonds used to discount pension liabilities.
However,
if the second round of easing, known as QE2 and approved by the Fed
last week, jolts life into the U.S. economy, the move could benefit
pension funds in the long term.
“Higher interest rates, resulting
primarily from a moderately higher inflation rate, would decrease
pension liabilities,” Jonathan Barry, partner in Mercer’s retirement,
risk and finance group, said in a news release. “At the same time, in a
positive scenario, the value of plan assets could increase if the
equities market improves as a result of improved business conditions and
profitability.”
I've already written on how quantitative easing is bringing pensions to the brink. And don't forget what Leo de Bever of AIMCo recently told me about the Fed's policy:
"Banks
do not mark their commercial real estate to market. Quantitative
easing (QE) is all about giving banks enough of a cushion to absorb
these losses. For Bernanke, keeping the system afloat takes precedence
over everything else. Not sure he's wrong but he's solving one crisis by
sowing the seeds of another."
While QE2 stirs up
passions, the truth is nobody really knows how this is going to end. It
might turn out to be a disaster, or it might turn out to be a stroke of
genius. For me it's simple, there is no choice but to keep reflating
risk assets and introduce mild inflation in the economic system. There
are risks to this policy but the reality is they're going to do
whatever it takes to avoid a protracted debt deflation cycle.
Pensions
need to see asset values and interest rates rise so that deficits
start shrinking significantly. And even then, it won't be enough. That's
why policymakers are raising the retirement age, lowering investment
return assumptions, cutting benefits and increasing contribution rates
to shore up pension plans.
I believe QE2 will ultimately help pension plans. The Fed is feeling the state's pension pain and is moving to quickly defuse the neutron bomb
using any means necessary. That's why I keep telling people to buy the
dips, risk assets will keep rising. No matter what you think, if you
fight the Fed, you will lose.
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OT, sorry, but I just had to share the "Good News" in the google ad slot: California is issuing $10 Billion in "revenue anticipation notes." This is a limited time offer.
So if I understand this article, QE2 may be good for pensions, and it may be bad. The only sentence of your own that you offer to support why you think it's going to be good is because "Pensions need to see a asset values and interest rates rise so that deficits start shrinking significantly"?
Really?
Any individual...particularly the retired...are paying a 100% tax on any type of interest based savings accounts...
Courtesy of Wall Street's Ben Bernanke....
Courtesy of Ben Bernanke...there is no respect for money....
What an insane, failed ...academic....
What planet is this fool from ?
I'm wondering when the gruberment is going to start calling again for the abolishment of the penny coin. After QE2 it should be just about worthless....or maybe worth more as scrap. Hey, talk about a way to get some instant inflation! I wonder why Bear-hankie isn't all over this. Yes I call him Bear-hankie because he definitely made this market bear cry! I wish he would have at least had the damned decency to give me a reach around....you know, like lay off the POMO for a couple of weeks to let us bears get out of our traps. Foolish dreaming, I know.....
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We're not 'fighting the Fed', we're gaping at the idiocy, there's a not very subtle difference.
I can't say I hope QE works- returning to the talk-talk, strung-up-like-a-puppet economy with Corn Flakes and Razor blades at quite frankly ridiculous prices, a system that intentionally victimizes its poorest... it's mess, the way it was. Fair enough, something more constructive than the situation we have now may well be preferable, but it is important to recognize that its thinking small and doing new innovative business where the value of inflationary money/fractional banking comes into its own. To just throw money at what's effectively thought of as some bad accounting, it's just not the purpose of money- that's a fiscal imbalance, one would think it might be solved with interest rates. Not by throwing money at asset prices - we talk about stabilising the equity holdings of Pensions, but what about their Bond holdings; shouldn't that a)be a bigger component, which now sells for less and b) aren't Pensions being pushed out the buying bonds and into riskier equities?
jesus, are people just now figuring this out? pensions are seriously screwed and all this bs is really effing them harder.
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Extend and pretend is an empty plan without another BIG rear guard plan, like war or total domestic reconfiguration, such as bankers and pharms pay massive taxes and all corporate holes are closed for the emergency national interest aka national socialism. That's effectively war... on corporations. That's not happening, so it's war.. for corporations.. or slow and painful bust.
P.S. National socialism doesn't require war on third countries. It can be a war against the enemies within. We needed a DOSE of this, in some form, for 20 years. Regulation would have done. But - It never emerged. The failure/blowout usually gives rise to authentic populist movements. And don't think bankers and politicians aren't patting themselves on the back saying they averted "another Hitler" through the bailouts. That's exactly what they say. It is "God's work", as is developing the nations around the world with our capital and "lifting the poor around the world out of poverty" (see Greenspans debate with Klein). He left out "at a huge profit for our benefactors" but that's beside his point. Democracy serves capitalism in his mind, NOT the other way around. They avoid Hilters. They don't say we avoided "another Williams Jennings Bryant".... that's less noble. They think in extreme terms to rationalize their profit at the nations expense. Obama saved them from the pitchforks, right, and vice-versa. All politicians who imagine themselves elite believe they saved this nation from a depression and Hitler 2, instead of from wise reform and enlightened leaders. The chance of enlightened populism is worse now than ever because of the 08 bailout, because of who we enriched and bailed-out. Identity matters. It's not all economics, it's about values too, but we bailed out the criminals and showed our children this cowardly precedent. Just explain to them we did this to be smart with "money". Teach them that and watch the American values melt away into a dry Soviet-style end/means machine. The values in the next generation will reflect what we've done, no escape. Prosecutions were the bare minimum and they're totally absent. We're raising transactional children who will see the VALUE in having less ethics and more leverage. We taught them crime and fraud can fast-track you to the top. Get a lobbyist too, children. He who manipulates the government and the system can avoid the laws and value judgments.
The "new populists" are totally reliant on corporations for their own publicity, celebrity and electability. The round robin of television media and book publishing can't be missed. If you have a show, you also have a book. If you have a book, you might have a show. Just signing assures sales in a closed loop, a closed loop of wealth, greed and influence. We have corporate populists and we will soon see neocon populists, which are the logical branch of corporations seeking new markets. Bank reform populists? Where? Show me one getting authentic airtime. Even the Pauls don't want more bank reform. They're too much the purists who believe we must do what is totally politically impossible, and in the meantime do nothing else to regulate oligarchy or our most recent felons. This dogma doesn't work, but it's popular and without a solution. The banks and corporations know that. We couldn't even regulate the banks that lopped the nations head off and we ALL KNEW THEY DID IT. We watched. We starred at the criminals while they did it. There was no question about who did it and how. The next Speaker of the House, riding a wave of "populism", cried tears to pass TARP and later won 85% of the primary vote. He saved you from Hitler. It's amazing that we didn't take the banks to task even after TARP was too fast to stop! It slipped by us with threats of DOOM, but regulation laid in front of us with ample time. We didn't. In fact, that's a transcendent and embarrassing fact like no other in our history. Obama wanted to be a transcendent president, so there you go....he's the president that presided over the subjugation and humiliation of America at the hands of the same felonious forces our Founders fought off.
But - in Obama's mind - he put the enemies in charge to avoid a depression and "another Hitler" emerging from it, therefore, we are all saved. Most of the opposition parties agrees exactly on that point. Now that we're saved, the little power fights will continue for who controls and gets the advantages of this machine the opposing parties created together.
QE is just the Fed swapping overnight reserves for gov bonds. The winner in this is the gov because, seeing as the Fed and Treasury are the same thing these days and the Treasury pays zero effective yield on bonds bought by the Fed, then, in effect, "debt" in this instance is not debt at all.
Better, any inflation at all and the gov makes an effective profit. All that cash flushing to the Treasury filters through into myriad destinations, a major one of which has to be govt run pension funds. This, I believe, is one of the primary reasons for the S&P being double what it should be. Govt doesn't want to allow these funds to implode as the boomers are starting to draw on them.
Remains to be seen how long they can keep this up.
And if these guys who manage pensions would do a good job, then the pensions might not crap the bed.
Buy real estate pension dudes, buy real estate. Jeeez, how easy a play do you need?
This is a lot of theory, not reality. Since the announcement of QE2, the interest rate of the long bond (30 Year) has increased. This is the opposite of what is expected. The bond market is not buying it. The Fed is not in control. This is a major blunder that is going to blow up in their faces.
Price is what you pay, value is what you get.....
All who think price inflation will create value are either delusional or are really no different than minor mob players in the fleecing of the America people and their children.
There seems to be a lot of something called "ignoring disconfirming evidence" here. Effects on precious metals, massive insider stock selling, overvaluation of assets that are worthless, and that discouple wealth from income and tie it to speculation (refer back to insider selling) massive retail investor exodus of stock markets, Leo's "belief" that somehow, inflated asset prices will help pension funds, his call for "austerity" (has he called for any austerity for criminal fraud on the part of bankers?) ad infinitum. Leo's had some bad ones. This is the first that has made me feel physically ill.
Deal with it. Stop getting emotional over QE2 and start realizing it's futile fighting the Fed. The sooner you realize this, the better off you'll be.
More moral leprosy. We all have to be reasonable and practical, right Leo? What a great collaborator you would have made, kathiki.
That comment of Leo , which he often makes,( around futility of fighting the Fed) is the only reason why I dislike him.
Every coin has two sides, and I dont mind Leo presenting the other side, based on his analysis, research etc. But if his analysis is based on the Power of the Fed..then all i can see is a weak spirit.
Everything falls, some fall in a day. I know people who used to look at Arthur Anderson in awe, they fell in a day, Lehman in a day. Fed will fall ...may take 10 years...but the first step is to reject their agenda. During the French revolution, there may have been loads of people like Leo who believe that the Monarchs will hold out, because they always have...but they did not.
So Leo, I will buy solars, Indexes ..anything .. if YOU say so...not because the Fed will never let things fail.
Wow, I never consider cut & paste as research but if you say so who am I to argue.
Leo is a fucktard, not someone "presenting a different view".
END OFF
I totally disagree. Will we put up with QE3? QE4? You are right Leo, Bernanke will stop at nothing to reflate, and it is always dangerous to go against a crazy cornered man (especially in this case as Bernanke appears squirrelly, and may be of the ball kicker type). That is why I suggest to those who understand the fight to walk away from it. Store wealth in coin and shop locally. We do not need a private corporation like The Fed fixing our prices. Economics is more logic and intuition than supply side/acadamia posturing. At the end of the day, the light will shine on what real value is. If that is a solar panel, or a solar stock, I do not know. But what I do know is that Bernanke et al have not a clue what they are doing, because trying to fix something that is dead broken and unfixable is a waste of time, and that is what these markets are, from real estate to currencies. The boat is sinking, and the waters are frigid. Hope, like a bottle of rum, may make dying more comfortable, but it ain't going to save no one. Reflating is the epitome of hope, nothing more. And there is nothing more pathetic than blind hope.
Resistance is futile. Where have I heard this before? In truth, when you hear something like that, you know who you're talking to. I must say that I am almost grateful that Leo responded, since I don't often run into handmaidens of evil in my line of work.
I think you need to take a moment and think about "who" is tasked to look after your future. If you alone will be making all decisions related to your future, then by all means step away from the punchbowl.
If on the otherhand you expect others to step up to the plate and support you if your decisions have turned out wrong, then don't denigrate the risk-takers who will be putting food on your table and providing a roof over your head.
Indecision is a decision. The Fed wants to reward risk takers. Do not express jealousy when a risk taker properly assesses risk and profits by it. If you want to express envy, don't do it with your hand extended.
This makes no sense.