Funding Gap

The Financial System Is Breaking Down At An Unimaginable Pace

Now it’s $13 trillion... the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia. And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm. So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion.

"This Is The Capitulation Phase" - Why Treasury Yields Are About To Really Plunge

For the rates market, the significance of this acceptance phase by pensions cannot be understated, in our opinion. A $3 trillion industry running a $500 billion funding gap and a significant duration gap waking up to reality is likely to have major implications for the market. In the extreme case, entire pensions could be offloaded from corporate balance sheets to insurance companies (increasingly like the UK, Exhibit 1)–generating significant demand for long-end duration during such transactions.

The Equal Sign Can Be A Real Bitch

On a long enough timeline, consumption equals production. Understand that equality, and the future comes into stark relief.

Major UK Pension Fund Slashes Benefits As Funding Crisis Spreads

One of the largest educator pension funds in the U.K., the Universities Superannuation Scheme (USS) is implementing significant changes to the plan benefits as it becomes increasingly under-funded, just like its peers in the United States. The changes are drastic, and are meant to keep the fund solvent in order to at least pay some benefits rather than none over time. Additionally, the plan, which represents 330,000 members, will transition from defined benefit to defined contribution leaving members at the mercy of the performance of the money managers handling their investments.

It's Now Almost Impossible To Save For Retirement

Zero (or negative) interest rates around the world have practically destroyed any reasonable expectation of savings. Simply put, saving money guarantees that you will lose after adjusting for inflation, at a time when the US government’s finances have never been more precarious. Crazy. Buying ‘risk free’ bonds, dumping money in a mutual fund, and waiting for the government pension to kick in just won’t produce the results that it used to.

The Chicago Pension Scandal: $100,000+ Teacher Pensions Costing Taxpayers $1 Billion

Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them. And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!

Here's Why (And How) The Government Will "Borrow" Your Retirement Savings

The bottom line is that government needs more money. Lots of it. And there is perhaps no easier pool of cash to "borrow" than Americans’ retirement savings. $7.3 trillion in US IRA accounts is too large for them to ignore. And if you think it’s inconceivable for the government to borrow your retirement savings, just consider the following...

According To These 2 Charts, A Default Cycle In The US Is Now Inevitable

"Over the past 100 years, when defaults have risen above 4%, they have typically continued to rise close to 10% (i.e. a full default cycle). This is because of the tendency for credit stress to become self-fuelling: a rise in expected defaults pushes up financing costs, which tips some marginal borrowers over the edge, further increasing defaults and so on.

"How Bad Can Texas Get?" Goldman Answers

As we put it on Friday, "the Texas recession is only in its early innings," because we are just now beginning to witness the bankruptcies and shut-ins that will soon become endemic and sweep across the entire US oil patch as revolvers are reigned in and Wall Street suddenly refuses to finance uneconomic producers' funding gaps. So how bad can things get in Texas, you ask? Goldman has ventured a guess.

A Glimpse Of Things To Come: Bankrupt Shale Producers "Can't Give Their Assets Away"

The end of America’s oil “miracle” is coming and there’s nothing Wall Street can do to stop it. At this point in the game, no one is going to finance the oil patch's cash flow deficits and the fundamentals in the oil market are laughably bad. As Bloomberg reports, Wall Street is about to have a serious bout of “indigestion” because recent auctions suggest that “some bankrupt oil and gas drillers can’t give their assets away.”