Bernanke "Wealth Effect" Completely Wasted On Trillions In Pension Funds

Tyler Durden's picture

The last few years have been dominated by one theme and every trade has been a derivative bet on that theme. The idea that by inflating another asset bubble, a wealth effect will ripple through the market to the real economy, encourage animal spirits and spark a renaissance (in something, we are not sure what). Well, so far no good. The real economy, as discussed at length, is not recovering; but the question of just who is benefiting from the wealth effect is unclear. As the following charts across the 100 largest G4 pension plans show, the asset managers have missed the trickle-down. Despite bad (and worsening) under-funding and a Fed repressing 'safe' assets to the point of ultimate risk, G4 pension funds have refused to partake of any mythical 'great rotation', remain avid bond buyers, are as drastically under-funded as ever, and finally, have maintained the same 'cash on the sidelines' for 14 years now...


G4 Pension funds and insurance company equity and bond flows... (it seems like the great rotation has been a theme for 14 years - from equities to bonds...)


G4 Pension funds and insurance company equity and bond allocations... (nothing has changed since the crisis in terms of allocation shifts - despite all the Fed's best efforts)


Pension fund deficits... (and even with huge and growing under-funding pension fund managers are unwilling to jump into risky assets)


G4 Pension funds and insurance company cash and alternatives levels... (keeping cash steady (so much for the cash on the sidelines myth; and not reaching aggressively into alternatives or riskier asset classes)


Of course, with volumes low, the marginal momentum buck entering this market is all that matters but it seems for now that broadly speaking, the biggest funds have not benefited the from the 'recovery' and as for the 'money on the sidelines' - well... that appears as 'real' as the economic recovery and the 'great rotation' - it is painful when facts get in the way of a good story...


Charts: JPMorgan

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LawsofPhysics's picture

In the absence of the Bernanke, who will buy all that sovereign debt?  Not me...

The system is a ponzi, sovereign debt must increase, less the ponzi implodes...

madcows's picture

Everything has been distorted/destroyed with the massive FED intervention.  Every possible investment is dangerous.  Bonds?  Bubble.  Stocks?  Bubble.  Land?  Bubble.  Commodities?  Bubble. 

I know, you like silver, but look at what PM's have done during stock crashes.  They crash, too.  There is nowhere to hide.  So, people buy treasuries, thinking they are the safest place to stash cash.  That's where my 401k is sitting.  Any remaining "investable" income is going toward the mortgage. I'd rather "invest" my money by eliminating debt than putting it in a massively manipulated and rigged casino.

PiltdownMan's picture

Talk about distortion. The Fed and the Federal government have taken over the US mortgage market. And not for the better!! See this guys analysis.

spine001's picture

No, no don't eliminate it, make it fixed rate if it is not already, but don't eliminate it, it is a great hedge against hyperinflation. And you are getting it at (1-t%) I%, where t is your tax rate and I is the interest rate you are paying. If you don't want the risk now, wait until the market crashes and then and only then use your cash to buy the stocks that will be most needed in a recovery. Pick them now. i.e. LOCE (no debt, huge free cash flow, great business model).

Remember that you can make the 3.5% of your mortgage in only one day if you pick your day and stocks carefully.

madcows's picture

I want to be free of the mortgage payment.  I see no reason to hold cash while waiting for a crash, except in the 401k... b/c cashing out would be extremely costly.

Stoploss's picture

Two Words:


CLAW BACK..........


Public 'servants' need to seriously rethink the "why am i doing this?" again.

'Cuz we all know why you're doing it now..

LawsofPhysics's picture

As you say, everything could crash.  Yes, but ask yourself one question, in such a scenario, what would you have to offer in exchange for the labor of another?  Paying down debt is great, but even in such a crash a lot of that debt dissappears in the chaos.  Look at history, when fraud becomes the status quo and trade slows, possession becomes the law and the world goes to war in order to "settle" all these accounts.  It has been this way since the dawn of "civil" societies, to the mattresses!  hedge accordingly.  Humanity has a pretty simply choice now, default or forgive (jubilee) the debt or go to the mattresses...   ... since the vast majority of the debt is bullshit and based on theft itself, I'd argue that the jubilee present a more reasonable solution.  Unfortunately, this ignores the issue of justice as those who engineered the theft and profitted from the theft of value (in your labor and real wealth) should be held accountable.  The insiders will try and "settle" accounts first (behind the curtain), I think that is what is going on right now, we will see.

madcows's picture

I don't think we'll have a grand global reset, more like a lifetime of Japanese-esque deflation.  Hence, the bonds.  If i was betting on financial armageddon I'd go with silver dollars, food and bullets.

aerojet's picture

If history tells us anything, it tells us that people never do the right thing until many wrong things have been attempted and failed at.

tarsubil's picture

I can see problems in Japan, China and Europe driving treasuries towards 0 and I think then will be the time to cash in and convert to nickels, silver and gold. Hopefully, there will still be some gold and silver around to buy with dollars. I might just cash in right now.

yogibear's picture

Bubble-up Bernanke and Fed keep on doing the same thing until it blows up in their face.

They can own everything. Welcome to the central bankster planning cartel. Just like a communist system. Keep the poor people in debt, using EBTs and section 8's while Bernanke and the fed is the economy. Meanwhile Obama and the taxmania politicians ram people with ever-increasing taxes and fees.

Welcome to the New World Disorder.

King_of_simpletons's picture

Not wasted. That was/is the plan all along.

Buoy people's pension funds and make them spend the immediate cash they earn. When people think they have a large pile of cash sitting in their pension they will start spending now and live in the moment and forget the future.

insanelysane's picture

Agree.  Effort was a hope to spur economy but the main plan is to keep pensions up.

If pensions tank, then every government in the US; federal, states, counties, cities, and towns, go into default, not to mention that every person still working realizes that they are truly poor and need to start living that way.  No more blind consumption.

centerline's picture

Cash flow.  It's all about cash flow.

LawsofPhysics's picture

That's it keep going, follow your own logic to it's natural conclusion...

There are 7+ billion people on earth (and growing), all are competing for a better quality of life...

If you are in the West, in America in particular, many productive people are about to become unproductive and retire, expecting that healthcare will be provided (either from that pension they "deserve" or from the social security that they paid into all those years). 

All these people will expect to maintain their standard of living and they will expect another productive generation to deliver on all this..

Now, let's have a look at that generation, most I see have debts that they will never be able to pay back, the reaw materials to maintain the status quo, much less fucking grow, are simply not there.  The capital and energy inputs for everything will be renegotiated whether people like it or not.  Just like the "cash settlement that are popping up everywhere now.  Those on the inside know the paper prices are bullshit, they are settling in cash just to get something out of the system instead of risking getting nothing.  Hold on, exponential equations are a bitch, so there may be some tubulence in the "markets" before real price discovery returns.  Don't forget, "mark to fantasy" is still in play.

spine001's picture

It is a lot worse than exponential equatios! :) It is chaos theory and fractal behaviour, where infinitesimal changes in initial conditions can create infinite changes in the pathway that the system takes once it leaves its current attractor. And once out of control, there is no going back untii it finds another attractor where it becomes stable. And there is no way to predict when it will exit the current attractor or the pathway it will take to the new one. And Bernanke probably never worked with chaos theory and most likely doesn't have a clue what he is exposing the world to. The biggest and riskiest experiment of them all, much worse than nuclear, since here humans are part of the feedback loop...

Until next time,


insanelysane's picture

And Bernanke probably never worked with chaos theory and most likely doesn't have a clue what he is exposing the world to.

The fuel shortages after hurricane Sandy and the lockdown of Boston are examples of the gov trying to determine how the masses will react.

aerojet's picture

We need to lose about 4 billion for starters.  Any volunteers? 

buzzsaw99's picture

By gawd there's hope for the pension funds yet!

centerline's picture

They just need to go "all in."

... Come on pussies.  Push all those chips into the middle of the table.  What could go wrong?...

SheepDog-One's picture

Gotta keep the sheeple herd placated until the minute they're sheared and processed into lambchops.

DeadFred's picture

We're talking Americans here- fat, greasy mutton.

ThisIsBob's picture

There has been a 4.5 year bonanza in equities.  Too smart to catch any of it, I guess.

cloudybrain's picture

they can print more money when needed, so no need to worry about your pension, it will be paid using toilet papers called money

southerncomfort's picture

in venezuela you got toilet paper - you be rich indeed

Winston Smith 2009's picture

"The idea that by inflating another asset bubble, a wealth effect will ripple through the market to the real economy"

The non-recovery in one chart:

Dareconomics's picture

Pension funds cannot assume the risk associated with equities, though bond risk is pretty high right now too thanks to central bank money printing and the resultant low yields.

Jumbotron's picture

Soylent Green is EQUITIES !!!!!!

slightlyskeptical's picture

By law and covenant most pension plans are required to hold 35-40% in top rated bonds. Thus when equities rise they are foced to reallocate. I'm sure the pension plans aren't happy being forced to buy bonds either, but they quite simply have zero choice about it.

cape_royds's picture

Would somebody please point that out to Brad Delong? That guy actually thinks historic low yields are the result of people's confidence and free willingness to loan money to the US Gov.

Inthemix96's picture

Righty hoe bernsplanks, can you riddle me this?

Seeing as you print the money supply from thin air, why do you need taxes or folk to pay into a pension?  You could if this holds true give every fucker in the world $10,000 a month pay right?  You do it to buy bonds or bail out banks for your friends, so realisticaly you could do it for us all yeah?  Fair play inflation would go up but since you print from air 85 billion a month to buy fraudulant shit from banks why not give that blood money direct to the population at large?

You is going to pay a heavy price son when enough of the population is aware of this scam you run.

Tick tock benspalnks cunt.

PiltdownMan's picture

Every time I think of The Fed and Administration's disastrous policies, I think of this:

ekm's picture

How do you cook bonds, olive oil is ok?

How about fueling a car with bonds?

We need more bond fueling stations across USA.

centerline's picture

A gasifier, maybe?  lol

aerojet's picture

You're confused.  The 1s and 0s don't burn as well as paper, and there isn't even much paper anymore.

insanelysane's picture

Please up arrow if this is a good idea or down arrow if a bad idea.

Using your 401k to buy investment property.

Yancey Ward's picture

I forwarded your question to a good friend of mine high in the powers that be, and here is his reply:


Dear Yancey,


Thanks forwarding the question- I highly encourage Insanelysane to follow through with this plan.


Your friend,

Ben B.

LawsofPhysics's picture

Depends on the location, the tenant(s) you will have, and how it is managed.  Shitty location, irresponsible tenants and management ad you can kiss that investment goodbye.

Mr. Saxby's picture

I assume that the authors mean defined benefit plans when they say pension plans, as opposed to defined contribution plans, such as 401(k)s. While the pension fund portfolios may well be light on equity allocation, I have no doubt that the 401(k) plan funds have more than made up for it. In fact, given the level of brazen corruption and outright fraud exhibited by the federal government, Wall Street, and any combination thereof, I'd say we'd be fairly naive not to expect that most of the funds in 401(k) plans are completely in the equity markets, regardless of what the plan managers or the ICI report.

Of course, on Joe Lunchbucket's 401(k) account statement, everything is shown to be in the "safe" fund or wherever he told them to put it. However, if Joe is less than 55 years old, I sincerely doubt that his money is anywhere but in the stock market. If a miracle occurs and markets increase forever, the fund managers will keep the excess profits, chide Joe for being so risk averse, and cash him out at retirement based on the meager returns of the "safe" fund. On the other hand, if reality seeps in and the markets revert to fundamentals, they could have up to 40 years (depending on Joe's age) before they'd be called to accounts. It's the same mentality used to justify allowing the US debt level increase to close to $16.8T--they know it can't be paid and will create a catastrophe down the road, but they're going to loot while they can since the US public is too intellectually crippled to protest. If Wall Street and the US government is willing to ultimately fuck over China, Japan, and other buyers of US debt, do you really think that they even thought twice about doing it to Joe, who they've already been royally fucking for the last 2 decades?

Downtoolong's picture

I’ve been thinking something similar myself lately. Most of this so called wealth the Fed is printing is going into the pockets of people and organizations that won’t spend it under any circumstances. They are either so f%$cking rich already they don’t need it, or prevented from spending it immediately for structural, policy, or political reasons.

It didn’t work when they called it Trickle Down and it won’t work by changing the name to Wealth Effect. I suppose Janet Yellen’s greatest accomplishment as the next Fed Chair will be to re-label this bullshit concept for a third time.

IamtheREALmario's picture

The question to ask is why do Berstinkie and his handlers want people to leave bonds and go for the rigged casino stock market? I think the answer is that they believe that if the stock market falls then people will assume there is no one to blame (and yet be very wriong in that asssumption) except the vagueries of the free market. However if the bond market collapses then the fault lies directly on the doorstep of the Fed and the puppet govrenment.

aerojet's picture

What 2008 taught us good and hard is that all investment vehicles are correlated.  There are no safe havens--not bonds, not gold, not cash.  It's all tied together.  The remainder of the lesson is that as soon as you "invest" what you are actually doing is transferring ownership of your money to someone else with zero guaranteed that you will ever see it again at all.  That whole South Park "and it's gone" meme is dead on correct.

LawsofPhysics's picture

Unless of course whatever "it" is actually is maintained in your possession.  FYI- when fraud is the status quo, possession is the law.

aerojet's picture

It is a desperate attempt to keep Boomers' pension/401K (aka "retirement") funds in the black.  Without propping up equities and bonds, the so-called savings of an entire generation is wiped out.  That would piss off a lot of people, right?  They will still be pissed off when the money doesn't buy anything, but under the current plan, they will get 100% of what they feel they deserve.  A tremendous ass-raping, if you ask me.

Bill Shockley's picture

I had to laugh.

Oh fuck me, another ass raping it is and it will feel really good  when they outlaw gold and paper money and mandate that everything will be done with digits.


That will make for a tremendous  digital ass raping bar none.

Stock up on soap and anything slippery.