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IceCap Asset Management: No Country For Old Men
From IceCap Asset Management January Investor Presentation
Most Canadian pension funds are banking on 7% annual returns forever. Over the next few years, this unrealistic expectation will cost the respective governments and companies millions in shortfalls.
In the USA, the California Public Employees Retirement System assumes it will earn over 7.75% annual returns. This false hope will result in over $6 billion a year in lower than expected investment income, that will also have to be paid by the financially challenged state (ie. taxpayers).
Meanwhile, Thelma O’Keefe continues to quietly sock away 5% of her paycheck each and every week and has no idea what all the fuss will be about when she is eventually told her pension benefits will be slightly less than originally promised.
Over 50 years ago, the average worker started to earn pension benefits and has been dreaming of working less, and golfing more, ever since. The Defined Benefit Pension Plan has been the rock of this dreamy foundation and is certainly a costly beast to say the least. Once the auditors, actuaries, custodians, lawyers, administrators, consultants, performance measurement guys, trustees and investment managers have been paid for their services, is there little wonder most of these retirement funds are running a little short.
Yet, the primary reason most people fall asleep with even a slight mention of the words “pension funds” is due to the complexities and confusion resulting from this cumbersome investment scheme.
However, after 3 quick espressos you’ll see that the entire pension spectrum boils down to an educated guess as to how much money the pension plan will have to pay out to its retirees, and how much money its investments will pay in to the pension plan itself.
This “pay-out-in” dynamic is a precarious balancing act to say the least. Should guesstimates for either one fall short, the difference will have to be made up by tax payers for government pension plans, and by profits for company pension plans.
It is widely known by now that practically every government in the Western World is drowning in debt with no signs of growth anywhere on the horizon. Unfortunately, this looming pension funding problem could not have come at a worse time for these government supported pension funds.
Meanwhile, most companies are certainly flush with cash and are infinitely better off than their public pension fund counterparts. However, even this enviable position will not help due to the expectations of great stock and bond market returns.
Ever since the Western World pushed the debt envelope too far and proceeded to allow its governments to orchestrate one ill conceived bailout after another, investors of all shapes and sizes – including billion dollar pension funds and the little old ladies, have had to push their risk envelope too far and assume way too much risk in an effort to increase their investment returns.
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7% returns? Pffft!
Defined Benefits Pension plans are a thing of the past. Except in the Public Sector. Which is, of course, one of the main reasons for the defecit at the local, state and federal levels.
Given the fact that pension plans are mandatory is in and of itself a great red flag. If you've gotta, either someon econsider's you dumb or is fleecing you. In this case it's both.
Last year (or late 2010), puppet state India passed a law that put public AND private pension funds in the hands of some of the country's largest theiving corporations. And for a while they earned good returns.
Then the Sensex crashed and continues low vol melt-ups and foreign fund floatation. Of course it will end in tears.
Basically long-term savings in fiat currency is aninherently flawed paradigm. The 100 year death plunge of the Dollar in real terms is the only chart one needs to see to understand why.
ori
watershed-day-may-this-pour-through-a-million-pairs-of-eyes/
Pensioners like to believe they are "owed" their pensions -- never questioning the fact that they are stealing from their innocent neighbors who have nothing to do with their pensions.
Anyone without a pension plan is cattle. You're the meat on which the funds will feed -- through taxation, inflation and confiscation. Those without pensions are slaves. The product of their work is owned by someone else, and they have no option to avoid their servitude.
What is the correct response to a regime which represses one group for the benefit of another? History has a few answers...
Pensioners like to believe they are "owed" their pensions
Could be rewritten as Investors like to believe they are "owed" their dividends and coupons
Exactly. It's all premised on "give me your liquid assets now and I promise to give them back in the future plus a little bit more." People who subscribe to this deserve what they get: nothing.
In a properly run pension system, people are owed their pensions because they and their co-workers pay in exactly what is to be taken out. The fact that Jamie and Lloyd figured out how to screw everyone out of their money doesn't make the pensioner the problem or make him/her an "entitlement" welfare queen, no matter how much you listen to Rush.
In your "properly run" pension system, pensioners pay into the system for no reason. They do not earn any interest on their savings; remember, you said "they and their co-workers pay in exactly what is to be taken out." It's a glorified 0% interest savings plan.
The "problem" is, and always was, how to maintain PURCHASING POWER while saving in a fiat currency that had an official debasement target of 3%(and this was not always able to be contained either)! Do the math on how much purchasing power you lose over the course of a lifetime of work and savings in a pension plan! That is the frickin problem. The GOVERNMENT is the one stealing wealth and forcing savers into more and more risky investments in order to actually "take out what they put in". Anyone who looks at pension payouts in nominal terms is playing into the hands of the central bankers who don't want you to realize what you are up against and how they are screwing the world! If I save enough to buy a loaf of bread today then that's what I want to be able to purchase in the future with that amount of savings.
A bit prone to literal excess are we?
@Popo
Fuckin right on, man. Right. On.
Jealousy is such an ugly emotion. It must be such an injustice to have to actually hold up your end of the contract once the work you howled for was done.
There is no such thing as a "contract." The law can and will be changed at any time for any purpose.
I've said this several times here: You can voluntarily take a cut in nominal terms or your benefits will be forcibly cut in real terms.
Hit the bricks pal! cause you are going out!!
"Let me have your attention for a moment!
So you're talking about what?
You're talking about...(puts out his cigarette)...
bitching about that sale you shot,
some son of a bitch that doesn't want to buy,
somebody that doesn't want what you're selling,
some broad you're trying to screw and so forth.
Let's talk about something important. Are they all here?
All but one.
Well, I'm going anyway. Let's talk about something important! (to Levene) Put that coffee down!!
Coffee's for closers only. (Levene scoffs)
Do you think I'm fucking with you?
I am not fucking with you.
I'm here from downtown. I'm here from Mitch and Murray.
And I'm here on a mission of mercy!
Your name's Levene?
Levene: Yeah
Blake: You call yourself a salesman, you son of a bitch?
Moss: I don't have to listen to this shit
Blake: You certainly don't pal!
'Cause the good news is -- you're fired!
The bad news is you've got, all you got, just one week to regain your jobs, starting tonight.
Starting with tonights sit.
Oh, have I got your attention now? Good.
'Cause we're adding a little something to this months sales contest. As you all know,
first prize is a Cadillac Eldorado. Anyone want to see second prize?
Second prize's a set of steak knives.
Third prize is you're fired.
You get the picture?
You're laughing now?
You got leads.
Mitch and Murray paid good money. Get their names to sell them! You can't close the leads you're given, you can't close shit, you ARE shit, hit the bricks pal and beat it 'cause you are going out!!!
Levene: The leads are weak
Blake: 'The leads are weak
Fucking leads are weak? You You're weak! I've been in this business fifteen years!
Moss: What's your name?
Blake: FUCK YOU!!
that's my name!!
You know why, Mister?
'Cause you drove a Hyundai to get here tonight, and I drove an eighty thousand dollar BMW. That's my name!!
(to Levene) And your name is Lavine ?
you call yourself a salesman you sonaof a bich?
you're wanting.? And you can't play in a man's game. You can't close them. (at a near whisper)
And you go home and tell your wife your troubles. (to everyone again)
Because only one thing counts in this life! Get them to sign on the line which is dotted! You hear me, you fucking faggots?
A-B-C.
A-always, B-be, C-closing.
Always be closing! Always be closing!!
A-I-D-A.
Attention, interest, decision, action. Attention --
do I have your attention?
Interest -- are you interested?
I know you are because it's fuck or walk.
You close or you hit the bricks!!!!!!
Decision --
have you made your decision for Christ?!!
And action.
A-I-D-A;
get out there!! You got the prospects comin' in; you think they came in to get out of the rain?
Guy doesn't walk on the lot unless he wants to buy. They're Sitting out there waiting to give you their money!
Are you gonna take it?(to Levine)
Are you man enough to take it?
(to Moss) You, What's the problem pal? You. Moss.
Moss: You're such a hero, you're so rich. Why you coming down here and waste your time on a bunch of bums?
(Blake sits and takes off his gold watch)
Blake: You see this watch? You see this watch?
Moss: Yeah.
Blake: That watch cost more than your car.
I made $970,000 last year. How much you make?
You see, pal, that's who I am. And you're nothing.
Nice guy? I don't give a shit.
Good father? Fuck you!!!!
-- go home and play with your kids!!
(to everyone) You wanna work here? Close!!
(to Aaronow) You think this is abuse?
You think this is abuse, you cocksucker?
You can't take this -- how can you take the abuse you get on a sit?!
You don't like it -- leave.
I can go out there tonight!
with the materials you got, make myself fifteen thousand dollars!
Tonight! In two hours! Can you?
Can you?
Go and do likewise!
A-I-D-A!! Get mad!You sons of bitches! Get mad!!
You know what it takes to sell real estate?
It takes brass balls to sell real estate.
Go and do likewise, gents. The money's out there, you pick it up, it's yours.
You don't--I have no sympathy for you.
You wanna go out there! close! it's yours.
If not you're going to be shining my shoes.
And you know what you'll be sayin'
Bunch of losers sitting around in a bar.
Oh yeah, I used to be a salesman
it's a tough racket.
These are the new leads, and to you they're gold, and you don't get them. why?
because to give them to you, is just throwing them away.
They're for closers.
I'd wish you good luck, but you wouldn't know what to do with it if you got it.
(to Moss as he puts on his watch again) And to answer your question, pal:
why am I here?
I came here because Mitch and Murray asked me to,
they asked me for a favor.
I said, the real favor, follow my advice and fire your fucking ass
because a loser is a loser.
http://www.youtube.com/watch?v=y-AXTx4PcKI
GGGR - YouTube
L0L!!!
Well, there you have it. Western method, in a nutshell.
THAT is precisely why the world has a problem. Sell siders.
I'm sure many in the business world think thsi is manly behaviour.
Could not stand it. Oh and most of the good/great salesmen I knew in the Silicon Valley were cokeheads.
ori
I knew a great salesman. Nice guy but he liked booze a little or a lot too much. Either you have it or you don't. It is like sports. You can train a gifted athlete to perform better, but you can't train a cripple to play in the pros. There are all kinds of ways to motivate people. Whether the above dramatization works or not should be decided by a free market. Me, I would have punched that guy in the mouth if he said that to my face and crammed that fucking watch up his ass and asked him who the faggot is now.
i was close several times, i walked out, threw the bs leads on the table in the conference room and told him to fuck off and walked.
Wal Mart is going to have a whole bunch of new greeters.
Unfortunately, even those jobs are going away: http://www.businessweek.com/news/2012-01-25/wal-mart-pulls-night-shift-g...
what do you have to say for yourself now Leo ???
+1 Too many new users to get the reference
I think the collective ZH community ran him off. We have not been as lucky, however, with shoeing away Graham Summers, the monster car rally version of a doomsday analyst.
Leo, Leo, wherefore art thou and your permabullshit, Leo?
I was thinking the same thing; any time there was mention of Canadian pensions, Leo was straight in there with an opinion.
Hope you are well Leo. It takes all sorts of comments here.
Canadian pension funds are in fine financial shape, and the Canadian banking sector is adequately capitalized, and has implemented a robust firewall against contagian risk.
Their housing market isn't in anything remotely approaching a bubble, and even if oil, forestry, mineral, metal and other commodity prices were to drop precipitously in the event of another 'baby with the bath water' forced liquidation event (to meet creditor demands), their economy would practically brush these events off with nary a scratch, and keep chugging along.
I know these things because The Globe & Mail published an article recently that was incredibly light on specifics & actual supporting data, but assured its readers that such is and will be the case.
Does anyone else think of a fat kid with a popsicle when they think of pensioners?
lol
Australia and Canada are toast in 2012, both almost chart to chart are identical economies. Kinda uncanny. Problem though China rapid slowdown will punish those economies hard.
I had written exactly what you did about the similarities between Canada & Australia, chump, and then I deleted that portion of my rant for some unknown reason.
(Really, I swear).
Great minds think alike!
Your posts are great. Always a good read.
Likewise.
Any enemy of lying, thieving fractional reserve charlatans & the CONfidence perpetuating Lame Ass Stream Media that is their proxy propaganda conduit (e,g. Andrew Ross-Sorkin, Jon Hilsenrath, Joe Nocera, Joe Wiesenthal [a minor league piker, but still budding]) is a brother or sister & ally of mine.
The China Syndrome will ruffle Aussie feathers but not so much the Loonie's. Sell AD buy CD.
You raise an interesting point.
Australia depends on China (largest trading partner).
Canada depends on the U.S. (largest trading partner).
Whom to be?
Triffin dilemna, bitchez
I'm pretty sure Canada will sell their oil to whomever is buying.
Who is depending on whom?
I was referring more so to the financial chess match/war that's taking place between The Bernank and China's governmental financial elite, but I should have made that more clear.
clever... there must a long/short arb trade in there
playing on how tightly they are to stay coupled.
So if everything is so rosey why did CRA hier 15,000 more auditors and tax collectors. Heir Harper, the economists, has put Canada into a serious debt cycle that has no where to go but up. Sure he will do what ever it takes to keep the lid on this and that includes sellling a lot of our rights. But as the economist he will continue to do what ever it takes to balance the books. No country for old men, no evironmental obligations, no abortiginal rights, etc.
Canada is going to be a frozen, toxic, war zone with an average life expentancy of 50 years.
Its not so troubling for me to see this kind of drivel being spewed forth from our MSM here in Canada, what truly troubles me is that there are an awful lot of Canadian Sheeples drinking that koolaid daily.
"the whole owrld is melting down...but we'll be just fine........ Yeah sure.
I guess some folks seem to believe that, if you are going to get hit by a bus................ maybe its best if you don't see it coming?
Mind boggling.
The Globe is indeed fine reading for those that believe in unicorns.
All eyes on Portugal now.
What return would these pensions funds have made if they began investing in GOLD 10 years ago? There, I fixed the problem. Grandma can still retire.
But Obama promised me hope and change forever?
Hm
Marginal borrowers relying on debt just to get by BY JONATHAN CHEVREAU, FINANCIAL POST
http://www.canada.com/business/Marginal+borrowers+relying+debt+just/6057705/story.html
"The problem worrying Shenfeld is too many marginal borrowers are resorting to debt merely to survive."
"Shenfeld says the debt share of those over 45 among the high-debt-burden portion of the population has been ``rising much faster than their share of the overall population.'' In 2007, the share was slightly more than 36 per cent, and by 2011 it was more than 43 per cent, the report says.""
I recently completed a survey for my defined benefit pension plan. I referred to it as a Ponzi scheme, and said I resented being forced to participate (10% of my gross salary; less than 5% a decade ago). Is my opinion so extreme? Most union junkies (which I am not) no doubt see their pension as another fairy-tale aspect of being the favored gov't workers.
If I have to contribute more than double what the now-retiring baby boomers did to get the same pension benefit, how is that not a scheme? Just another example in the financial world of "you're forced, it's wrong, and you can't do a thing about it"... so I guess I'm supposed to shut up and "appreciate" that they fuck me, younger members wil be even more fucked, and eventually all of us, even those who quit our job and withdraw the pension lump sum, will eventually be taxpayer-fucked when the government has to "top 'em up". (Yeah, top up those poor gov't workers who were getting 20-30% more than they would have in the private sector, and had half the accountability.)
I am a small business owner and must save for my own retirement. I sock away nearly 50% of my after tax income and you are pissed because yours went from 5% to 10%? Unbelievable. My first thought is that you need to get over it and pay your own way. If you don't like the deal you are being offered then do what every business owner does: tell them thanks but no thanks. Trying to compare to pension plan to the propaganda is pathetic. You know darn well it's a lie. So don't participate. You have the freedom of choice.
Please sheeple, when you see an oncoming train, step out of the way!
So what do you invest your 50% in ?
I plan to do what the government wants me to do if I reach the age to retire.
I plan to DIE!
And the global elite very much appreciate your position. Why, after all, would any of us want to pool our resources so that we get the benefit of the funds paid into the system by the guy who dies at 65? Let's all just take care of ourselves and make sure we save enough to provide for ourselves if we live to 100 and have major medical problems, including figuring out what to do with our money to hedge against inflation, deflation, bankruptcies among large companies, etc. Most people earn plenty to do that and have extensive knowledge and experience in the markets, so no problem.
Most of the country, especially the private sector, has two very big problems. One is incredibly poor math skills and the other is an almost childlike gullibility regarding the magic of money laundering.
The money a public worker pays into their pension is PART OF THEIR COMPENSATION, NOT A BENEFIT ON TOP OF IT. If you can understand that public workers _are_ saving for their own retirement, then maybe the class warfare rhetoric you currently subscribe to won't be as crippling.
Secondly, you pay public workers like a customer pays you. Do you allow your customers to make dictates as to what you'll do and how much you'll profit from it? Hell no! So what gives you the right to howl and cry and threaten public workers? If your company was a bailout baby, how would you like public employees, who are taxpayers too, giving you an earful of the same kind of bile?
Get over yourself, work harder, and save instead of spending if you want a retirement, because stealing from somebody else because you think they have too much is fucking communist.
Public workers are the one who have the math problem: Anyone who expects an 8% yearly return is mentally deficient.
I'll let the hedgies know for ya.
CapitalistRock, I don't follow how your reply responds to what I'm talking about. I'm not pissed because "all I have to contribute to my retirement is 10% of gross income", as you seem to be implying. (What, having "some" pension "sometime" in the future means I should go spend all my current income on hookers and blow? Strawman?) I'm upset because being forced into a pension plan whose long-term viability I don't trust takes away the opportunity for me to save (more) on my own. To decide what to do with my money. I'm upset because they will keep ramming contribution rates to fund the deficit, taking more of my pay, and my only recourse is to quit. I'm upset because my contributions are funding the retirement of the richest generation in history, and they paid WAY LESS, relatively and absolutely, for the same benefit.
I also sock away 50% of after-tax income.
Your "unbelievable" is misdirected. Direct it at the people who believe they don't need to save a dime because the pension will protect them. Direct it at the moral hazard that will eventually come into play when all these pseudo-independent pension plans need their own government bailouts in order to appease the working (union) class for political reasons.
Your assessment is close to correct. What is going on with most defined benefit plans is that the increased employee contributions are simply going out the door to pay benefits to existing retirees. Most plans have had increased employee contributions but have shown increasing underfunding at the same time. So, while you may actually be saving enough, you will never get it.
Suppose you started out 15 years ago with an investment return assumption of 8%. Now,, with another 15 years until retirement, you recognize that returns may be more like 6%. Take today's balance and run a recalc to get a new contribution number. In order to make up for the shortfall in past returns, and lower returns on future investments (assumed returns) you can expect that contributions would possibly have to double for the next 15 years. Also factor in a possibly increased lifespan. If you guessed correctly you should be able to run the calculation each year and find that the underfunding of today is being reduced.
The real problem is that the money is not actually going into YOUR account. It is going into the account that will be bled dry paying benefits for those who retired earlier. That is the fatal flaw with all defined benefit plans. The can at the end of the road will be empty.
It has been my opinion, since ZIRP became a reality in 2008, that the idea is to starve everyone of yeild, and thus chase as many people into the market as possible.
Step 1) Remove Yield.
As people pile into the market, remove various safety nets, and vilify the use of said safety nets as only for free loaders, socialists and communists, or whatever the favorite "ist" of the day is. Also, dismantle various rules that made for a slightly more even playing field, or simply do nothing as investors get monkey hammered (i.e. MF Global).
Step 2) Pull the rug out from under everyone.
Create chaos in the markets, and short accordingly.
Step 3) Profit.
Bring a new version of order out of the chaos. The engineers of this train wreck have the gold, they can now make the rules.
Step 4) Neo-feudalism
THE HISTORY OF MONEY & THE CENTRAL FRACTIONAL RESERVE BANKING SYSTEM
--Rep. Charles Lindbergh (R-MN), 1913
Kind of reminds me of another scheme...
http://www.youtube.com/watch?v=TBiSI6OdqvA
Reminded me of that too. Except, in reality, it is not "collect underpants", it is STEAL underpants. Even the gnomes didn't come by their means honestly.
the good people in ottawa and DC are somehow able to do this, forever
it's truly one der full!
Where is the News in this analysis?
Why should anyone be surprised that forecasts of the future are comprised of Estimates, Assumptions and Guesses? Is it possible to believe that there is actually someone who knows how investment returns, inflation rates, and life expectancy will change over the next 20, 30, or 40 years?
This website must have the largest number of amazingly clarivoyant contributors of any I've read. That should be a wonderful benefit for the rest of us. Please calculate what percentage of monthly income should be set aside for investment in the retirement fund to assure that it will be able to payout exactly 75% of my final income amount 30 years from now, with full inflation adjustment of benefits after retirement. And detail the investment approach that will cause it to never be under funded or over funded by greater than 5% at the end of any year. It will be helpful to many of us to have such a program available, particularly since it cannot be based upon any unknown factors.
Because Augustus you will EXPECT 75% and will be in Court if the Defined Benefit is 30% so somewhere someone is on the hook to guarantee the 75%. In the UK ONLY public sector funds are guaranteed Defined Benefit now - and 25% my Property Tax is simply to make up the shortfall on Police, Fire, Council Workers Pensions - so my Property Taxes cover any shortfall, and my property taxes are not income-dependent, but FIXED COST
In the US we are finding that cities and counties with underfunded pension plans have gone bankrupt. The result is a greatly reduced pension payout. It will become the only solution. The state of Illinois is widley know to be about 55% funded for the liabilities for the promised payouts. Taxpayers will not make allow the tax increases to fund they bailout. Any current employee paying additional, increased, contributions into the fund is simply being misled.
What is your estimate of how long you will be in retirement?
What age did you start work.
What was your starting salary?
What is your salary now?
What is your expectation of your salary immediately prior to retirement?
Have you ever had a period of unemployment?
Do you expect to be in full time employment until you retire?
Health Care Costs Rising As Calif. Prison Population Ageshttp://www.kpbs.org/news/2010/jan/20/health-care-costs-rising-calif-pris...
US: Number of aging prisoners soaring
http://www.hrw.org/news/2012/01/26/us-number-aging-prisoners-soaring
Is this a possible solution to the pension crisis?
Man Goes to Jail to Get Health Care Benefits. Should You?http://jobs.aol.com/articles/2011/06/22/man-goes-to-jail-to-get-health-c...
Pay out? What does that mean? These plans are designed to accumulate cash, not pay out cash. Who are they trying to fool anyway? Pay out my ass......
The bit I like best is when Public Sector Pension Plans (UK) lend stock to predators who then take over private sector companies and strip their pension fund paying a fee to the Public Sector Pension Fund for the temporary loan of stock.
It is a wonderful game to collate huge pools of tax-advantaged capital and let bankers loose with the honey pot
Excuse me sir ...it's time for your haircut
Am I missing something?
IceCap don't seem to mention inflation.
What real returns are required?
Maybe I'm wrong.
Here's the real game plan. There's a lot of money sitting out there idle, minding it's own business, but not really earning anything. When the demand for funding arises, good old Uncle Sam, who at present is making sure there are no earnings to bolster these funds, will step up and offer to make them good (meaning of course taking them over). Voila, we have a new funding source for our ever expanding national debt, and of course willmodify payouts as necessary when coupled with Social Security. Adios privately owned retirement funds, hello more government control. Can't have a bunch of idiots out there managing their own money you know, rich uncle knows better.
Lots of lazy leeches trying to get something for nothing, so why do workers who pay into these plans for decades and just want the money they've saved returned to them always get all of the blame?
You get the blame because it is your job to police your money.
If you put your money with these people and they lose it, that is YOUR problem. Not anyone else's but YOURS.
Accept a nominal cut in benefits or Bernanke will cut your benefits with indefinite QE. Your choice.
It's not either or...they'll accept a nominal cut AND have the remainder debased.
Something wrong with wanting to retire in comfort? Angry the slaves are getting uppity?
"Earn" is a curious term to chose for a program to which they contributed...their benefits were not granted like the options and shares of the other "golfers".