Is this because we didn’t have 0% interest rate induced swings during this period (prior to covid)? That seems to be the pattern.
I don’t think we disagree on anything. All I’m saying is that, regardless of what pension managers think is happening, most investments are sensitive to the market discount rate, and so are their liabilities. They’re inherently partially hedged against movements in the market discount rate. But their accounting won’t reflect that because they’re treating gain or loss on the de facto hedge as real gain or loss.
It seems like a complete disaster that they’re accruing new benefits based on a 6.8% discount rate. Really no way that’s going to end well.
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All the traditional asset allocation advice takes political stability for granted. Sadly I don’t think that assumption is justified. Not sure what do do about it other than having a pile of money ready to GTFO if need be.
Yes, totally. This is the fundamental problem at the heart of public sector pension funding. They were dragged kicking and screaming from assuming they would earn like 8% per year forever to assuming they would earn 7% per year forever. Meanwhile safe long term bonds are yielding less than inflation. Everyone aboard the private equity train! If there’s no market for prices then the prices must be good!
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I’m on the plan of eggs everywhere you can being prudent, expecting maybe losing one of them but all so you’re not completely fucked if shit hits the fan like most would.
it’s hard to believe long term politically US can be stable, and the world economy is just the money printer which is like martingaling on blackjack, it works until it doesn’t and oh lord when it doesn’t.
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I’m in Illinois, it’s going to be a disaster here, they guaranteed return here in the law and it’s already 25% of the state budget. Desperately needs draconian cuts to it but that isn’t something a politician will ever say and the one time R’s tried to even moderately do something about it the court threw it out.
I probably should move just to get the hell out of the damage when shit hits the fan.
They gave out way way way too much money in pensions and we’re gonna get fucked as a result, sad.
Sure, if your goal is to protect the wealthy morons who used too much leverage to buy stocks that were absurdly overpriced and punish fundamental investors.
If that’s the case then yeah I guess we’re going to have a recession, then. Like the S&P went with zero return from 1997 to 2003, or if you want to go peak to peak, from 2000 to 2007. Or you could even go from 2000 to 2013, no return.
If they were running it in 2016-2018 as if that wasn’t even a possibility, we were always doomed it was just a matter of when.
Thanks! I’m enjoying the discussion!
Oops, I left the 1 off the front, thanks for pointing that out! It was 13.8%, it continued down after hours to -14.3% off ATH.
The percentage of the population that has determined in the last decade that stocks only go up is probably significantly higher than we even think.
Think about the incentive structures and how the people running the funds get paid, and you may see an incentive to gamble.
i agree idiots exist, but i doubt they ended up managing more than 2-3% of total wealth over the last decade.
in other words, do you think equity funds deleveraging is going to be as big a drop as covid in spring 2020? it’s seems obvious to me that covid was several times more serious.
in Illinois by 2025, the state will spend more of its education budget on teacher pensions than it will in the classroom.
paying more money for teachers not to work than combined teachers actually working is absolutely insane ffs
before you say pay the current ones more, the problem is the state is completely broke and pensions need to be drastically cut first but yes I know they won’t.
Pretty sure in Illinois there is no way to cut pensions. Like under current law first property taxes should be increased to 100 percent a year or instead
right, it’s basically impossible, they tried once but the court threw it out–those assholes put it in the state constitution
fuck them well at least when the state defaults they’re fucked too
Yeah that’s what I remember the judge basically saying too bad. Shitty situation all around.
Kinda bullshit to view earned pension payments as “being paid not to work” imo.
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Hahahahahahahahahahaha. OK I’ll stop laughing. Hahahahahahahahahahahaha.
My dude the people running the show are straight up morons. That’s been obvious since 2008 at the absolute latest.
except they’re not earned, they barely paid into it
this is more of a ponzi than madoff was
if it was fair i’d agree with you but this isn’t at all
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They’re paid into with service. Whether they were adequately funded had nothing to do with whether they were earned.
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The issue with public pensions isn’t that teachers didn’t earn them, in fact teachers more than most public employees are getting super screwed in this spot.
What’s been happening is that politicians paid previous generations of teachers in pension obligations more than salary. The salaries sucked, but the deal was that you would take the shitty barely survivable salary in exchange for not having to worry about retirement.
Where the screwing took place is that they didn’t actually fully fund said pensions and created a absolutely massive shortfall. Essentially they put a sizable % of the cost of paying people to educate public school students onto future taxpayers instead of current taxpayers knowing that they would be out of office and probably dead before the consequences arrived.
Now the consequences have arrived and the financial markets have to go up X% a year where X must be greater than whatever unrealistic yield the pension actuaries came up with to make the numbers crunch on the weak funding provided by the state/local politicians.
Obviously the consequences are arriving now and we’re paying out more in pensions than we’re paying current teachers, because that’s how we structured the pay of past teachers. Since the past teachers definitely aren’t going to get paid what they were promised in real terms (either devaluation or a large market correction because of raised interest rates fucks them hard) current teachers are mega fucked and since that’s now incredibly obvious they’re exiting as fast as humanly possible.
At the end of the day the root problem is the same as it ever was: rich people haven’t actually been paying taxes at a remotely feasible level for the last several decades.
This is yet another reason why devaluing the currency is the right move from the perspective of the people making the calls. If they pay out pensioners nominally they can keep the system moving without a bunch of states going bankrupt because they underfunded their pension systems for decades.
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Nobody gaf about fundamental investors lol.
not in Illinois, they got given way too much, guaranteed it on top of that, and also made it so they get paid before essential services do.
other states are different, IL is the worst on this one, as noted before it’s 25% of the entire state budget now, and MORE THAN THE ENTIRE EDUCATION BUDGET in a few years which is indefensible and they completely screwed us over on that deal.
It’s okay to be pro pension/worker but also recognize that somewhere, they over did it like this one.
I heard way more absurd than that was commonplace as well.
ie, I’d be shocked if his pension wasn’t based on that.
This shit state man.