Tuesday, February 17, 2009

Metrics of a Pension Default

The U.S. equity market, while down 45% from its peak, still trades at a higher percentage of GDP than it did at the PEAKS of 1966 and 1973 (data point courtesy of Dr. Marc Faber).

That metric is unassailable to my mind.  The equity market will bottom much lower.  The problem is, the U.S. pension system assumed 9% growth in the equity market each and every year to infinity.  At the moment, we are missing 13 years of COMPOUNDED pension appreciation of 9%.  Should the market head to a Dow 5000, which I now think possible, we would be missing 18 years worth of that 9% compounded returns.  But the liability is still there.  The folks on the OTHER side of that balance sheet entry still want their monthly stipend.  As a matter of fact, since they fervently believed they would get it, most did not save to provide for themselves.

This ticking time bomb is going to go off relatively soon.  

Mentatt (at) yahoo (d0t) com

4 comments:

Anonymous said...

Greg,

How many people are we talking here? And what sector of business are they coming from? Since my business does a large portion of its work for those who are in there late forties and up and typically work for a variety of government agencies and other large corps. i.e. IBM. This is very troubling, like you said no real security net beyond the pension, hell McDs is even out of the question. Oh, what about all those new grads. and highschoolers in June? Summer work? Thanks!

Robert

Greg T. Jeffers said...

I don't have a head count. For the most part, I make my observations from MACRO data. If you have 10 people in an airtight room, and enough O2 for 9, one of them has to go.

Picking which one is beyond my abilities.

bureaucrat said...

I don't wanna hear this! I got 15 years to go before I get a Federal pension. While the Feds are not like the state, county or city govts., or like private pensions (since, theoretically, the Feds can print money aNd tax people), I still am concerned --- hell yeah! --- I want my hard-earned pension money! Sure, it is overly generous and can't possibly be sustained (just like the Social Security system), but I still want my dough! I get a pension which gives me 1% of final pay times years of service (34 years) -- so we get a 1/3rd of pay for the pension -- and under the new retirement system, Social Security throws in another 1/3rd or so. I'm counting on about $12,000 a month for everything (including investments) when I hit 57 and can retire. You trying to ruin my dreams of a 40 year retirement with an inflation-adjusted pension and health care included ?????????? Not in America! Damn Commie propaganda!!! :)

sharon said...

thanks for sharing.......

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Sharon
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