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
Posted by The Short Story Man at 4:00 AM