{"id":13635,"date":"2015-10-21T06:20:05","date_gmt":"2015-10-21T11:20:05","guid":{"rendered":"http:\/\/olduvai.ca\/?p=13635"},"modified":"2015-10-21T06:20:05","modified_gmt":"2015-10-21T11:20:05","slug":"pension-armageddon-got-closer-today","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=13635","title":{"rendered":"Pension \u201cArmageddon\u201d Got Closer Today"},"content":{"rendered":"

Pension \u201cArmageddon\u201d Got Closer Today<\/a><\/h3>\n

The IMF fears underfunded pension funds could be encouraged to chase returns through riskier investments such as direct credit exposure or by engaging in securities lending in order to improve their funding ratios\u2026.The IMF\u2019s comments echoed similar\u00a0warnings from the OECD<\/a>\u00a0in May, when the Paris-based body said pension funds\u2019 move towards riskier asset classes could result in their\u00a0solvency position<\/a>\u00a0being \u201cseriously compromised\u201d in turbulent markets. \u00a0The Financial Times<\/a><\/strong><\/p><\/blockquote>\n

Yesterday I published a post in which I outlined the reasons why pension fund underfunding is likely much worse than the level admitted by the funds themselves and industry professionals. \u00a0The biggest culprit is \u201cmark to market\u201d of illiquid investments into which pension managers have \u201cshoe-horned\u201d themselves in order to give the appearance of rates of return that are higher on paper than in reality. \u00a0A good friend and colleague of mine, who happens to be very bright, had this comment in response to my post:<\/p>\n

Pension funds are collectively insolvent.\u00a0 Basically the asset managers running these funds have refused to MTM them properly, expecting the assumed X% annual return to normalize.\u00a0 Sorry, buddy: this IS the new normal (which is why the unfunded situation gets worse every year\u2026 assume 8% and get 0% for enough years and the chasm only widens\u2026 in fact, by the rule of 72, your funding gap will double every 9 years if that 8% gap is reality).\u00a0 This is where the rubber hits the road, the issue which is going to punch the middle class in the gut like a steel 2\u00d74.<\/strong><\/p><\/blockquote>\n

This is the same dynamic that torpedoed the big bank balance sheets when the housing\/subprime credit bubble popped, as big chunks of home equity, mortgage and other credit products were marked close to par when in reality most of it was worth zero. And this is one of the primary reasons that the Fed is devoting significant resources to keeping the stock market propped up: \u00a0pension fund insolvency is at risk.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Pension \u201cArmageddon\u201d Got Closer Today The IMF fears underfunded pension funds could be encouraged to chase returns through riskier investments such as direct credit exposure or by engaging in securities lending in order to improve their funding ratios\u2026.The IMF\u2019s comments echoed similar\u00a0warnings from the OECD\u00a0in May, when the Paris-based body said pension funds\u2019 move towards […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[10042,2203,10038,303,305,418,434,6895,2164,10041,7533,690,10039,2731,10040],"class_list":["post-13635","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bank-balance-sheets","tag-blackrock","tag-dropbox","tag-fed","tag-federal-reserve","tag-imf","tag-international-monetary-fund","tag-investment-research-dynamics","tag-oecd","tag-pension-armageddon","tag-pension-funds","tag-risk","tag-silicon-valley-bubble","tag-stock-market-crash","tag-tech-valuations"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13635","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13635"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13635\/revisions"}],"predecessor-version":[{"id":13636,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13635\/revisions\/13636"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}