America's next top bubble. Coming soon to your idiot box. Indeed, the large pension funds of America are living in a dream. The dream that 8% annual returns are a reality going forward.
If we were to stop and scratch beneath the surface and ask "why were there so many school districts, municipalities, churches, hospitals, etc investing in risky CDOs, MBSs and Swaps?" we may begin to see the ugly truth that is being aggressively ignored by mass media and much of the investing public in regards to pension funds nationwide.
The truth is that these pension funds are something we really need to be worried about and working pro-actively to improve and sequester from risk. The "Magic 8" figure has not changed since 2001, though the world indeed has.
Many plans have held onto an 8% return expectation though thick and thin. Such return assumptions partly reflect the heady years of the 1990s bull market. Public pension plans posted a median, annualized return of 9.3% over the past 25 years, but just 3.9% over the past 10.
Tick, tock...tick, tock. Christmas is over. No more toys, no matter how loud you cry.
For those of you who have not, I seriously suggest checking out "While America Aged" . It is certainly Roger 's lowest profile book and arguably, his best work. Not surprisingly, it has flown largely beneath the radar and received very little fanfare in proportion to the severity of the issue it attempts to tackle.
The truth scares the Ostrich. But burying head in sand, no matter how firmly will not help avoid becoming lunch. That Hyena will snack on you whether you see it coming or not. Here is a now 2.5 year old review of the book by the New York Times.
Unlike many of the orthodox finance issues we discuss and confront daily, this is a huge macro factor that goes on ignored. It has the potential and the magnitude to shock equity, bond, labor markets and beyond. In fact, we can easily argue that the seismic activity has already begun and that we are looking at the wrong craters for the cause of the tremors.
Informing yourself is the ultimate armament in today's world. This issue is the largest and most ignored of these "weapons". Playing daily, weekly and monthly strategies can make you millions. But playing year and decade long strategies, with proper research and investment can lead to gains in the billions...or...if handled improperly...losses of even greater magnitude.
Both the gift and the curse of current young generations is that smart, conservative investing will become our hallmark. To the joys of some and the utter, miserable, failure and poverty of others.