April 19th issue of Forbes: Jeremy Siegel, Professor of Finance at Wharton School vs Dr. Robert Arnott, Chairman of First Quadrant of Pasadena, CA an asset-allocator that manages $18 billion. Interesting reading.
Arnott states that the average corporation is assuming that a defined benefit plan will make an 8.5% to 9% return in the years ahead, yet these guys are severely overestimating what the performance of their pension funds can do. If you use the just under 5% long term return on long Treasurys - - - and realizing that anything beyond that is speculation on the ability to earn higher returns than the assured return - - - you are looking at a 4 percentage point overstatement in the return assumed for pensions. If you take that four points away, there goes between 15% and 20% of S&P earnings. If management stock options are fully expensed, there goes another 10%-15% of S&P earnings. So Arnott would argue that 25% or thereabouts of S&P earnings are fictitious. Take the "fluff" out and you are left with a payout ratio that's somewhere in the 50% range, not too far from historical returns. Right now the S&P 500 is due to earn roughly $60.00 per share this year and is anticipatiing a 16% year over year profit growth for the S&P, the largest growth since the 19% gain in the first quarter of 2000. Thus, the S&P is currently at a P/E of 19. Priced to and for Perfection?
waggie, have you nothing to do in this great day? For you i have a tip. 1133 is a good support for today. Bye! Chapa!
The bears won for this week ... market is approaching support. Let's see if the current support holds.
What sort of antique nineteenth century commercial mumbo jumbo bases a pension fund performance on what it should pay its members relative to final salary!! A pension fund can and should only pay a result (ie a final investment share for buying a pension annuity) in ratio to contributions made for a member plus investment growth thereon. That way there can never be a pension fund deficit or surplus. For goodness sake, when is the whole idiot pension fund profession and its half baked gurus going to get real?!
Yes, weekly pivot points. I know you like pivot points waggie. Yes, i wrote after the ES hit this pivot point. Its not my intention to be a prophet. It´s just another good point to trade. Simple! Chapa!
Many pension funds are underfunded to the point that the company comes out and sells stock ( like IBM ). Arnott makes the observation that 8.5% to 9% expected returns is fantasy, in most cases. And your point is???