The year's scariest investing news

Discussion in 'Wall St. News' started by THE-BEAKER, May 8, 2008.

  1. A federal agency rolls the dice to fund busted pension plans, showing that the gambler's thinking that got us into the housing and credit mess is alive and well.

    What's the scariest investing story of 2008 so far?

    It's not news that the median price of a new house is down 17% from its 2007 high --- and still falling.

    Or that Miami has a 37-month supply of unsold condos, with 19,000 more new units set to hit the market this year.

    Or even that losses at banks and investment banks in the debt-market meltdown could hit $400 billion.

    Here's my nominee:

    The Pension Benefit Guaranty Corp., the government agency that protects the pensions of 44 million workers in case their employers can't (or won't) pay promised benefits, has announced that to avoid going bust it will double the percentage of its portfolio -- to 45% -- that it puts into stocks. An additional 10% will go into alternative investments, including hedge funds.

    In other words, facing a $14 billion deficit and even larger projected shortfalls, the Pension Benefit Guaranty Corp., or PBGC, decided not to save (by raising premiums) or to live within its means (by cutting benefits) but to gamble in the financial markets by taking on more risk. The PBGC was so proud of its new strategy that it announced it on Presidents Day, when the U.S. financial markets were closed and almost no one was paying attention.

    Talk back: Are you concerned about this federal agency's gamble?

    So why is this so scary?

    Because as a result of 10 years of booms and busts -- the Asian currency crisis, the Long Term Capital Management hedge fund disaster, the tech stock bear market of 2000-02, the housing smash-up, the debt market debacle -- I've increasingly come to believe that those of us who play by the rules (work hard, live within our paychecks, save) are chumps. The way to get ahead is to gamble big and then, if you lose, find someone to cover your losses.

    Anger and fear
    I've been hearing the same thing in e-mails from some of you. There's sympathy for families that were defrauded in the housing boom and now face foreclosure. There's a willingness to fix the system so that buyers with a mortgage they can't afford don't lose everything. But there's also a deep anger from those of you who played by the rules and didn't buy more house than your paychecks would cover and are now paying the price in falling home values, a slowing economy, jobs lost and a sinking stock market.
  2. Cutten


    Ridiculous thread title and article. 10 year treasuries are yielding less than 4% and you are criticising a pension fund for moving from a ludicrously risky 75% bond exposure down to 45/55?

    The long-run return from equities is far higher than bonds. A portfolio dominated by bonds is *ultra-risky* long-term for matching future liabilities. Because bonds struggle to generate long-term real returns, inflation is a giant risk. The longer you go out, the greater the chance of facing bankruptcy by failing to generate adequate real returns in excess of inflation. 45% is a perfectly normal and conservative allocation. To describe it as the year's scariest investing news displays a complete ignorance of basic investing principles on the part of the author of this article.

  3. yes sorry you are correct because as the fund has not made any money in equities in the last 10 years and has a $15 billion dollars deficit then the smart thing to do is to double up in equities in a bear market.

    nice trading
  4. Maybe it's possible that the PBGC will be investing in the market based on the fact that as boomers retire they'll be withdrawing money from the market.
  5. Cutten


    So you think pension funds should base their investment decisions on the last 10 years' performance? A 45% equities/55% bonds split is a really bad idea? Tell us, what mix of assets should a typical pension fund invest in?

    By the way, pension funds don't trade, they invest.
  6. Meh, not enough money to pay pensions? Print more money. Cant print more money? Go bankrupt. Problem solved.
  7. Rarely pension and labour funds are going outperform others in any markets; even bonds markets.
  8. I think the scariest investing news was the consumer credit number of $15 billion vs the expectation of $6 billion. Auto sales aren't exactly booming. That expansion in credit may be people putting food and fuel on the credit card since they can't pay it right away. If so what happens if inflation keeps upticking?
  9. S2007S


    Agree, that took so many off guard yesterday, they said the reason behind it again is people paying for gas and food on credit cards, this is going to lead to an even worse consumer spending outlook over the next 6-12 months. I know a few people who already were transferring some of their high amounts of debt to 0% credit cards however 1 of my friends MISSED ONE PAYMENT and it went form 0.00% to 30%, tried calling to see if he could get it lowered to around 10-15% but they refused, so now hes transferring that debt to another 0% CC. Im sure many are missing payments, this is going to lead to more problems down the road. This is far from over.
  10. 0.00% to 30%,


    Reeks of desperation on the part of CC cos.
    #10     May 8, 2008