Financial News

[bmags]

ugh. just build some casinos, i don't even care anymore.

[Balta1701]

I think you have your cause and effect backwards. The dollar drives commodities prices.

I think if we really did the math, the correlation coefficient would be ~0.25, which means they are correlated but very weakly. If you look at the charts in detail, and you tried to predict commodities prices based on the dollar or the reverse, you could do so weakly, but you'd have a very poor overall success rate. In general they line up in direction (one goes up the other goes up) but it's not a hard and fast rule, the magnitudes aren't well correlated, and they're often out of phase.

 

The real answer is most likely that it's a very chaotic system, with outside economic forces dominating both, and various feedbacks depending on the type of outside forcing, but that isn't something that can be easily put on a policy bumper sticker.

[NorthSideSox72]

More depressing news if you live in Illinois/the Chicago area:

 

http://www.chicagobusiness.com/section/blo...mentId=blogDest

Unfunded pension obligationss at $25B? Holy crap, I didn't know it was that big. So not good.

 

[Jenksismyhero]

Another depressing study on pension deficits:

 

http://www.cnbc.com/id/43498037

 

U.S. state and local governments will need to raise taxes by $1,398 per household every year for the next 30 years if they are to fully fund their pension systems, a study released on Wednesday said.

 

[NorthSideSox72]

Another depressing study on pension deficits:

 

http://www.cnbc.com/id/43498037

I would love to see all government agencies get out of the pension business entirely. The problem is, just like social security, there are only two ways to unwind from a pyramid scheme: drop benefits to recipients by some amount, and/or increase pay-ins in the short run to move into a phase-out. And no one wants to touch that political hot potato.

 

[Balta1701]

Another depressing study on pension deficits:

 

http://www.cnbc.com/id/43498037

Now, it's not given in here...so I have to ask..."How are they defining fully funded"?

 

Are they stating that assets must match liabilities to the pension? Because, while in the long run this in theory does need to happen...we're still in a depressed market state. Those pension plans are still working to recover their losses from the 2008 debacle...but if the economy is able to grow at a rate that say, begins to reduce unemployment, that should have a strong stabilizing effect on those same pension funds.

 

Over the last 25 years, public employee pension plans have averaged 8.8% return, while over the 2007-2010 period they averaged about 0.4%. If you try to be concerned about pension plan funding at the bottom of the market, you're going to have a pension plan that is overfunded if the market ever recovers.

 

Again, the bigger problem here is the economy as a whole producing this drag. There are certainly still issues in pension systems, but they're much smaller than would appear based on a standard of "Fully funding pensions based on the mid-2011 gap".

[Jenksismyhero]

Now, it's not given in here...so I have to ask..."How are they defining fully funded"?

 

Are they stating that assets must match liabilities to the pension? Because, while in the long run this in theory does need to happen...we're still in a depressed market state. Those pension plans are still working to recover their losses from the 2008 debacle...but if the economy is able to grow at a rate that say, begins to reduce unemployment, that should have a strong stabilizing effect on those same pension funds.

 

Over the last 25 years, public employee pension plans have averaged 8.8% return, while over the 2007-2010 period they averaged about 0.4%. If you try to be concerned about pension plan funding at the bottom of the market, you're going to have a pension plan that is overfunded if the market ever recovers.

 

Again, the bigger problem here is the economy as a whole producing this drag. There are certainly still issues in pension systems, but they're much smaller than would appear based on a standard of "Fully funding pensions based on the mid-2011 gap".

 

This, of course, assumes that we'll get back to some semblance of pre-2007-2008, which is not a guarantee at all.

[StrangeSox]

This, of course, assumes that we'll get back to some semblance of pre-2007-2008, which is not a guarantee at all.

 

If we'll never get the economy back to 2007 levels there's absolutely no reason to be concerned about pensions being underfunded in the future.

[NorthSideSox72]

If we'll never get the economy back to 2007 levels there's absolutely no reason to be concerned about pensions being underfunded in the future.

Yeah, I was going to say something like that. We've had lots of panic moments in our economic history, some stronger than others, but this country always found a way to claw back into things. I am pretty confident that will be the case here as well. And on the very slim chance it doesn't, and we descend into some sort of economic death spiral, then those pensions will either be irrelevant or will be just dropped a la bankruptcy dropping of debt.

 

[StrangeSox]

Yeah, I was going to say something like that. We've had lots of panic moments in our economic history, some stronger than others, but this country always found a way to claw back into things. I am pretty confident that will be the case here as well. And on the very slim chance it doesn't, and we descend into some sort of economic death spiral, then those pensions will either be irrelevant or will be just dropped a la bankruptcy dropping of debt.

 

If the world economy is stagnant for the next 30 years, I'd venture that most existing governments would become irrelevant.

[Jenksismyhero]

Yeah, I was going to say something like that. We've had lots of panic moments in our economic history, some stronger than others, but this country always found a way to claw back into things. I am pretty confident that will be the case here as well. And on the very slim chance it doesn't, and we descend into some sort of economic death spiral, then those pensions will either be irrelevant or will be just dropped a la bankruptcy dropping of debt.

 

What if we stay as is for the next 5-10 years?

[NorthSideSox72]

If the world economy is stagnant for the next 30 years, I'd venture that most existing governments would become irrelevant.

That's why I said "irrelevant". Its like people who are hoarding gold, or people trading buy-protection on US treasury debt... what's your end game? If your feared scenario happens, your holdings are all worthless anyway. Not to mention that such a scenario just seems so very unlikely to me.

 

On the highest, simplest level, this recession seems to me, to be about early immaturity of a global economy and its realities. Global financial adolescence run amok.

 

[NorthSideSox72]

What if we stay as is for the next 5-10 years?

Depends on what you mean by as-is. Current state for 5-10 years would suck, but its still very survivable, nationally and globally. If you mean things get worse and worse for 5-10 years, that's different.

 

[Balta1701]

What if we stay as is for the next 5-10 years?

How do you define "As-is"?

 

Constant unemployment would still involve significant GDP and business growth.

 

Constant GDP would require further severe erosion in employment.

 

The former would close the gap somewhat, because pensions would produce non-zero returns over that period. The latter...well, that's your "stop caring about pension underfunding and care about the unemployed people rioting in the streets" situation.

[kapkomet]

We all know 2012 is going to be one of the best years eva. We got lots of stimulus money to be spent.

 

Think about it for a second.

 

It'll give just enough boost to GDP to re-elect our current rock star.

 

DJIA and pensions, poof!

[southsider2k5]

Can we go back to "Irrational Exuberance" instead of "I got nothin'"?

 

http://blogs.forbes.com/afontevecchia/2011...mys-soft-patch/

 

Bernanke Admits He’s Clueless On Economy’s Soft Patch

Jun. 22 2011 - 4:10 pm | 207,323 views | 0 recommendations | 70 comments

see photosGetty Images

 

Click for full photo gallery: Ben Bernake Press Conference

 

In his second post-FOMC press conference, Fed Chairman Ben Bernanke touched on every topic, admitting that the recovery was weaker than expected and that beyond temporary factors like supply chain disruptions in Japan and high energy prices, he was at a loss as to what was causing the soft patch. In a Q&A session with reporters, Bernanke said a disorderly default in Greece would have significant effects on the U.S. economy, while adding that the Fed still had several tools at its disposal to pump up the economy.

 

If the central bank actually does have more in its tool kit, they will be deployed in a weakening economy. Just before Bernanke spoke the Fed issued its revised forecast, dulling growth estimates for 2011 and now calling for gross domestic product to expand between 2.7% and 2.9%.

 

Bernanke’s statements rattled the markets, which had remained virtually flat for most of the day. Equities sold-off as the Chairman began talking, with all three major U.S. equity indices closing at their lows for the day. The Dow shed 80 points or 0.7% to close at 12,110 in New York, while the S&P 500 fell 8 points or 0.7% to 1,287; the Nasdaq lost 18 points or 0.7% to 2,669.

 

On the bond front, yields on benchmark 10-year Treasuries hit their lows for the day just before the release of the FOMC state, only to bounce up to a few basis points from 3%, marking a sell-off as prices move opposite yields, and playing into Bill Gross‘ investment thesis. (Read PIMCO’s Bill Gross Shorts Treasuries As Experts Eye Inflation).

 

With markets at a crossroads, amid a cooling economic recovery and a dangerous Greek crisis threatening the euro and the global economy, reporters grilled Bernanke and asked many of the right questions.

 

Brutally honest, Bernanke admitted that he had no clue what was actually causing the current fragility in the U.S. economic recovery. While the FOMC statement assigned blame outside of the U.S., pointing at Japan along with rising food and oil prices, Bernanke was put on the spot by a reporter who noted the inconsistency behind that explanation and a lowering of long term forecasts. Bernanke took the hit, admitting only some of the factors were temporary and that he didn’t know exactly what was causing the slowdown, but that it would persist. “Growth,” said Bernanke, “will return into 2012.” (Read No Recovery Possible While U.S. Consumer Continues Deleveraging).

 

“Bernanke was just summing up what has happened in the markets, what has been priced in,” explained Nick Kalivas of MF Global. “But the Fed has taken extraordinary measures to support the economy, they have done what they can and monetary policy isn’t a solution for everything,” added Kalivas, pointing at problems with the fiscal situation and the debt ceiling debate.

 

While Wednesday’s remarks came as little surprise, the blunt discussion of inflation and slowing economic growth offered little inspiration to load up on risk assets like equities.

 

The Fed chairman was explicit about the situation in Washington, directly slapping Republicans in the face saying “I don’t think sharp immediate cuts in the deficit would bring more jobs.” Having made clear before that Congress should raise the debt ceiling, Bernanke explained budgetary problems are very long run in nature. (Read Apocalyptic Bernanke: Raise The Debt Ceiling Or Else).

[Jenksismyhero]

Depends on what you mean by as-is. Current state for 5-10 years would suck, but its still very survivable, nationally and globally. If you mean things get worse and worse for 5-10 years, that's different.

 

Yeah i mean current state. 9-10% unemployment, around 1% growth, more and more people retiring. More pensions becoming due. It's not totally in the crapper where we can just forget about them completely, but at the same time nothing else good is happening so we just sorta stay in this meh period for a decade or two.

 

Edit: though I guess GDP growth is a little better than that, but still only 2-3 percent.

Edited June 23, 2011 by Jenksismybitch

[Balta1701]

Yeah i mean current state. 9-10% unemployment, around 1% growth, more and more people retiring. More pensions becoming due. It's not totally in the crapper where we can just forget about them completely, but at the same time nothing else good is happening so we just sorta stay in this meh period for a decade or two.

Remember, pension funds are investment funds. While we're sitting around this 9% unemployment mark...wall street is doing spectacular.

[southsider2k5]

Remember, pension funds are investment funds. While we're sitting around this 9% unemployment mark...wall street is doing spectacular.

 

That's got more to do with the free money sale at the fed than anything else. Remember pensions are massively underfunded right now.

 

[Balta1701]

That's got more to do with the free money sale at the fed than anything else. Remember pensions are massively underfunded right now.

Which we already discussed the reasons for yesterday.

[southsider2k5]

Which we already discussed the reasons for yesterday.

 

Underfunded also means "not invested".

[Balta1701]

Underfunded also means "not invested".

If the stock market falls and wipes out 30% of the value of your 401K, is your 401K "not invested" in?

[southsider2k5]

If the stock market falls and wipes out 30% of the value of your 401K, is your 401K "not invested" in?

 

401k's are actually money that has actually invested into something. You pay a portion, and your employer pays you a match.

 

If you haven't funded a pension, the money isn't there. You can't invest money that isn't there. Its like a Social Security IOU sitting in a vault somewhere.

[Balta1701]

401k's are actually money that has actually invested into something. You pay a portion, and your employer pays you a match.

 

If you haven't funded a pension, the money isn't there. You can't invest money that isn't there. Its like a Social Security IOU sitting in a vault somewhere.

Pension funds aren't investment funds that receive money and invest them? Huh?

 

I pointed this out yesterday but I'll point it out again now. In the period 1970-2010, Pension funds averaged returns of about 8%. If you look at the period 2007-2010 alone, they returned about 0.5%.

 

They're underfunded now because the economy and the markets have yet to recover to 2007 boom levels. That of course does not mean that there are other problems, but saying that they are underfunded now is exactly the same as saying that your 401k is underfunded now because it hasn't made up the dent from the 2008 implosion.

[southsider2k5]

And for some happy news, Dollar is up big today, Crude is trading an 80 handle, and gas futures are down nearly 20 cents a gallon.