WHEN NEO-LIBERALS SAY 'SUSTAINABILITY' THEY MEAN....NOW THAT WE HAVE ALL THE MONEY.....EVERYTHING PUBLIC HAS TO GO!!!
As we know, big investors are dumping the bonds and heading to gold investments as the bond market is ready to implode. So what do we see below as a result?
PENSIONS ARE BEING THROWN INTO THE BOND MARKET TO KEEP IT AFLOAT JUST A LITTLE LONGER BEFORE THE COMING ECONOMIC CRASH.
Remember, in 2007 pensions were taken from the then safe bond market and placed into the stock market as it was ready to collapse causing pensions to lose 1/2 their value. Mind you....these pension-fund managers, whether public or private, know these are bad investments as does the public officials involved in allowing it. This coming crash will take all the value again from pensioners as big private investors run and insure against losses with Credit Default Swaps. The entire bubble was manufactured with the intent to blow up the bond market with sovereign and municipal bond debt -----THE PUBLIC SECTOR------taking the hit.
Bonds are low because the market is ready to crash and that is not the same as a simple low in a normal stock cycle.
Pensions Sell Stocks to Buy Bonds
By Roben Farzad January 24, 2014
Coming off a year when the broad U.S. stock market enjoyed a 30 percent gain, investors and financial advisers are struggling to determine the most appropriate portfolio asset allocation consistent with their tolerance for risk, says Andrew Clinton, president of Clinton Investment Management, in Stamford, Conn. Pension funds, in particular, are striving to lock in the outsize gains they have enjoyed over the past few years in the booming debt and equity markets. To do so, they are going against the broader fund-flow trend by selling equities and shifting money to fixed income. Deutsche Bank (DB) forecasts that pensions will liquidate about $150 billion in equities this year alone to buy bonds with maturities of 10 years or longer.
“It’s only logical,” says Clinton. “Pensions struggling with underfunded status need to lock in the lift of the past couple of years. From a risk-adjusted perspective, equities, for all their recent outperformance, are nearly four times as volatile as municipal bonds. Pension managers are in a different dialogue than everything you hear now about people rotating out of stocks, etc.”
Clinton believes this asset reallocation is likely to last for years. As for domestic equities, which are near their all-time high: They are their costliest compared with government debt in three years. The Standard & Poor 500-stock index’s profits as a percentage of the index’s price is just under 3 percentage points higher than the yield for 10-year government notes, the smallest premium since March 2011.
Video: Stocks vs. Bonds vs. Commodities: Where to Invest? In the third quarter, U.S. pension funds, which have assets of $16 trillion, swapped out of equities and into bonds at the fastest clip in five years, data compiled by the Federal Reserve show. According to Matt Robinson of Bloomberg News, they bought $117 billion of debt on an annualized basis and offloaded $135 billion of stocks. The 100 biggest corporate pension plans thinned their deficits by a net $319 billion, according to consultancy Milliman; they are now 95 percent funded, compared with a low of 77 percent two years ago.
“It makes sense,” says Michael Gayed of Pension Partners in Manhattan. “Rebalancing to target weights is a time-tested approach to enhancing longer-term returns--forcing you to buy low and sell high.” He says the “Great Rotation” is presently, at the margin, from stocks back to bonds.
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This is the reason the Spanish citizens are marching in the street. Their pensions are being eliminated because TROIKA payments are being made by Spanish leaders by the citizen's public assets. It is incredible as Spain is one of the hardest hit with fraud and corruption. They had all that debt created by leaders tied with Wall Street and DeutschBank with development that was not deeded.....money simply spent to move it to the top. This is what is happening with US pensions as well as they are moved to the bond market ready to implode!
'Retiring' The Debt: Spain Drains Pension Fund To Prop Up Bonds
Jan. 14, 2013 9:33 AM ET | Includes: EWP Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Last week, Spain's Treasury raised $5.82 billion euros at auction in the country's first debt sale of the year; this was well above even the upper end of the target range. The auction, which the Wall Street Journal described as 'robust,' was enough to drive yields on Spanish 10-year notes below 5% for the first time in 10 months.
The Treasury in Madrid sold three bonds, one maturing in 2015, one maturing in 2018, and a 2026 note. Yields were down across the maturities compared with the last time the notes were sold and, in the case of the 2026 note, compared with where it traded in the secondary market. The consensus, which of course is somewhat justifiable, is that the successful auction indicates demand for Spanish debt isn't going to dry up anytime in the very near future. Here's Annalisa Piazza, a fixed income strategist quoted by the Wall Street Journal:
Today's Spanish auction suggests that market appetite for euro-zone periphery's debt remains solid despite uncertainties regarding the request for a bailout and eventual activation of the European Central Bank's Outright Monetary Transactions.
The problem for Spain in 2013, however, is that two major sources of demand for the country's debt are likely to be largely unavailable in the coming year. In a rather disconcerting piece published on January 3, the Wall Street Journal disclosed that Spain has now spent over 90% of its Social Security Reserve Fund buying its own debt. Just to reiterate: Spain has spent pretty much the entirety of its pension fund on its own bonds.
There are three obvious problems here. First, this means that the fate of pensions in Spain is now hopelessly intertwined with the fate of Spanish government bonds, a fact that doesn't inspire much confidence, given the market for periphery sovereign debt in 2012. Indeed, the Wall Street Journal notes that the decision to invest the Social Security Reserve Fund's cash in Spanish government bonds violates a Spanish government decree which states that the fund can only purchase securities "of high credit quality and a significant degree of liquidity." This is terribly ironic given that if anyone should know that Spanish government bonds are not of the highest quality and are certainly not highly liquid, it's the Spanish government.
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Keep in mind that the California pension fund was found to be the worst for fraud and corruption in investments the last economic crash. Tons of lawsuits for bad investments bringing little back as 'settlements' were just as bad in pension claims as Wall Street financial fraud and the US Justice Department.
Here we see California pensions back in the action of losing money. Keep in mind that corporate stocks have soared through this BULL market....mergers and acquisitions from free money by the FED made corporations rich.....yet pensions are again dying on the vine because they are invested in markets that are ready to implode.
Keep in mind that if the US Justice Department had brought back all of the fraud lost to pensions in 2008 and all that had been invested in the BULL market these few years....pensions would be flush. Rather, neo-liberals deliberately placed pensions into investments they knew would fail and now pretend these pensions are unsustainable.
As this article shows.....this was a national plan by neo-liberals to dismantle public sector pensions and just as Rawlings-Blake is ready to throw Baltimore's pensions into the market as 401Ks and O'Malley sends teacher's union pensions to localities knowing localities cannot pay....this pension dismantling was planned and it is all illegal!
California teachers’ pensions sink further into debt
By Kevin Martinez
27 November 2013
A new report released by the California Public Policy Center on November 12 reported that the California State Teachers’ Retirement System (CalSTRS) added $4 billion to its unfunded pension obligations for the 2012 fiscal year.
CalSTRS, the largest teachers’ pension fund in the United States, collected $5.8 billion from employees and employers last year. Of this, $4.7 billion was considered a “normal contribution,” while $1.1 billion was used to pay unfunded liabilities, which by 2012 were estimated to be $71 billion in debt. As a result, plans to dismantle the pension fund in the name of fiscal solvency are being aggressively developed.
The study shows that the so-called “catch up” payment should have been 7 times higher based on unfunded liability payback terms recommended by Moody’s Investor Services in April. The study also shows that if the rate of return projection drops to 6.2 percent, the unfunded liabilities recalculate to $107.8 billion and the catch-up payment increases to $9.6 billion, assuming a rate of return of 6.2 percent. Because of overly optimistic forecasts, the study estimates that CalSTRS actually increased its debt in 2012 by $4 billion.
Should CalSTRS lower its rate of return projections, its funded ratio of 67 percent will fall dramatically. The dependency on stock market profits thus sets the stage for volatility, even more indebtedness and, ultimately, privatization. While in Detroit, with President Obama’s backing, banks are using the bankruptcy courts to tear up pensions and privatize city services, California’s Democratic Governor Jerry Brown has pursued similar results by signing a pension “reform” last year which demands workers pay more toward their own pensions and work many more years before they collect it.
The corporate media is supporting the argument that there will be no money to fund pensions in another 30 years. This is the same strategy used to argue for the dismantling of Social Security and other basic entitlements. The claim is being made that pension enhancements from 1999 are responsible for the unsustainable obligations, when in actuality calculations were based on optimistic Wall Street investment projections. Now, in the aftermath of the 2008 economic crash, these same financial forces are trying to justify a “take back” of benefits.
In San Jose, Democratic Mayor Chuck Reed is being touted for his work on pension “reform.” After a referendum was passed last year, the city will now force current employees to contribute up to 16 percent toward their pensions or switch over to an even more expensive private plan, and new workers will have a pension that pays even less, while they are required to contribute half toward their pensions.
Plans for the dismantling of these funds are clearly well advanced. In addition to Governor Brown’s “reform” and various municipal initiatives, powerful lobbyists are pursuing similar plans which would ensure workers’ loss of hard-fought, essential survival benefits.
One such initiative is the so-called Pension Reform Act of 2014, proposed by the Coalition for Fair and Sustainable Pensions, made up of a group of mayors from cities with similar problems (San Jose, Vallejo, San Bernardino). Based on San Jose Mayor Reed’s brutal attack on municipal workers’ retirement, the plan, according to its web site, “would amend the California Constitution to give government agencies clear authority to negotiate changes to existing employees’ pension or retiree healthcare benefits on a strictly going-forward basis.” In essence, it’s open season for the demolition of pension benefits.
The premise that these funds, including CalSTRS, are going bankrupt, is a lie. First of all, workers have paid their whole lives into these funds, making it their money and no else’s. Secondly, while the banks and major corporations were bailed out during the crash and continue to be supported to the tune of $85 billion a month, no one in the political establishment is arguing for pensions to be rescued, although these funds have also invested billions in the same “free market.”
Lastly, there is plenty of money to be found. California is home to more billionaires than anywhere else in the world. One out of nine of the world’s billionaires reside there. The total combined wealth of California’s billionaires amounts to $1 trillion, nearly the total GDP of countries like South Korea or Mexico.
While in the post-war era the US economy was based on industrial production and pension fund operations were regulated in order to ensure a degree of stability, now the economy has been financialized and pension fund portfolios rise and fall with the gyrations of the stock market. Not only are they exposed to financial crises in the US, but to international fluctuations as well, such as the European debt crisis or derivatives markets. According to CalSTRS’s website, the portfolio invests over 56 percent of its assets into global equity, 12 percent into real estate, and another 12 percent into private equity funds.
The situation for workers is now so desperate that many have to work until they are elderly to get a decent pension. According to a recent poll by Harris Interactive, 48 percent of middle-class Americans don’t think they have enough money saved for a comfortable retirement and a full one-third think they will work “until at least 80.”
The poll also found that more than half of the people said that paying monthly bills comes before saving for retirement. More than 4 out of 10 Americans say that saving for retirement and paying their bills at the same time is not possible.
For their part, the California Teachers Association (CTA) has been instrumental in the implementation of the pension “reform.” It has been complicit with the Democrats in supporting these initiatives to dismantle pension funds. All it asks for is a seat at the table.
On the CTA website, under the headline, “Where we stand on Teachers’ Retirement,” they write on the estimated $56 billion shortfall that “this does not have to be paid overnight. Like a mortgage, this is an amount that will need to be closed over a 30-year period.” The CTA does not bother to explain how, because, in essence, it agrees that teachers will have to pay for the shortfall by increasing their contributions to the pension fund.
Moreover, the CTA supported Prop. 30, which promised to restore funding to education at the expense of thousands of teachers being laid off and no budget cuts rescinded. The CTA also supports Common Core, which tailors school curriculum to the demands of big business.
In related developments, the California Public Employees’ Retirement System (CalPERS) is also reporting $340 billion in liabilities with only $260 billion in assets as of September 2013. A 2011 study by Joe Nation, a former Democratic state legislator and professor at Stanford Institute for Economic Policy Research, estimated that the real number is closer to $170 billion in unfunded pension obligations, not $80 billion as previously assumed.
According to Nation, CalPERS uses an overly optimistic formula to calculate returns on investments averaging 7.5 percent annual growth. A more realistic figure would be 5 to 6 percent. Even with this model, both CalSTRS and CalPERS are expected to run out of funds by 2043.
CalPERS, like its CalSTRS counterpart, is intimately involved in Wall Street investments. As of April, the $263 billion fund was 65 percent invested into “growth investment” (i.e. stocks), with 52 percent in public equity, 12 percent in private equity, and 8 percent in real estate. For every dollar paid to CalPERS, 66 cents comes from “investment earnings,” 21 cents from CalPERS employers, and 13 cents from CalPERS members. This last figure is likely to increase if the ruling class continues its policies unabated.
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Below you see a LOL comment from the last economic benefactor of massive corporate fraud. As people reading my blog know I have these four years shouted that inflation was already high and that the FED was simply pretending/hiding it in order to justify all that FREE MONEY FROM THE FED. They all knew they were creating huge inflation and that when the bond market imploded the inflation would create what will be a Great Depression. This is not hyperbole ......it is coming and deliberate.
Remember, the investment firms for the rich have protected their wealth from this coming catastrophe....investment in real estate and gold with little in the bond or stock market. See why they need to move pensions into these markets as they pull out....just as they did in 2008!
IT IS ALL PLANNED AND ILLEGAL!
Either way, I think we're all best served to heed the words of John Paulson, the preeminent hedge fund manager who oversees $14 billion in assets: "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position."
What Inflation Could Look Like in 2014
By Jeff Clark, Senior Precious Metals Analyst
Most economists, especially those from the mainstream, will tell you that inflation is widely expected to remain benign for the foreseeable future. And for those who think it could climb higher, it's usually because they think it should be higher. History has a message for them: be careful what you wish for.
There are plenty of examples in history showing that once inflation takes hold, it can quickly spiral out of control. That's the danger we face now. Here's what I mean…
A recent article about sudden inflation by Amity Shlaes, a senior fellow of economic history at the Council on Foreign Relations and a best-selling author, provides some examples from the past century of US inflation that was at first subdued but then abruptly rocketed to alarming levels. I put them into a chart so you could see how quickly inflation rose within just two years from "benign" levels. I then made some projections for us today based on these historical examples.
According to Shlaes, US inflation was 1% in 1915 (based on an earlier version of the CPI-U). Over just two years, it hit 17%. As she states, it happened because the Treasury "spent like crazy on the war, creating money to pay for it…"
Given the fact that our spending and money-printing is now out of control, I projected what our inflation rate would be if we matched the inflation rates of these time periods. The first striped bar to the right represents what the CPI would register if we matched the 1915-1917 rise. Inflation would hit 19% by 2014. (Yes, the CPI has been tinkered with many times, but this is at least what "unofficial" or "authentic" inflation would register.)
In 1945, the official inflation rate was 2%. It accelerated to 14% in 24 months. If we matched this percent rise, we'd hit 15% by 2014 (middle striped bar)..
And the example that kicked off the greatest bull market in gold and silver, the early 1970s. The CPI stood at 3.2% in 1972, a level close to ours today. It soared to 11% just two years later. Mimicking this rise, the third striped bar shows we'd also be at 11% in 2014. (Shadow Stats says we're already at 10% based on 1980 methodology, so from this level we'd hit 17% in 24 months.)
Could we really have inflation that high within two years? Consider the following:
Given the abuse most fiat currencies are undergoing around the world today, coupled with obscene amounts of deficit spending, I think gold should be viewed not just as a potential moneymaker but as protection against the rabid inflation that will invariably damage our economy and dilute our pocketbooks. If you think deflation is next, I'll accept that argument – for a time – if you accept mine, that the Fed would almost certainly panic at another deflationary event and print to the max. This is why we're convinced that inflation, à la currency dilution, is inevitable. (Harry Dent, best-selling author of The Great Crash Ahead, is convinced deflation poses our biggest economic threat, while Currency Wars author James Rickards believes inflation is the real danger. You can hear them debate the issue – and participate as a member of the audience – during the Inflation-Deflation Face-Off program at the upcoming Casey Research Recovery Reality Check Summit.)
To those of you who say gold hasn't always kept up with inflation, don't kid yourself about what it would do in a highly inflationary environment: it would surely climb like it did in the 1970s. And those "productive assets" Warren Buffett prefers over gold? They would have a difficult time raising the prices of their products quickly enough to keep up with a rapidly escalating CPI. Gold may not perfectly track inflation when it's low, but it is precisely a high-inflation environment where it serves one of its core purposes.
You may think high inflation is further away than 2014, but don't dismiss the fact that it can happen suddenly. And keep in mind the possibility that a sudden shift in inflation – especially inflation expectations – could be the spark for a mania in precious metals. I can easily see this being the catalyst that finally pushes the greater public into our sector, causing a paradigm shift that eventually sends it into a bubble.
Either way, I think we're all best served to heed the words of John Paulson, the preeminent hedge fund manager who oversees $14 billion in assets: "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position."
We agree. As we stated in the February BIG GOLD, if 10% of your total investable assets (i.e., excluding equity in your primary residence) aren't held in various forms of gold and silver, we think your portfolio is at risk. And as Doug Casey reminded us last week, "Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three."
This is the time to accumulate, while gold and silver prices are below their peaks. Buy a little every month and store it in a safe place. And for even better bargains, look to the undervalued stocks, which I would argue offer better protection against inflation than most other equity investments since their cash flow will climb commensurate with gold and silver prices. We identified the two best stocks for new money right now in the current issue of BIG GOLD, and you can get the brand-new pick from International Speculator – an African company that has built its first gold mine and is already working on its second.
If we match the inflation rates seen several times in the recent past, what will your savings be worth in a few years? We'll have lots to worry about in a high-inflation climate, but our purchasing power can be protected by owning gold.
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Mainstream media pretended that the economy was on its way to recovery each year even as they knew it was being positioned to implode. That is why you and I did not know anything and it is why I am a blogger today....so I will know what is happening and share it with you! It is true we cannot stop this....but all we need to do is
REINSTATE RULE OF LAW AND REBUILD WHITE COLLAR CRIMINAL AGENCIES TO RECOVER ALL THIS CORPORATE FRAUD.....EASY PEASY. WHEN GOVERNMENT SUSPENDS RULE OF LAW, THEY SUSPEND STATUTES OF LIMITATION!
THE 1% ARE READY FOR THIS NEXT CRASH THAT WILL TAKE ALL PENSIONS AND PUBLIC SECTOR ASSETS WITH IT. HEAVILY LEVERAGED CREDIT BOND DEBT IN MARYLAND AT A TIME OF ECONOMIC COLLAPSE? THERE IS A REASON FOR THAT!
Zero Coupon Inflation Swap
Definition of 'Zero Coupon Inflation Swap'
An exchange of cash flows that allows investors to reduce or increase their exposure to the risk of a decline in the purchasing power of money. In a zero coupon inflation swap, which is a basic type of inflation derivative, an income stream that is tied to the rate of inflation is exchanged for an income stream with a fixed interest rate. However, instead of actually exchanging payments periodically, both income streams are paid as one lump-sum payment when the swap reaches maturity and the inflation level is known. Investopedia explains 'Zero Coupon Inflation Swap'
The currency of the swap determines the price index that is used to calculate the rate of inflation. For example, a swap denominated in U.S. dollars would be based on the Consumer Price Index of the United States, while a swap denominated in British pounds would typically be based on Great Britain's Retail Price Index. Other financial instruments that can be used to hedge against inflation risk are real yield inflation swaps, price index inflation swaps, Treasury Inflation Protected Securities (TIPS), municipal and corporate inflation-linked securities, inflation-linked certificates of deposit and inflation-linked savings bonds.
As we know, big investors are dumping the bonds and heading to gold investments as the bond market is ready to implode. So what do we see below as a result?
PENSIONS ARE BEING THROWN INTO THE BOND MARKET TO KEEP IT AFLOAT JUST A LITTLE LONGER BEFORE THE COMING ECONOMIC CRASH.
Remember, in 2007 pensions were taken from the then safe bond market and placed into the stock market as it was ready to collapse causing pensions to lose 1/2 their value. Mind you....these pension-fund managers, whether public or private, know these are bad investments as does the public officials involved in allowing it. This coming crash will take all the value again from pensioners as big private investors run and insure against losses with Credit Default Swaps. The entire bubble was manufactured with the intent to blow up the bond market with sovereign and municipal bond debt -----THE PUBLIC SECTOR------taking the hit.
Bonds are low because the market is ready to crash and that is not the same as a simple low in a normal stock cycle.
Pensions Sell Stocks to Buy Bonds
By Roben Farzad January 24, 2014
Coming off a year when the broad U.S. stock market enjoyed a 30 percent gain, investors and financial advisers are struggling to determine the most appropriate portfolio asset allocation consistent with their tolerance for risk, says Andrew Clinton, president of Clinton Investment Management, in Stamford, Conn. Pension funds, in particular, are striving to lock in the outsize gains they have enjoyed over the past few years in the booming debt and equity markets. To do so, they are going against the broader fund-flow trend by selling equities and shifting money to fixed income. Deutsche Bank (DB) forecasts that pensions will liquidate about $150 billion in equities this year alone to buy bonds with maturities of 10 years or longer.
“It’s only logical,” says Clinton. “Pensions struggling with underfunded status need to lock in the lift of the past couple of years. From a risk-adjusted perspective, equities, for all their recent outperformance, are nearly four times as volatile as municipal bonds. Pension managers are in a different dialogue than everything you hear now about people rotating out of stocks, etc.”
Clinton believes this asset reallocation is likely to last for years. As for domestic equities, which are near their all-time high: They are their costliest compared with government debt in three years. The Standard & Poor 500-stock index’s profits as a percentage of the index’s price is just under 3 percentage points higher than the yield for 10-year government notes, the smallest premium since March 2011.
Video: Stocks vs. Bonds vs. Commodities: Where to Invest? In the third quarter, U.S. pension funds, which have assets of $16 trillion, swapped out of equities and into bonds at the fastest clip in five years, data compiled by the Federal Reserve show. According to Matt Robinson of Bloomberg News, they bought $117 billion of debt on an annualized basis and offloaded $135 billion of stocks. The 100 biggest corporate pension plans thinned their deficits by a net $319 billion, according to consultancy Milliman; they are now 95 percent funded, compared with a low of 77 percent two years ago.
“It makes sense,” says Michael Gayed of Pension Partners in Manhattan. “Rebalancing to target weights is a time-tested approach to enhancing longer-term returns--forcing you to buy low and sell high.” He says the “Great Rotation” is presently, at the margin, from stocks back to bonds.
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This is the reason the Spanish citizens are marching in the street. Their pensions are being eliminated because TROIKA payments are being made by Spanish leaders by the citizen's public assets. It is incredible as Spain is one of the hardest hit with fraud and corruption. They had all that debt created by leaders tied with Wall Street and DeutschBank with development that was not deeded.....money simply spent to move it to the top. This is what is happening with US pensions as well as they are moved to the bond market ready to implode!
'Retiring' The Debt: Spain Drains Pension Fund To Prop Up Bonds
Jan. 14, 2013 9:33 AM ET | Includes: EWP Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Last week, Spain's Treasury raised $5.82 billion euros at auction in the country's first debt sale of the year; this was well above even the upper end of the target range. The auction, which the Wall Street Journal described as 'robust,' was enough to drive yields on Spanish 10-year notes below 5% for the first time in 10 months.
The Treasury in Madrid sold three bonds, one maturing in 2015, one maturing in 2018, and a 2026 note. Yields were down across the maturities compared with the last time the notes were sold and, in the case of the 2026 note, compared with where it traded in the secondary market. The consensus, which of course is somewhat justifiable, is that the successful auction indicates demand for Spanish debt isn't going to dry up anytime in the very near future. Here's Annalisa Piazza, a fixed income strategist quoted by the Wall Street Journal:
Today's Spanish auction suggests that market appetite for euro-zone periphery's debt remains solid despite uncertainties regarding the request for a bailout and eventual activation of the European Central Bank's Outright Monetary Transactions.
The problem for Spain in 2013, however, is that two major sources of demand for the country's debt are likely to be largely unavailable in the coming year. In a rather disconcerting piece published on January 3, the Wall Street Journal disclosed that Spain has now spent over 90% of its Social Security Reserve Fund buying its own debt. Just to reiterate: Spain has spent pretty much the entirety of its pension fund on its own bonds.
There are three obvious problems here. First, this means that the fate of pensions in Spain is now hopelessly intertwined with the fate of Spanish government bonds, a fact that doesn't inspire much confidence, given the market for periphery sovereign debt in 2012. Indeed, the Wall Street Journal notes that the decision to invest the Social Security Reserve Fund's cash in Spanish government bonds violates a Spanish government decree which states that the fund can only purchase securities "of high credit quality and a significant degree of liquidity." This is terribly ironic given that if anyone should know that Spanish government bonds are not of the highest quality and are certainly not highly liquid, it's the Spanish government.
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Keep in mind that the California pension fund was found to be the worst for fraud and corruption in investments the last economic crash. Tons of lawsuits for bad investments bringing little back as 'settlements' were just as bad in pension claims as Wall Street financial fraud and the US Justice Department.
Here we see California pensions back in the action of losing money. Keep in mind that corporate stocks have soared through this BULL market....mergers and acquisitions from free money by the FED made corporations rich.....yet pensions are again dying on the vine because they are invested in markets that are ready to implode.
Keep in mind that if the US Justice Department had brought back all of the fraud lost to pensions in 2008 and all that had been invested in the BULL market these few years....pensions would be flush. Rather, neo-liberals deliberately placed pensions into investments they knew would fail and now pretend these pensions are unsustainable.
As this article shows.....this was a national plan by neo-liberals to dismantle public sector pensions and just as Rawlings-Blake is ready to throw Baltimore's pensions into the market as 401Ks and O'Malley sends teacher's union pensions to localities knowing localities cannot pay....this pension dismantling was planned and it is all illegal!
California teachers’ pensions sink further into debt
By Kevin Martinez
27 November 2013
A new report released by the California Public Policy Center on November 12 reported that the California State Teachers’ Retirement System (CalSTRS) added $4 billion to its unfunded pension obligations for the 2012 fiscal year.
CalSTRS, the largest teachers’ pension fund in the United States, collected $5.8 billion from employees and employers last year. Of this, $4.7 billion was considered a “normal contribution,” while $1.1 billion was used to pay unfunded liabilities, which by 2012 were estimated to be $71 billion in debt. As a result, plans to dismantle the pension fund in the name of fiscal solvency are being aggressively developed.
The study shows that the so-called “catch up” payment should have been 7 times higher based on unfunded liability payback terms recommended by Moody’s Investor Services in April. The study also shows that if the rate of return projection drops to 6.2 percent, the unfunded liabilities recalculate to $107.8 billion and the catch-up payment increases to $9.6 billion, assuming a rate of return of 6.2 percent. Because of overly optimistic forecasts, the study estimates that CalSTRS actually increased its debt in 2012 by $4 billion.
Should CalSTRS lower its rate of return projections, its funded ratio of 67 percent will fall dramatically. The dependency on stock market profits thus sets the stage for volatility, even more indebtedness and, ultimately, privatization. While in Detroit, with President Obama’s backing, banks are using the bankruptcy courts to tear up pensions and privatize city services, California’s Democratic Governor Jerry Brown has pursued similar results by signing a pension “reform” last year which demands workers pay more toward their own pensions and work many more years before they collect it.
The corporate media is supporting the argument that there will be no money to fund pensions in another 30 years. This is the same strategy used to argue for the dismantling of Social Security and other basic entitlements. The claim is being made that pension enhancements from 1999 are responsible for the unsustainable obligations, when in actuality calculations were based on optimistic Wall Street investment projections. Now, in the aftermath of the 2008 economic crash, these same financial forces are trying to justify a “take back” of benefits.
In San Jose, Democratic Mayor Chuck Reed is being touted for his work on pension “reform.” After a referendum was passed last year, the city will now force current employees to contribute up to 16 percent toward their pensions or switch over to an even more expensive private plan, and new workers will have a pension that pays even less, while they are required to contribute half toward their pensions.
Plans for the dismantling of these funds are clearly well advanced. In addition to Governor Brown’s “reform” and various municipal initiatives, powerful lobbyists are pursuing similar plans which would ensure workers’ loss of hard-fought, essential survival benefits.
One such initiative is the so-called Pension Reform Act of 2014, proposed by the Coalition for Fair and Sustainable Pensions, made up of a group of mayors from cities with similar problems (San Jose, Vallejo, San Bernardino). Based on San Jose Mayor Reed’s brutal attack on municipal workers’ retirement, the plan, according to its web site, “would amend the California Constitution to give government agencies clear authority to negotiate changes to existing employees’ pension or retiree healthcare benefits on a strictly going-forward basis.” In essence, it’s open season for the demolition of pension benefits.
The premise that these funds, including CalSTRS, are going bankrupt, is a lie. First of all, workers have paid their whole lives into these funds, making it their money and no else’s. Secondly, while the banks and major corporations were bailed out during the crash and continue to be supported to the tune of $85 billion a month, no one in the political establishment is arguing for pensions to be rescued, although these funds have also invested billions in the same “free market.”
Lastly, there is plenty of money to be found. California is home to more billionaires than anywhere else in the world. One out of nine of the world’s billionaires reside there. The total combined wealth of California’s billionaires amounts to $1 trillion, nearly the total GDP of countries like South Korea or Mexico.
While in the post-war era the US economy was based on industrial production and pension fund operations were regulated in order to ensure a degree of stability, now the economy has been financialized and pension fund portfolios rise and fall with the gyrations of the stock market. Not only are they exposed to financial crises in the US, but to international fluctuations as well, such as the European debt crisis or derivatives markets. According to CalSTRS’s website, the portfolio invests over 56 percent of its assets into global equity, 12 percent into real estate, and another 12 percent into private equity funds.
The situation for workers is now so desperate that many have to work until they are elderly to get a decent pension. According to a recent poll by Harris Interactive, 48 percent of middle-class Americans don’t think they have enough money saved for a comfortable retirement and a full one-third think they will work “until at least 80.”
The poll also found that more than half of the people said that paying monthly bills comes before saving for retirement. More than 4 out of 10 Americans say that saving for retirement and paying their bills at the same time is not possible.
For their part, the California Teachers Association (CTA) has been instrumental in the implementation of the pension “reform.” It has been complicit with the Democrats in supporting these initiatives to dismantle pension funds. All it asks for is a seat at the table.
On the CTA website, under the headline, “Where we stand on Teachers’ Retirement,” they write on the estimated $56 billion shortfall that “this does not have to be paid overnight. Like a mortgage, this is an amount that will need to be closed over a 30-year period.” The CTA does not bother to explain how, because, in essence, it agrees that teachers will have to pay for the shortfall by increasing their contributions to the pension fund.
Moreover, the CTA supported Prop. 30, which promised to restore funding to education at the expense of thousands of teachers being laid off and no budget cuts rescinded. The CTA also supports Common Core, which tailors school curriculum to the demands of big business.
In related developments, the California Public Employees’ Retirement System (CalPERS) is also reporting $340 billion in liabilities with only $260 billion in assets as of September 2013. A 2011 study by Joe Nation, a former Democratic state legislator and professor at Stanford Institute for Economic Policy Research, estimated that the real number is closer to $170 billion in unfunded pension obligations, not $80 billion as previously assumed.
According to Nation, CalPERS uses an overly optimistic formula to calculate returns on investments averaging 7.5 percent annual growth. A more realistic figure would be 5 to 6 percent. Even with this model, both CalSTRS and CalPERS are expected to run out of funds by 2043.
CalPERS, like its CalSTRS counterpart, is intimately involved in Wall Street investments. As of April, the $263 billion fund was 65 percent invested into “growth investment” (i.e. stocks), with 52 percent in public equity, 12 percent in private equity, and 8 percent in real estate. For every dollar paid to CalPERS, 66 cents comes from “investment earnings,” 21 cents from CalPERS employers, and 13 cents from CalPERS members. This last figure is likely to increase if the ruling class continues its policies unabated.
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Below you see a LOL comment from the last economic benefactor of massive corporate fraud. As people reading my blog know I have these four years shouted that inflation was already high and that the FED was simply pretending/hiding it in order to justify all that FREE MONEY FROM THE FED. They all knew they were creating huge inflation and that when the bond market imploded the inflation would create what will be a Great Depression. This is not hyperbole ......it is coming and deliberate.
Remember, the investment firms for the rich have protected their wealth from this coming catastrophe....investment in real estate and gold with little in the bond or stock market. See why they need to move pensions into these markets as they pull out....just as they did in 2008!
IT IS ALL PLANNED AND ILLEGAL!
Either way, I think we're all best served to heed the words of John Paulson, the preeminent hedge fund manager who oversees $14 billion in assets: "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position."
What Inflation Could Look Like in 2014
By Jeff Clark, Senior Precious Metals Analyst
Most economists, especially those from the mainstream, will tell you that inflation is widely expected to remain benign for the foreseeable future. And for those who think it could climb higher, it's usually because they think it should be higher. History has a message for them: be careful what you wish for.
There are plenty of examples in history showing that once inflation takes hold, it can quickly spiral out of control. That's the danger we face now. Here's what I mean…
A recent article about sudden inflation by Amity Shlaes, a senior fellow of economic history at the Council on Foreign Relations and a best-selling author, provides some examples from the past century of US inflation that was at first subdued but then abruptly rocketed to alarming levels. I put them into a chart so you could see how quickly inflation rose within just two years from "benign" levels. I then made some projections for us today based on these historical examples.
According to Shlaes, US inflation was 1% in 1915 (based on an earlier version of the CPI-U). Over just two years, it hit 17%. As she states, it happened because the Treasury "spent like crazy on the war, creating money to pay for it…"
Given the fact that our spending and money-printing is now out of control, I projected what our inflation rate would be if we matched the inflation rates of these time periods. The first striped bar to the right represents what the CPI would register if we matched the 1915-1917 rise. Inflation would hit 19% by 2014. (Yes, the CPI has been tinkered with many times, but this is at least what "unofficial" or "authentic" inflation would register.)
In 1945, the official inflation rate was 2%. It accelerated to 14% in 24 months. If we matched this percent rise, we'd hit 15% by 2014 (middle striped bar)..
And the example that kicked off the greatest bull market in gold and silver, the early 1970s. The CPI stood at 3.2% in 1972, a level close to ours today. It soared to 11% just two years later. Mimicking this rise, the third striped bar shows we'd also be at 11% in 2014. (Shadow Stats says we're already at 10% based on 1980 methodology, so from this level we'd hit 17% in 24 months.)
Could we really have inflation that high within two years? Consider the following:
- Fox Business reported on March 7 that "wages grew much more quickly at the end of last year than originally estimated…" This is an important data point because most economists believe you can't have higher inflation without rising wages.
- Commercial and industrial loans have risen 14% year over year, and business and consumer spending are in an uptrend.
- Home-building permits are at their highest point since October 2008. Existing home sales fell 0.9% last month, but that's after January sales were up 4.6%.
- Jobless claims are coming down, retail sales gained the most in five months, and auto sales were up 16% last month. One report I read stated that we've had 24 consecutive weeks of stronger US data.
- The US monetary base stands at $2.72 trillion, a 168% increase since October 2008.
- The national debt in the US has risen by a whopping $4.9 trillion just since Obama took office. It now stands at $15.5 trillion.
- The US budget deficit this year is projected to be over $1.3 trillion, an obscene amount that exceeds the entire annual budget of just 20 years ago.
- According to ISI Group, there have been an incredible 122 "stimulative policy initiatives" from central banks around the world over the past seven months.
Given the abuse most fiat currencies are undergoing around the world today, coupled with obscene amounts of deficit spending, I think gold should be viewed not just as a potential moneymaker but as protection against the rabid inflation that will invariably damage our economy and dilute our pocketbooks. If you think deflation is next, I'll accept that argument – for a time – if you accept mine, that the Fed would almost certainly panic at another deflationary event and print to the max. This is why we're convinced that inflation, à la currency dilution, is inevitable. (Harry Dent, best-selling author of The Great Crash Ahead, is convinced deflation poses our biggest economic threat, while Currency Wars author James Rickards believes inflation is the real danger. You can hear them debate the issue – and participate as a member of the audience – during the Inflation-Deflation Face-Off program at the upcoming Casey Research Recovery Reality Check Summit.)
To those of you who say gold hasn't always kept up with inflation, don't kid yourself about what it would do in a highly inflationary environment: it would surely climb like it did in the 1970s. And those "productive assets" Warren Buffett prefers over gold? They would have a difficult time raising the prices of their products quickly enough to keep up with a rapidly escalating CPI. Gold may not perfectly track inflation when it's low, but it is precisely a high-inflation environment where it serves one of its core purposes.
You may think high inflation is further away than 2014, but don't dismiss the fact that it can happen suddenly. And keep in mind the possibility that a sudden shift in inflation – especially inflation expectations – could be the spark for a mania in precious metals. I can easily see this being the catalyst that finally pushes the greater public into our sector, causing a paradigm shift that eventually sends it into a bubble.
Either way, I think we're all best served to heed the words of John Paulson, the preeminent hedge fund manager who oversees $14 billion in assets: "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position."
We agree. As we stated in the February BIG GOLD, if 10% of your total investable assets (i.e., excluding equity in your primary residence) aren't held in various forms of gold and silver, we think your portfolio is at risk. And as Doug Casey reminded us last week, "Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three."
This is the time to accumulate, while gold and silver prices are below their peaks. Buy a little every month and store it in a safe place. And for even better bargains, look to the undervalued stocks, which I would argue offer better protection against inflation than most other equity investments since their cash flow will climb commensurate with gold and silver prices. We identified the two best stocks for new money right now in the current issue of BIG GOLD, and you can get the brand-new pick from International Speculator – an African company that has built its first gold mine and is already working on its second.
If we match the inflation rates seen several times in the recent past, what will your savings be worth in a few years? We'll have lots to worry about in a high-inflation climate, but our purchasing power can be protected by owning gold.
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Mainstream media pretended that the economy was on its way to recovery each year even as they knew it was being positioned to implode. That is why you and I did not know anything and it is why I am a blogger today....so I will know what is happening and share it with you! It is true we cannot stop this....but all we need to do is
REINSTATE RULE OF LAW AND REBUILD WHITE COLLAR CRIMINAL AGENCIES TO RECOVER ALL THIS CORPORATE FRAUD.....EASY PEASY. WHEN GOVERNMENT SUSPENDS RULE OF LAW, THEY SUSPEND STATUTES OF LIMITATION!
THE 1% ARE READY FOR THIS NEXT CRASH THAT WILL TAKE ALL PENSIONS AND PUBLIC SECTOR ASSETS WITH IT. HEAVILY LEVERAGED CREDIT BOND DEBT IN MARYLAND AT A TIME OF ECONOMIC COLLAPSE? THERE IS A REASON FOR THAT!
Zero Coupon Inflation Swap
Definition of 'Zero Coupon Inflation Swap'
An exchange of cash flows that allows investors to reduce or increase their exposure to the risk of a decline in the purchasing power of money. In a zero coupon inflation swap, which is a basic type of inflation derivative, an income stream that is tied to the rate of inflation is exchanged for an income stream with a fixed interest rate. However, instead of actually exchanging payments periodically, both income streams are paid as one lump-sum payment when the swap reaches maturity and the inflation level is known. Investopedia explains 'Zero Coupon Inflation Swap'
The currency of the swap determines the price index that is used to calculate the rate of inflation. For example, a swap denominated in U.S. dollars would be based on the Consumer Price Index of the United States, while a swap denominated in British pounds would typically be based on Great Britain's Retail Price Index. Other financial instruments that can be used to hedge against inflation risk are real yield inflation swaps, price index inflation swaps, Treasury Inflation Protected Securities (TIPS), municipal and corporate inflation-linked securities, inflation-linked certificates of deposit and inflation-linked savings bonds.
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