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September 19, 2014 at 3:04 PM in reply to: How will unfunded “pensions” affect the local economy? #778198
phaster
Participant[quote=CA renter][quote=phaster][quote=CA renter][quote=phaster]
[quote=CA renter]The worst employees tend to leave before benefits vest to any large extent. That doesn’t mean that some dead wood isn’t hanging around after too many years — and I absolutely support making it easier to fire truly bad employees.[/quote]
could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:
http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955%5B/quote%5D
You are totally wrong about politicians and unions being on the same side of the table. Nothing could be further from the truth. Some politicians are labor-friendly, and others have a vitriolic hatred for unions. I have personal experience with contract negotiations, and there is NO truth to your statement that politicians automatically pander to unions.
Unions are no different from any other group that supports politicians who will further their particular interests.[/quote]
There is a perception (which I happen to share) that public unions have a great deal of control over the careers of their negotiating counterparties (i.e. politicians). Said another way its an old boys club, same as what happens in wall street, where the basic instinct is to protect their own. Bottom line is, politicians and public employees are part of a club, the “public at large” isn’t part of.
You most likely have lots of stories you know and want to share about $hit that happens on wall $t, but the same thing happens between public employee union members and politicians.
Recall the before SD made the national news headlines that we had a groper for a mayor (who was forced to resign), there was a similar pervert problem w/in the SDPD. Seem there is an “old boys club” attitude, because the reporter from the “reader” stated:
It was surprising to see the lengths that the City Attorney’s office went to try and get this case dismissed.
I have my own sad example when I encountered the “old boys club,”, that is kinda how I stumbled onto the issue of public “pensions,” basically I followed the money motive trail…
http://TinyURL.com/EnronByTheSea
I have a feeling there is something akin to a watergate type mentality w/ local politician (goldsmith and gloria) who are being sued for wanting to delete eMails from both their personal and official city accounts.
http://www.utsandiego.com/news/2014/aug/01/tp-sd-oks-outside-lawyer-use/
I think these officials are trying to hide public employee sins of the past that have something to do with software that allows building permit fraud and tax dodges possible with properties labeled as “historic”
Jim Mills, a former state senator from San Diego who pushed for the law’s creation in 1972, said he is surprised by how the financially strapped city has embraced the program during a time when it has had to close swimming pools, reduce library hours and delay sewer and water projects.
“I have to admit what I had in mind was significant buildings and houses, and I now see houses being covered by the Mills Act that were not what I had in mind,” Mills said.
http://www.utsandiego.com/uniontrib/20080127/news_1n27mills.html
Imagine you’re a developer with a pal who handles permits for the city of San Diego. And say you thought the permitting fees were a little too high. Not to worry, your pal says, and he knocks down the price for you.
http://www.kpbs.org/news/2012/jul/03/citys-development-system-major-fraud-risk-says-aud/
Another “moral/ethical” reason if I were king, I would eliminate public employee unions is, because I read they:
PUBLIC EMPLOYEE UNIONS “hurt the overall interests of the working poor.”
I’d guessing if there were some kind of public vote, I’d bet a majority of people would have to wonder if the “public employee economic self interest” more often than not is biased inward toward “the old boys club” rather than to the public at large.
[quote=CA renter]Many have defined benefits, and DB plans were the norm a few decades ago…you know, when the middle class and the economy were at their strongest.[/quote]
Ya don’t seem to understand basic cause and effect, like when I pointed out the reason DB pensions came to be associated with so called “middle class” jobs in the USA is because of unique global economic conditions that existed in the 1950’s and 60’s.
Anyway I’d further argue the big deal made about “middle class” in the USA, was done as part of an “unofficial” cold war hearts and minds propaganda effort directed toward those in the USSR.
For example in high school I was told the USA included adding the words “in god we trust” to the US dollar bill in the late 50’s (to show those “godless” communists, we in the west have freedom of religions),
Then there was the “nixon” kitchen debate, to show those “poor” communists, the capitalist economic system can make guns as well as butter….
http://teachingamericanhistory.org/library/document/the-kitchen-debate/
[quote=CA renter]I don’t get distracted by non-economic issues where politics are concerned. That’s not to say that these issues are unimportant, but that they pale in comparison to economics.[/quote]
If you’re just starting off on your own journey to think like an “economist,” perhaps you might consider its a good thing to have low corporate taxes (because that is where jobs are). Like when I first did experiments and the associated math in quantum mechanics, thinking like an economist has its own counterintuitive to normal everyday life logic one has ponder just a bit before things make sense.
Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.As to why labor participation rates are low, consider “thinking like an economist” and you might see it might be due to the fact that technology lessens the demand for those with just “brawn” to offer the market, combined with the fact that with population growth there is a “skills” mis-match.
http://www.cbsnews.com/videos/are-robots-hurting-job-growth-50138922/
It might not feel right that conditions change, but fact is, things in life do change…[/quote]
Whew! You’ve thrown a lot of stuff out there, the vast majority of which has absolutely nothing at all to do with public pensions. But I’ll address the issues in separate posts, one subject at a time, below.
[edited to add:] Have run out of time today, but will get on this tomorrow. :)[/quote]
still no answer? or comments from the peanut gallery??
[quote=livinincali]
The one benefit of defined benefit contribution plans, retention, isn’t worth the risks, the frauds, the vote buying, and everything else it enables. That’s the bottom line. The rewards (reduced training costs retention, etc.) don’t outweigh the risks and therefore they should be scrapped..[/quote]Agree! And after doing some research, seems the best way forward is to follow the example set by the Thrift Saving Plan (a federal government 401K style program, that can’t be corrupted/mismanaged like what happend at CalPERS or as what is happening with the SD pension program)
https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml
Getting back to the topic of the economy and how things will be affected locally. After the bubble burst in 2007, the FED response to save the system from total failure because of “swaps,” was to buy “the too big to fail” mortgage backed securities from various banks.
Since about 2011 the 1%, people who can qualify for “credit” and the hot Chinese money have driven up RE prices because the money supply has dramatically increased.
The paradox is the money velocity, it is at a record low!
http://research.stlouisfed.org/fred2/series/M2V
With 4 trillion being printed out of thin air in the USA, and 15+ trillion in china, the next economic downturn seems to me will be caused at the local level (when public pension accounting rules change, interest rates reset, etc.). And the FED IMHO being a one trick pony won’t have any way to help out??
Actually anyone one else think the geo-political danger for the USA is if the FED further increases the money supply in order to try and kick the LOCAL unfunded public pension issue(s) further down the road?
From what I gather, this will play right into the BRICS plans to create an alternative to the dollar as the default global reserve currency.
Basically by not getting our LOCAL city/county/state “banana republic” financial house in order, it further accelerates/weakens the position of the USA as an economic/military superpower!
One last thing to ponder, Don’t Blame Shrinking Work Force Participation on Great Recession (according to a FED Paper)
September 14, 2014 at 2:59 AM in reply to: How will unfunded “pensions” affect the local economy? #778023Participant[quote=spdrun]Why worry? If rates reset and we end up with a lot of short sales slamming prices down, it will be an opportunity to pick up cheap(er) r.e. before the gov steps in again and kicks the can further down the road.[/quote]
FWIW I don’t know how many more times the problem can kept on being kicked down the road. I have not figured it out but the various scenarios I game out are chaotic. Basically its a question of the fed being a one trick pony of printing more and more money, but each iteration seems have less and less bang for the buck (and then there is the question, how does this play out in say the dollar “oil” market)
Helocs (Home equity lines of credit) and HAMP (Home Affordable Modification Program) interest rate resets, bought time for many who managed to keep their homes after the first big wave wiped out many who had “liar loans.”
TPTB (a few years ago) I guessing had hoped the “recovery” would be further along (currently), but I’d bet many in the general public don’t feel things are getting better (unlike those at the top whose balance sheets have more than recovered).
Basically I see several trends like the loan resets, new pension accounting rules, etc., all converging and will build upon one another to produce the next economic downturn.
The economy as I see it, is not built on a sustainable foundation and changes in public pension accounting rules are all necessary steps to that end! BUT IMHO there is going to be unavoidable economic pain on the way to reaching that goal.
BTW here is another rule that will in the long run will dampen bubble behavior like “flipping” but in the short run might very well be a drag on the economy:
The Federal National Mortgage Association, more commonly known as Fannie Mae, will extend its mandated waiting period to qualify for a conventional home loan after a short sale from two years to four years.
September 14, 2014 at 2:46 AM in reply to: How will unfunded “pensions” affect the local economy? #778022Participant[quote=CA renter][quote=phaster]
[quote=CA renter]The worst employees tend to leave before benefits vest to any large extent. That doesn’t mean that some dead wood isn’t hanging around after too many years — and I absolutely support making it easier to fire truly bad employees.[/quote]
could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:
http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955%5B/quote%5D
You are totally wrong about politicians and unions being on the same side of the table. Nothing could be further from the truth. Some politicians are labor-friendly, and others have a vitriolic hatred for unions. I have personal experience with contract negotiations, and there is NO truth to your statement that politicians automatically pander to unions.
Unions are no different from any other group that supports politicians who will further their particular interests.[/quote]
There is a perception (which I happen to share) that public unions have a great deal of control over the careers of their negotiating counterparties (i.e. politicians). Said another way its an old boys club, same as what happens in wall street, where the basic instinct is to protect their own. Bottom line is, politicians and public employees are part of a club, the “public at large” isn’t part of.
You most likely have lots of stories you know and want to share about $hit that happens on wall $t, but the same thing happens between public employee union members and politicians.
Recall the before SD made the national news headlines that we had a groper for a mayor (who was forced to resign), there was a similar pervert problem w/in the SDPD. Seem there is an “old boys club” attitude, because the reporter from the “reader” stated:
It was surprising to see the lengths that the City Attorney’s office went to try and get this case dismissed.
I have my own sad example when I encountered the “old boys club,”, that is kinda how I stumbled onto the issue of public “pensions,” basically I followed the money motive trail…
http://TinyURL.com/EnronByTheSea
I have a feeling there is something akin to a watergate type mentality w/ local politician (goldsmith and gloria) who are being sued for wanting to delete eMails from both their personal and official city accounts.
http://www.utsandiego.com/news/2014/aug/01/tp-sd-oks-outside-lawyer-use/
I think these officials are trying to hide public employee sins of the past that have something to do with software that allows building permit fraud and tax dodges possible with properties labeled as “historic”
Jim Mills, a former state senator from San Diego who pushed for the law’s creation in 1972, said he is surprised by how the financially strapped city has embraced the program during a time when it has had to close swimming pools, reduce library hours and delay sewer and water projects.
“I have to admit what I had in mind was significant buildings and houses, and I now see houses being covered by the Mills Act that were not what I had in mind,” Mills said.
http://www.utsandiego.com/uniontrib/20080127/news_1n27mills.html
Imagine you’re a developer with a pal who handles permits for the city of San Diego. And say you thought the permitting fees were a little too high. Not to worry, your pal says, and he knocks down the price for you.
http://www.kpbs.org/news/2012/jul/03/citys-development-system-major-fraud-risk-says-aud/
Another “moral/ethical” reason if I were king, I would eliminate public employee unions is, because I read they:
PUBLIC EMPLOYEE UNIONS “hurt the overall interests of the working poor.”
I’d guessing if there were some kind of public vote, I’d bet a majority of people would have to wonder if the “public employee economic self interest” more often than not is biased inward toward “the old boys club” rather than to the public at large.
[quote=CA renter]Many have defined benefits, and DB plans were the norm a few decades ago…you know, when the middle class and the economy were at their strongest.[/quote]
Ya don’t seem to understand basic cause and effect, like when I pointed out the reason DB pensions came to be associated with so called “middle class” jobs in the USA is because of unique global economic conditions that existed in the 1950’s and 60’s.
Anyway I’d further argue the big deal made about “middle class” in the USA, was done as part of an “unofficial” cold war hearts and minds propaganda effort directed toward those in the USSR.
For example in high school I was told the USA included adding the words “in god we trust” to the US dollar bill in the late 50’s (to show those “godless” communists, we in the west have freedom of religions),
Then there was the “nixon” kitchen debate, to show those “poor” communists, the capitalist economic system can make guns as well as butter….
http://teachingamericanhistory.org/library/document/the-kitchen-debate/
[quote=CA renter]I don’t get distracted by non-economic issues where politics are concerned. That’s not to say that these issues are unimportant, but that they pale in comparison to economics.[/quote]
If you’re just starting off on your own journey to think like an “economist,” perhaps you might consider its a good thing to have low corporate taxes (because that is where jobs are). Like when I first did experiments and the associated math in quantum mechanics, thinking like an economist has its own counterintuitive to normal everyday life logic one has ponder just a bit before things make sense.
Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.As to why labor participation rates are low, consider “thinking like an economist” and you might see it might be due to the fact that technology lessens the demand for those with just “brawn” to offer the market, combined with the fact that with population growth there is a “skills” mis-match.
http://www.cbsnews.com/videos/are-robots-hurting-job-growth-50138922/
It might not feel right that conditions change, but fact is, things in life do change…
September 14, 2014 at 12:52 AM in reply to: How will unfunded “pensions” affect the local economy? #777795Participant[quote=bearishgurl]
Uh, well, I don’t think our fact-skimming newbie, Phaster, had a chance to see this recent piece from the UT (hint: google SDCERA and it comes up first :)):…. For the past decade, San Diego County and its employees paid 100 percent or more of their annually required contribution to the SDCERA retirement fund. Consistent employee and employer contributions over the years have laid a foundation for investment gains and asset growth. SDCERA’s investment strategy helps the employer’s budgeting process and stabilizes employer costs by reducing the volatility of returns and steadily achieving the rate of return needed to fund the benefit.
At $10 billion, the SDCERA fund is able to pursue certain investment strategies that larger plans like CalPERS cannot access and smaller plans do not have the resources to deploy. SDCERA’s investment strategy is purposely designed to be no riskier than traditional pension fund asset allocation strategies. Risk-parity and trend strategies, which utilize leverage, are limited to 25 percent of the SDCERA portfolio, not the entire set of portfolio assets. The other 75 percent of the portfolio is managed using traditional asset allocation and rebalancing approaches…
http://www.utsandiego.com/news/2014/aug/15/sdcera-pension-investment-strategy/
see also: http://sdcera.com/investments.htm%5B/quote%5D
I’m just a knuckle head that is honest enough to admit that I’m not a “investment expert.”
Since I am not an “investment expert” I won’t buy into the latest investment fad hype (such as “risk parity”) without pondering the downside.
Nor do I pretend to understand all the details about Tier “a” employees vs Tier I/II employees, or care about employees that say they paid their annual required contribution, because basically my goal is to try to understand general trends.
To that end, the wall street journal article as I understand it has three key facts:
1) SD county has “currently” about 10 billion in its pension fund account
2) there is some kind of pension short fall (i.e. underfunding issue)
3) to make up for the “unfunded” pension obligations, the pension board adopted a strategy to use “leverage” on the order of 100% (in other words taking out a loan equal to the amount the pension board has in its account or a total of about 20 billion bucks and playing the markets)
Next I know if I go to a broker, I can place money for “investing” in one of three general types of account(s):
1) a “cash” account
(www.scottrade.com/investment-products/stocks.html)
2) a “margin” account
(www.scottrade.com/investment-products/interest-margin-rates.html)
3) an “options” account
(www.scottrade.com/investment-products/options-trading.html)
Perhaps its just me but after reading the “definitions” from the “investopedia DOT com” website, and “skimming” a typical broker website, the reported decision to borrow 10 billion against the 10 billion the SD pension board has in its account – sure looks like the definition of a “margin” account (with its associated risks)
One reason I’m guessing the SD pension board emphasize they are investing using “risk parity” in a “press release,” is its a marketing/spin/propaganda ploy.
Basically they (the SD pension board) are selling the idea to the joe/jane taxpayer, that the “derivatives” strategy involves little or no risk (something akin to why the name “credit default swap” was given to what is essentially “insurance on a bond”).
FYI while trying to understand why the economy imploded a few years ago, I read if the term “insurance” was used instead of the term “CDS” (credit default swap), then an inconvenient rule about the level of capital reserves required by regulators to back traditional insurance policies would apply. BTW guess what exotic financial instrument had a big hand in taking down the economy last time…
Back to the matter at hand, the only conclusion I can draw (translating all the B$ terms and given all the data), is that the SD pension board is seeing the handwriting on the wall with the “change in accounting rules, which requires pension obligations be placed on the balance sheet” and is borrowing an amount equal to what they currently have in the bank and “investing” the whole pile of cash (20 billion) hoping to grow the “value” of the pool of assets and makeup for the short fall.
Like any investor, they (the pension board) are looking for some kind of investment “vehicle” (like: stocks, put options, call options, bonds, credit default swaps which is a fancy name for insurance on bonds that they might or might not own, commodities, derivatives, real estate, etc.) that increases in value.
Given that a “margined account” consists of a pool of money which has to be invested in some kind of investment “vehicle,” it does not matter what the exact asset mix is, because the market “value” for the pool of assets can be looked at as, ending up in one of three states:
1) going down over time
If the “assets” w/in the pension portfolio go down overall, this would be considered a “loss,” on top of which there also would be some kind of “rent” payment paid to the broker (over the life of the “margin” loan)
In absolute terms if all the “assets” were sold off and the loan from the broker paid back, there would be a lot less money in the pension account (than at the beginning).
Perhaps as described in the “risk” section describing a “margin account,” the pension board might owe the broker more money than they initially bet, BUT it won’t matter to them because no matter what happens the taxpayer picks up the tab.
2) holding more or less, “constant” over time
If the “assets” w/in the pension portfolio are constant over time, the fact of the matter is this too would be considered a “loss” because some kind of “rent” payment will have to be paid to the broker (over the life of the “margin” loan).
In absolute terms if all the “assets” were sold off and the loan to the broker paid back, there would be less money in the pension account (than at the beginning).
Again in this case, any pension shortfall would be backstopped by the tax payers.
3) going up over time
If the various “assets” w/in the pension portfolio go up overall, this “might be considered a win” BUT like in the two cases above, one also has to consider the drag of servicing the “margin” loan (and also thrown away costs of “unused” expired options, etc., which is also a consideration in the two cases above).
But for sake of simplicity, lets ignore debit service payments, etc. and just say the PortfolioValue(final) > PortfolioValue(initial), then this would considered a “win!”
In this case “hopefully” the pension pool assets grow in value fast enough to satisfy the promises made by past political leaders to public employees (i.e public employee union members), and the tax payer is off the hook. Basically this is the la la land, “Hollywood” fairy tail happy ending!!
So (at best) I basically see the simple odds being 1/3 “successful” vs 2/3 “unsuccessful” (and a very “deadly” downside) with the reported SD pension “derivative” portfolio strategy
Knowing there are three basic “endgame” states, I guess I could write a fancy monte carlo computer simulation, and forecast the exact date of the SD pension fund implosion and $uckness for all parties involves (i.e. exact doller values).
But such a forecast would only be a “guesstimate” because its impossible write an equation that accurately describes the psychological pain of all players in the system, along with their responses.
It is this impossibility to write an exact math equation which describes all the variables and gives exact predictive answers, which is why “economics” is called “the dismal science”
http://en.wikipedia.org/wiki/The_dismal_science
I know it is impossible to remove all risk from a portfolio, yet get the feeling the SD pension board thinks otherwise (and is tying to sell their idea to the financially illiterate public/taxpayers)
Just hope my worst fears don’t come true, cause from what I’ve read and understand about markets, the derivate strategy for managing what should be boring and safe “retirement” portfolio, could economically implode in a spectacular fashion.
September 8, 2014 at 8:59 AM in reply to: How will unfunded “pensions” affect the local economy? #777876Participant[quote=CA renter]Many have defined benefits, and DB plans were the norm a few decades ago…you know, when the middle class and the economy were at their strongest.[/quote]
That era back in the 1950’s and 1960’s was IMHO an anomaly in world history, because the USA was the only super power in terms of military and manufacturing.
Consider that Japan and Germany back then had no manufacturing base, so DB were a way to instill worker loyalty (or said another way, DB came about because of a good economy, DB for the “middle class” didn’t create a good economy).
Now with workers in the USA having to compete with workers in not only Germany and Japan, one also has to contend with workers in China, Brazil, etc., so it makes sense that pensions in the private sector for USA workers are no long possible (its the double edge sword of a capitalistic economy). In other words it was inevitable that living standards of people around the world would rise, but since the USA was no longer the only game in town for manufacturing, the standard of living for those with more brawn than brain would fall.
Was reading someone mentioned the dangers of the military industrial complex, actually the concept should be updated IMHO.
Specifically what was once the danger of nepotism w/ the military and their contractors, is paralleled all around the nation (not just here in CA WRT pensions), I just think its going to hit SD first because it has all the right conditions for an economic implosion of biblical proportions!!
The entrenched problem is the “political-legal welfare system” which is the tendency of politicians to pander to public employee unions for political support in a bid to get into or retain an office. The “Quid pro quo” in this instance is a literal “sweet heart deal” payoff when it comes time labor talks. In economic terms, the idea of a public employees union is bad because the interests of politicians and public employees is the same (they are seeking shelter form the “real world” where global competition is now the norm, and DP in the private sector are history)
FDR long ago recognized the problem w/ public employee unions when he said:
“The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.”
From what I understand of economic, unions in the private sector work because there is alternatives which over the long run makes the product better and lowers the cost (i.e. products like cars and computers).
Now consider what has happened to public services here in SD, have the roads been kept up or are they in disrepair? WRT public schools, what I’ve read is the traditional “factory” one size all school is giving way to new “organic” centers of learning, like high tech high in point loma, albert einstein charter school in golden hill, etc.
[quote=CA renter]The worst employees tend to leave before benefits vest to any large extent. That doesn’t mean that some dead wood isn’t hanging around after too many years — and I absolutely support making it easier to fire truly bad employees.[/quote]
could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:
http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955
September 7, 2014 at 10:41 PM in reply to: How will unfunded “pensions” affect the local economy? #777868Participant[quote=CA renter]
But to think that these debt problems are solely due to public pensions is to ignore all of the other deficit spending done during the monetary free-for-all. Pensions are only one piece of the puzzle, and they’re not even the major piece in many cases.[/quote]Let’s try and stay focused, and look at only the public pension vs the local economy.
I am ignoring federal programs like social security, medicare, military spending, because the federal government has tools like a printing press, and deficit spending, but local and state governments do not (unless I am mistaken).
The way muni and state governments can raise funds, is by property taxes, sales taxes and selling bonds.
Given new accounting rules which put public pensions on the balance sheet, I think there will be “downgrades” as what just happened with NJ just a few days ago
My concern is “realistic estimates” not the B$ there is no problem view of politicians who seem to be on various drugs:
http://www.webmd.com/depression/depression-medications-antidepressants
will reveal the magnitude of unfunded pensions BILLIONS higher than TPTB are saying “publicly” now.
Or put another way, think what would happen to bonds floated by SD if they are poorly rated w.r.t. other muni bonds (I’d think this would start some kind of death spiral “feedback loop,” because bond bought by large pension funds would avoid SD bonds because of a negative rating, etc.). Its kinda like the problem detroit has right now with trying to raise money in the bond market (in other words because detroit has bad press, its bonds are looked upon as being garbage that will only pay cents on the dollar, so the city of detroit gets more bad press, the bonds get harder to sell, etc., etc., etc.)
If I was a poker player, I’d see the actions of the SD pension reported in the WSJ strike me as being one of desperation, basically asking why double down now?
Seems like a bluff when they say their investment strategy is sound, when I have shown the simple odds of success is 1 in 3 (and that “win” covers a range of values from small to big) AND it seems SD is betting big because they are short big time…
Putting 10 billion down into a margin account (so they can bet as if they have 20 billion, in the pot), either means they have have a good hand or they are desperate (I’d bet good money, its the latter).
Consider in investing, an actively managed account is less likely to beat the market average (i.e. index fund)
http://www.marketwatch.com/story/with-actively-managed-mutual-funds-more-is-less-2013-08-15
As I said I don’t pretend to be a market expert, nor do I have a degree in economics or finance. But I think my three case(s) of a portfolio outcome are one good way to explain why actively managed accounts, fail to beat their index benchmark 2/3 of the time…
So the way I see things, the unfunded SD pension and the strategy to try and make the pension whole, is an armed weapon of financial mass destruction.
One other thing that worries me about local RE is
In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the impending second wave of the lastest mortgage crisis, this time due to Helocs (Home equity lines of credit) and HAMP (Home Affordable Modification Program) interest rate resets. In the second half, Max interviews Aaron Krowne on the true state of the housing market across America – from home ownership rates to mortgage arrears.
September 3, 2014 at 11:55 PM in reply to: How will unfunded “pensions” affect the local economy? #777796Participant[quote=CA renter]
The Fed’s insistence on keeping rates at ~0% are exacerbating the problems.As for how it will affect the bond market, I believe that most people who work in these markets understand the risks…at least, I sure hope so.
[/quote]The fed is keeping interest rates near “0” because historically that is how economic activity was kickstarted.
The mechanism by which the fed directed interest rates, was by printing money and lending it out to credit worth institutions, who in turn lent it out to credit worth people… (see the problem?)
Few institutions have their books in order, same goes for people (fewer people have the capacity to take on more debt), yet since 2008 the fed has created something like 4 TRILLION dollars in an attempt to try and get the economy going (but most of the printed credit “money” is just sitting on ledger sheets at the fed and big banks)
As I see it we’re in twilight zone of global “mild stagflation” waiting for something to give…
I say that is because if ya think the US FED printing 4 TRILLION or so is a big number, consider the mind-blowing 15+ TRILLION the bank of china has printed since 2008.
I’d bet that most people who work in the “bond” market don’t ponder such things, and only see a limited picture of stuff around them and not the BIG “crazy” picture.
It is this narrow world view, that caused 99% of “financial experts” to miss seeing the bubble in housing, systemic problems caused by CDOs, etc. last time around.
Perhaps, I might be fooling my self looking at all the data trying to grasp the big picture, but feel the next implosion is going to be government debt at the city and state level.
Unlike the federal level which can print money and have deficit spending, there is no similar pressure relief valve “mechanism” at the city and state level AND the unfunded “pension” debt is a huge value – in the billions or tens of billions for large cities, and “collectively” hundreds of billions at the state level.
Muni bonds are based on the faith, that the city and states will pay back bondholders, so when I read that new account rule about public pension debts being required to be placed on the balance sheet (I kinda think that a “debt” tidal wave seemingly appearing out of nowhere is something to be concerned about, because somehow its going to affect bond ratings, investors perceptions and in time the outlook of joe six pack walking down main street)
Its going to be interesting in years ahead, cause somehow something BIG has to give with all the mismanagement…
ParticipantJust because a law is on the books does not mean a city official(s) or a city bureaucrat will be mindful of the rules or use common sense
all ya have to do is ask all the women who I’m sure don’t think too highly of bob filner’s actions…
sadly kind of sexual conduct was reported in the news by SDPD officers (guess they following the example of the old mayor, or is that vice versa)
then there are news reports of bribes by foreign nations to SD politicians
the billion dollar bond issue in poway, the south bay school district (pay to play scandal)
so is it too shocking, to expect there isn’t some funny business in RE
WRT the the mills act, perhaps you should start at the beginning of that thread, where I first posted a response to another post
http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955
Keep in mind that the city auditor issued a report that stated, software the city uses in the building dept, allows “fraud”
http://www.kpbs.org/news/2012/jul/03/citys-development-system-major-fraud-risk-says-aud/
and a quote from Jim Mills, a former state senator
“I have to admit what I had in mind was significant buildings and houses, and I now see houses being covered by the Mills Act that were not what I had in mind,”
http://www.utsandiego.com/uniontrib/20080127/news_1n27mills.html
One thing I learned, the negative stereotype about politicians, lawyers, etc., exists because its based on something larger than a kernel of truth AND when there is money involved not everyone was engrained with the expression from my dad who basically said:
“I’d rather earn a dollar honestly, than a million dollars dishonestly”
Turns out in my naive belief the system was based on honesty, was sadly misplaced
Participant[quote=moneymaker]Pleasantly surprised to see that I have averaged 10.7% over the last 5 years. Not bad! Especially considering what interest rates have been like over the last 5 years.[/quote]
Think a better “investment barometer” would be a 10 year period, because it capture how an investor positioned their portfolio prior to the bubble as well as how they rode out the “crash”
the basic math equation is
p = p(0) e^(it)
where:
p = portfolio value “present”
p(0) = portfolio value “initial”
e = 2.718281828459
i = interest rate (solve for this value)
t = time “period”Participantwhat I have noticed in Golden Hill and Bankers Hill (near downtown SD), is foreign buyers of apt building (by foreign I mean investors from outside SD county, like from the bay area, the east coast and even “china”), basically give notice to existing tenants just after the close
the reason being, with GRM in the 15 to 18 range, existing rents don’t cover the mortgage (so the new buyers kick everyone out and jack up the rents)
Participant[quote=The-Shoveler]I don’t worry about the Fed Debt, I worry about local municipalities and state debt (they can’t print their way out).
No one is going to pay this back (well at least not in today’s dollars).
Deflation will not be a long lasting thing, the local municipalities can’t afford it.[/quote]
you’re spot on with that observation, I calculated the hit per parcel in san diego (using web based figures), and its an eyeopening figure:
http://patrick.net/forum/?p=1247288&c=1118128#comment-1118128
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