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Pension funds have loaded up on risk
- laythea 9y agoPension funds. What a con.
- acover 9y agoThis seems like spam. Who is this person? Why should I trust his analysis and information on a topic so easy to get wrong? They only seem to have this website and 13 Twitter followers.
- Four_Star 9y agoIt is information that is mostly self-evident and, if you find interesting, you can verify. You shouldn't trust it more if you had found the author had more twitter followers.
- acover 9y agoI found very little of it to be self evident. It's a nice theory. There were no sources for even his most basic assertions. The only reason I mentioned Twitter was it was the only other thing I could find about him. Edit: you have a new account that only posts links from that domain. :(
- AndrewKemendo 9y agoIt's a fairly well understood concept in economics that low interest rates create macroeconomic risk because people by nature seek yield. If the "safest" assets, like treasury bonds and cash have effectively 0 expected return then funds and individuals have to branch out to other riskier assets in order to find the yield they need. This runs somewhat contrary to the popular trope that high interest rates are bad because they hamper growth. In fact though the "growth" that people discuss in low interest rate environments is really a probability distribution over the risk environment. It's effectively having faith that markets will efficiently allocate capital in a way that returns a multiple, in the time period that you desire it to - something that is treacherous territory at best. So when you hear things like "The fed is raising interest rates" and the stock market falls - it's basically saying that risk, and thus possible opportunity for growth, is being lowered. That's good for stability, but bad for possible growth that comes from that risk. You can't have safety and fast growth in your investments at the same time. It's a tenet of pricing and efficiency.
- dmm 9y agoMy state's employee pension is funded with a investment return assumption of 7.5%. You're not going to get that with govt bonds unless inflation is crazy.
- lkrubner 9y agoAbout this: "And that’s clearly what the central banks wanted, what the Fed wanted. They wanted every investor to go way out on the risk branch and pension funds have done that and now the price, as your said, is right here in front of us" When there is an excess of savings over investment, the price of money decreases. Many things can lead to turmoil in the world: war, depression, resource shortages, revolutions, demographics. Given a scenario where people and institutions are saving up money, and turmoil limits the investment opportunities, obviously, the interest rate has to go down. If there is too much supply, and not enough demand, for anything, you should expect the price to go down. And that is what happened. The price of money declined, because there was an excess of savings, and not many good investment opportunities. When we say "risk increased" we also mean that the payoff from an investment shifted out to the future. In good times, you might think you will get your money back after 5 years, whereas now you (the generic investor) are aware you'll need to wait 20 years. And long-term thinking is an appropriate way to deal with a major recession. The organization that is best positioned to think long-term is the government, which is exactly why the government should be the entity that uses the surplus of savings during major recessions. A major recession is a good chance for the government to engage in long term bets, such as rebuilding the infrastructure.
- resnapremi 9y agoBasic spelling errors, no comparisons with how pensions were previously run, no analysis.