15 April 2014

Why Gold? 85% of Pension Funds Will Go Bust in 30 Years

I have not seen the scenarios run by Bridgewater Associates, but I do have respect for their name and their work.  I would like to know their assumptions.

In an inflation, stocks may do quite well, as their inflated valuations keep pace with inflation. Bonds are likely to get obliterated. In a stagflation not so much.  The Fed and the Treasury would like a modest inflation to provide a controllable dilution of debts without opening the door to a debt jubilee for the hoi polloi.  The Fed serves the Banks, and therefore the creditor class.  But a parasite must also preserve the relationship with their hosts.

The system is broken and the oligarchs do not wish to fix it, because they like things just the way that they are.    They have bought the politicians and are running the regulators.  What could go wrong?

It is hard to credit the Fed with a policy error when their actions seem to be so conscious and wanton.  But I am sure when the time comes they will claim ignorance as usual.

In line with a time of general frauds, Grant Williams has a particularly good essay this week, and you may wish to read it.  I admire his writing and insight as always.  The only slight quibble I might have is that a 'rigging' that is out in the open is hardly as foul and as fraudulent as one that is conducted under cover of denials and opaqueness.

So for example, I would not equate the Fed's 'rigging' interest rates through their well publicized open market operations with the same critical eye as I might consider the manipulating of certain commodity prices and inflation measures to hide its effects.  There is war and there is war profiteering, and there is war crime, as there is a difference between conducting a financial war, and machine-gunning the life boats full of innocent refugees in order to hide the effects of your misguided policies.

The point of a control fraud is deception and secrecy.  And I think the amount of it in our markets is unsustainable, and the moral hazard that nourishes this has its roots in the monied interests and their corrupted leadership.

"The 'pensions timebomb' keeps on ticking and as societies we become less prepared by the day.

Yet another report shows that the U.S. public pension system is in dire straits. This one comes from renowned hedge fund manager Bridgewater Associates.

The study estimates that public pension funds will earn an annual return of 4% or less in coming years due to near zero percent interest rates and financial repression. That, in turn, would cause bankruptcy for 85% of the pension funds within 30 years, the study warns.

Public pension plans now have only $3 trillion in assets to invest so that they can pay out $10 trillion of retirement benefits in coming decades, according to Bridgewater. The funds would need an annual investment return of about 9% to meet those obligations, the report says.

It is likely that many pension funds will go bust in the medium term and this may be a crisis that looms large sooner than the Bridgewater research suggests...

Pension funds traditional mix of equities and bonds may underperform in the coming years as many stock markets appear overvalued after liquidity-driven surges in recent years and bonds offer all time record low yields and are at all time record highs in price and can only fall in value in the coming years.

Pensions allocations to gold are exceptionally low internationally and yet gold has an important role to play in preserving and growing pension wealth over the long term.

Pension funds’ overexposure solely to paper assets and lack of diversification has cost pension holders dearly in recent years. This will almost certainly continue in the coming years."

Mark O'Byrne, Futures Mag

Read the entire article here.