Pension Funds in Historic Surplus Eye $1 Trillion of Bond-Buying (Consumers In Bad Shape With Personal Savings Down 53.5% YoY And Real Weekly Earnings Negative For 21 Straight Weeks, GOLD Soaring!)

Confounded Interest ^ | 01/28/2023 | Anthony B. Sanders

[Kaiser8408a]

Despite polticians like President Biden cheerleading his great economic accomplishments and Treasury Secretary Janet Yellen dipping into Social Security to fund the Federal government (much like Biden’s dipping into the Strategic Petroleum Reserve), there are serious problems facing America’s middle class and low-wage workers. Inflation is still brutal (but slowing) and REAL weekly earnings growth has been negative for 21 straight months (meaning that Biden’s bragging about wage growth has been destroyed by the inflation created by his energy policies and massive spending sprees). Personal spending rate YoY has plunged -53.5% to cope with inflation. To quote Joe Biden (Chauncy Gardner), “All is well in the garden.” But all is not well in the garden. As a result, we are now seeing pension funds jumping from stocks to bonds.

Pension funds need to keep some exposure to stocks to boost returns, but that equation is changing.

Once a corporate plan reaches full funding, their aim is often to derisk by jettisoning stocks and adding fixed income assets that line up with their liabilities. With the largest 100 US corporate defined benefit funds riding a cash pile of $133 billion after average yields on corporate debt more than doubled last year, their path is wide open.

With yields unlikely to go above their peak level once the Federal Reserve hits its terminal rate of about 5% around the middle of the year, there’s rarely been a better time for them to make the switch to bonds.

How about gold? As the probability of a US debt default looms (as Bride of Chucky Schumer stomps his feet and says ” No budget cuts!”) and the US Treasury 10Y-3M yield curve remains inverted, gold is soaring.

Perhaps pension funds should by gold rather than cryptos.

[Kaiser8408a]

Biden, Pelosi and Schumer (with help from McConnell) are destroying this great nation.

[Da Coyote]

I eagerly await the time when Pelosi and her ilk are afraid to go near a window.

Until then, we will not return to a civilized life.

[Roccus]

.......Treasury Secretary Janet Yellen dipping into Social Security to fund the Federal government.....

Nothing new there. Been going on, uninterrupted, since the Johnson admin.

[entropy12]

My Medicare monthly deduction jumped from $165 to $527 for all of 2023. The socialist policies doing everything to hinder me from reaching upper middle class.

[Wuli]

My pension fund decided to save investment expenses and consigned the bulk of the equities portfolio to index funds - funds that do nothing but mimic an index, like the Dow or the S&P, ect.

That strategy works fine when indexes in general are rising. And when they are not?? My monthly pension took a $500/month hit last fall. The BofD of rhe fund has been hit with tons of calls and letters to quit putting most of the equity assets in index funds, and rebuild the investment department with people who know what they are doing.

[Roccus]

Gee, and mine went down about $5/mo
They must like me better.

[citizen]

ee, and mine went down about $5/mo.

---

Mine, too. I thought it was the same for everyone's Medicare deduction.

[unclebankster]

That strategy works fine when indexes in general are rising. And when they are not?? My monthly pension took a $500/month hit last fall. The BofD of rhe fund has been hit with tons of calls and letters to quit putting most of the equity assets in index funds, and rebuild the investment department with people who know what they are doing.

*******

First, I’m not calling for a deflationary depression anytime soon, but if an event happened like the Great Depression, index funds will perform poorly just like investment funds performed poorly during that era.

You ride the bloated fat inflationary market up, then ride it down the other side.

Individual stocks that you would like in “any” environment (with dividend payments) and Treasury bills, notes, and bonds should maintain their valuations better than buying a little bit of the whole market.

[Roccus]

Oooh...I guess they like you as much as they do me.

I’m thinking the FReeper was just looking for a place to vent his/her rage at the increase in the FICA deduction on his/her paycheck and thought addressing that complaint to me was a good idea. lol

[entropy12]

Well..my only crime was to cash out capital gains in long held stocks, only about $300k. That was enough to jack up my medicare 3.5 times bigger.

[semimojo]

...quit putting most of the equity assets in index funds, and rebuild the investment department with people who know what they are doing.

Index funds have proven to outperform most "people who know what they're doing" over time.

[Wuli]

“Index funds have proven to outperform most “people who know what they’re doing” over time.”

They are fine for “building that nest” (or a pre-retirement pension account balance), But when that retirement fund balance must then become the basis for a steady retirement income, at is to be, or is the main retirement income, and that income is to be based on the changing market value of the fund, it is not good that the vast majority of that fund is in index funds - the monthly (or as adjusted quarterly or semi-annually) benefit can be on a roller coaster ride as the index funds rise and fall.

Our pension fund, before they switched to dominance by the index funds, and as benefits were adjusted quarterly based on market value, provided outstanding benefits with less volatility than since they switched to dominance of the index funds. And like I said, I lost $500 a month in my monthly benefit last fall. At a certain age “long term” is less of a concern than is “today”.

[semimojo]

But when that retirement fund balance must then become the basis for a steady retirement income, at is to be, or is the main retirement income, and that income is to be based on the changing market value of the fund, it is not good that the vast majority of that fund is in index funds - the monthly (or as adjusted quarterly or semi-annually) benefit can be on a roller coaster ride as the index funds rise and fall.

It also depends on the nature of the pension fund. A fund with a steady influx of younger members probably needs to look at long term returns and may accept more volatility. An essentially closed-end fund, like many corporate ones which are being phased out, should probably focus on stability and predictability.

[Wuli]

“It also depends on the nature of the pension fund. A fund with a steady influx of younger members”

Does not matter. I have experience with pension funds. The oneI am most familiar with for most of its history was not using index funds, either not much or not at all. In spite of that the funds were beating the indexes (Dow, S&P, ect) every year for many decades. Yes, there was a cost, which was having and constantly evaluating the investments and the in-house investment department. What is the main reason outfits go to index funds? The first is cost. It is cheaper to just mimic an index, you don’t need a highly compensated in-house set of investors. The second reason is the lazy cover your asses excuse - “well we did no better, but no worse than the indexes”.

The best private equity investors I have listened to over the years are not using index funds, and they are consistently beating the indexes.

Index fund should be used to cover only a portion of a long term portfolio, accepting that at least that portion won’t do worse than the indexes. Sort of like also having some portion also in fixed investments, like bonds - not always speedy climbers but steady protectors of capital. The bulk should be actively chosen, some on a fundamentals basis and some on a technical basis. And all in all it - the portfolio - should cover a wide universe, including foreign as well as domestic markets (markets across the world do not always rise and fall together).