Money And Change

Two Giant US Pension Funds Admit There's A Big Problem
 
Tue, 07/24/2018 - 19:05
 Authored by Simon Black via SovereignMan.com,

I’ve been talking a lot about the looming pension crisis...
My short thesis is, if you’re depending on a pension for your retirement, it’s time to start looking elsewhere.

Pensions are simply giant funds responsible for paying out retirement benefits to workers.
And today, the nation’s 1,400 corporate pension plans are facing a $553 billion shortfall. And, according to Boston College, about 25% will likely go broke in the next decade.

Think about that… A full one-quarter of US, non-government employees expecting a pension to fund their retirement will likely get zilch.

And it’s even worse for the government…

According to credit-rating agency Moody’s, state, federal and local government pension plans are $7 trillion short in funding.

The reason for this crisis is simple – investment returns are too low.

Pension funds invest in stocks, bonds, real estate, private equity and a host of other assets, hoping to generate a safe return.

But with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.

And that’s another big problem with pensions – their investment returns are totally unrealistic.

Government's Already-Dismal Budget Forecast Just Got 106% Worse
 
Sat, 07/21/2018 - 16:40
Authored by Simon Black via SovereignMan.com,

This week, the Office of Management and Budget released a new report called the “Mid-Session Review” of the US federal budget. It’s something they’re required by law to do – periodically review and update the government’s budget and track the changes.

The last government budget update was released in February. And according to the February budget, the government’s deficit for this fiscal year was going to be a whopping $873 billion.
Now they’re projecting to close this fiscal year (which ends on September 30th) with a deficit of $890 billion… which means they’re over-budget by just under 2%.

2% is actually pretty good. But here’s the problem: when they first unveiled the FY2018 budget in March of last year, they projected the annual deficit to be ‘only’ $440 billion. So between their initial projections in March 2017, and their current projections in July 2018, this year’s budget deficit increased by more than 100%.

And that’s pretty pitiful.

But it gets worse.

Last March, they projected a total budget deficit of $526 billion for Fiscal Year 2019.
But according to the revised projections they published yesterday, the budget deficit for Fiscal Year 2019 will now be $1.085 TRILLION… 106% worse than projected. And, whereas last year the government was forecasting DECLINING deficits in Fiscal Years 2020, 2021, etc., until miraculously reaching a positive budget SURPLUS of +16 billion in 2026, their updated projections now show TRILLION DOLLAR DEFICITS next year. And the year after that. And the year after that. Etc.

Bear in mind that even though this revised budget is a colossal train wreck, the projections still don’t factor in the possibility of a recession. War. Major emergency. Natural disaster. Financial crisis.

These forecasts assume that all big picture and macroeconomic trends are going to be fantastic for the next decade.

We’ve lately been talking about the concept of assets being ‘priced to perfection’.
‘Priced to perfection’ is a financial term meaning that assets are valued as if business conditions will be perfect forever.

Investors simply assume that the business plan will be successfully achieved without any difficulty, that sales will be strong, consumers will be happy, the economy will remain robust, etc.
And as a result of these pie-in-the-sky assumptions, investors pay record high prices for assets.

Well, these budget projections are priced for perfection.

They don’t take into account the possibility of any number of major risks that are looming, not to mention the enormous capital investments that are necessary in the United States.
US infrastructure, for example, is in desperate need of serious multi-trillion dollar maintenance.
Then there’s that pesky issue of Social Security, which presently has a funding gap of tens of trillions of dollars, according to the government’s own financial statements.
If you factor in even a fraction of these costs, the budget numbers… which are already gruesome… fall off a cliff.

The government has no Plan B. In fact, their Plan A, literally, is to have trillion+ dollar deficits and expect that there won’t be any consequences.

This is ludicrous.

There has never been a major superpower in the history of the world, from Ancient Rome to the French monarchy of Louis XIV, that has been able to run wild budget deficits without paying a serious toll… or passing those costs on to the people. Sooner or later these bills have to be paid, whether that means higher taxes, dramatically reduced benefits, serious inflation, a loss of confidence in the currency, etc.

There are hundreds of ways this could play out, and it’s impossible to predict precisely how or when.

We only know for certain that there WILL be an impact.

It will likely take several years. But expecting to be able to run trillion dollar deficits and an insolvent pension fund without any consequences forever and ever until the end of time is totally absurd.

This is why, even though the government doesn’t have one, it makes all the sense in the world for -you- to have a Plan B.

  Authored by Mac Slavo via SHTFplan.com,

"Things Are Getting Real" - Companies Are Reporting The Impact Of Tariffs On Their Business
While President Trump's latest round of tariffs has only just taken effect, and his earlier tariffs on steel and aluminum weren't widely imposed on American allies until May, American companies, or foreign firms' US-based subsidiaries, are already complaining about the negative impact that tariffs are expected to have. And as the White House mulls over whether to slap 10% tariffs on another $200 billion of Chinese imports, the situation is finally "getting real." Companies have warned for months that the tariffs would hurt economic growth, but to try and get a handle on the "real-world impact"of these policies, Bloomberg is compiling a list of companies that have either mentioned the tariffs during their earnings calls, or have released some other tariff-based announcement.

Though tariffs will have an impact on big and small US companies, Bloomberg is focusing on only the biggest publicly-traded firms. As Bloomberg points out, while Trump says he wants to protect American jobs, General Motors says his threat to tax imports of auto parts could force GM to cut its workforce in the US. Meanwhile, higher US tariffs on steel have prompted Germany’s Kloeckner & Co. to raise its earnings forecast because prices have risen so much.
Here's a roundup of the headlines, with link. Only two of the references - Kloeckner's and Ryerson's - have been positive.
* * *
Procter & Gamble: Cites ‘meaningful’ impact of tariffs on a handful of products in Canada, which accounts for 3% of global sales

Kloeckner: Steel trader raises earnings forecast on higher U.S. prices

General Motors: Could be forced to cut U.S. jobs if tariffs are applied to imported vehicles and auto parts.

Volvo Cars: Owner Li Shufu says cars will cost more as trade wars escalate

Ryerson: Metal processor’s sales guidance exceeds estimates in part because of higher anticipated demand from inventory dislocations tied to tariffs

Osram: Trade tensions will weaken sales of automotive lighting parts

Brown-Forman: Raised Jack Daniel’s prices in light of EU tariffs

Harley-Davidson: Plans to move production overseas, sees EU tariff costs of $100 million annually

Daimler: Cut profit forecast on U.S.-China trade fight

Tyson Foods: ‘Day-to-day uncertainty’ in delivering products and services

MillerCoors: Brewer says profit could fall by $40 million depending on how much aluminum prices rise

* * *
While the second-quarter earnings season is only just getting started, we imagine companies will have much more to say in 90 days when the third quarter ends, and the pre-tariff "doomsday-prepping" growth boom that economists have been warning about finally materializes. Still, as we pointed out earlier, concerns about trade, real or expected, are still far behind currency-related concerns.