"Everything Is Overvalued": Public Pensions Face Dangerous Dilemma In 2018
ZeroHedge.com Tue, 01/02/2018 - 23:25 Being a pension investor these days has absolutely nothing to do with "investing" in the traditional sense of the word and everything to do with gaming discount rates to make their insolvent ponzi schemes look more stable than they actually are. Here was our recent take on CalPERS' decision to hike their equity allocation to 50%: CalPERS' decision to hike their equity allocation had absolutely nothing to do with their opinion of relative value between assets classes and nothing to do with traditional valuation metrics that a rational investor might like to see before buying a stake in a business but rather had everything to do with gaming pension accounting rules to make their insolvent fund look a bit better. You see, making the rational decision to lower their exposure to the massive equity bubble could have resulted in CalPERS having to also lower their discount rate for future liabilities...a move which would require more contributions from cities, towns, school districts, etc. and could bring the whole ponzi crashing down. Overnight the Wall Street Journal poses an interesting question: what happens when real world fundamentals don't line up with pension boards' artificial goal seeking exercises on discount rates? The answer, of course, is that pensions, and therefore taxpayers, are forced to take on more and more risk as they stretch for returns... Retirement systems that manage money for firefighters, police officers, teachers and other public workers aren’t pulling back on costly bets at a time when markets are rising around the world. Some public pension funds are adding to traditional allocations of stocks and bonds while both are expensive. Others are loading up on more private-equity or real-estate holdings that are less liquid and sometimes carry high fees. Indeed, as one of the people interviewed by the WSJ puts it best, how much risk to take is a question facing all investors as they enter 2018. And the punchline"Of course, when going all-in on the various asset bubbles around the world inevitably fails, taxpayers, as always, will be forced to pick up the pieces: the question is whether or not the public pension ponzi will be too big to bail.
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