Click to enlarge.
If the 1973 oil crisis permanently helped knock 2% off of our long-term growth, then one wonders if the 2008 oil crisis permanently helped knock off another 2%.
The bond market certainly wonders. 2% is now missing from long-term real interest rates.
Click to enlarge.
Pension funds don't wonder this of course. They are sticking with a more balanced reality.
September 21, 2012
Illinois Teachers pension fund cuts assumed rate of return to 8%
“Reducing the rate … to 8% is a prudent move that balanced reality with the needs of TRS members.”
8% returns? Safely invested? Long-term? Good luck!
Source Data:
St. Louis Fed: Real GDP (CPI Adjusted)
St. Louis Fed: 20-Year Treasury Inflation-Indexed Security
“Reducing the rate … to 8% is a prudent move that balanced reality with the needs of TRS members.”
ReplyDeleteYou take reality on the one side and then you perfectly balance it with the needs. Just compromise that reality!
I'm picturing what math classes would be like using this logic.
Pop quiz!!
I have 4 beans. If I give you 3 beans but then realize that you need another 3 beans then how many beans will you have?
5 beans! We simply compromise the reality between how many beans I have and how many you need!
Genius!
:-) This evening I was talked briefly with my ~60 y.o. Dad. And I quote, "I don't need a bunch of risk. I'm happy with 5-6% dividends." Um...
ReplyDeleteHow about we draw straws for who has to break it to him?
Math problem for California.
ReplyDeleteCalPERS had $233 billion under management at the close of FY12. It reported earnings of 1% on this holding, compared to the 7.5% target it needs to fully fund the future pensions of its 1.6 million beneficiaries.
How much should the taxpayers of California be taxed this year to make up this $15B shortfall?
a) $15B
b) $10B
c) $5B
d) F--- these guys!
EXTRA CREDIT: CalSTRS earned 1.8% on its $150B holdings. How much should the California taxpayer be taxed this year to make up that $8.5B interest income shortfall?
EXTRA EXTRA CREDIT: The $23.5B FY12 shortfall is what % of the per-capita personal income in California ($1.7T)?
(answer: 1.3%)
What gets me about CalPERS is that the only part of its book that is doing good is real estate. Talk about robbing Peter to pay Paul!
As for long-term growth, I do think the rent-drag from our energy deficit is really taxing us, growth-wise.
ReplyDeleteThat train got going in the 1970s, though http://www.census.gov/foreign-trade/top/dst/current/deficit.html shows that our deficit with KSA is an order of magnitude less than with the red chinese.
August had a ~$40B deficit. Bernanke is printing $40B month now.
Coincidence? We need a weak dollar I guess, but it's going to suck for many as we start losing the $500B+ free ride we've been getting.
AllanF,
ReplyDeleteNot me! I am investing in ALL of the S&P 500 companies that still have an AAA rating and that are also paying 5-6% dividends. Didn't cost me a dime! I can't lose!
Disclaimer: No stocks actually meet that criteria!
Troy,
ReplyDeleteWhat gets me about CalPERS is that the only part of its book that is doing good is real estate. Talk about robbing Peter to pay Paul!
Peter out
"When my mineral petered why they all Petered me. Now it is dig, dig, dig, drill, drill for nothing. My luck is clean gone - tapered down to nothing."