Friday 28 June 2013

Moodys is Right On

Moodys released a report on state pension funds today that implied that such funds currently hold only 48 cents out of every dollar needed to properly fund their obligations.  Three cheers for Moodys!

For decades, state and local pension funds have released grossly misleading and inaccurate figures suggesting that they are better funded than is merited by the facts.  Politicians have acquiesced in this charade since it was inconvenient, to use Al Gore's phrase, to speak the truth.

The chief method of disguising the truth is to make over-optimistic assumptions about future asset returns and unrealistic assumptions about the contributions that will be forthcoming in the future.

Based upon false information, state and local governments have touted reforms that hardly make a dent in the real problems.  Virginia is a great example.  The so-called pension fund reforms enacted by the Virginia General Assembly and backed by Governor McDonnell were misleadingly hailed as a 'major' improvement in funding.  Nothing could be further from the truth.  By maintaining mostly a defined benefit system supported by optimistic and unrealistic assumptions, the Virginia reforms simply locked in concrete a failing system without any serious reform.

The only properly funded pension systems are defined contribution systems.  Period.  If you are a participant in a defined benefit system (social security is a good example), the best advice for you is to start saving as much as you can.  Your pension system is most likely in deep, deep trouble.

Thursday 27 June 2013

GDP Revised Downward

Instead of 2.4 percent as originally advertised, the US GDP grew at a revised 1.8 percent during the first quarter of 2013.  Consumption spending fell off the cliff, which was unexpected.

So, the stock market rallied...big time.  Why?  Because the bad economic news suggested that the Fed might continue its bond purchases indefinitely.  "Long live QE3" was the rallying cry.

Meanwhile the President and his cronies were busily designing more strategies to lengthen unemployment lines: increase minimum wage, bury the coal industry, continue down the road on Obamacare, push for higher taxes, and stall the Keystone pipeline.

Nothing discourages this White House.  They will not likely be satisfied until unemployment gets back into double digit territory (so they can match their heroes in Europe) or until millions more Americans give up on working and move into disability or off into the black market.

On the ObamaCare front, the Administration is now recruiting Hollywood types and NFL superstars to begin a campaign to get young folks to sign up for ObamaCare health insurance, which will cost  the 18-25 set roughly twenty times the penalty for not signing up.  The premiums for young people are more then ten times what free market insurance would cost them.

There is some justice here, since young folks backed Obama's candidacy in overwhelming numbers.  Now, the young will find first hand what it is like to pay to subsidize others.  Don't expect the young to buy in.  Coffee house conversation is one thing; actually paying for ObamaCare is another.  They will not buy in.

Without the youth 'buy-in,' the ObamaCare numbers don't work.  But that's okay one supposes, since the so-called insurance exchanges mandated by the law are not in existence anyway.  ObamaCare is mostly an idea -- a terrible idea.  No one knows what the reality will be because no one in the Obama administration is doing anything significant toward implementation.  All of this will slam into the economy as the year progresses.

Between the coming of ObamaCare, higher taxes, the war on the coal industry, and the push for higher minimum wages, don't expect much improvement in the economy.  Even housing is going to struggle with the new regulatory environment which makes it border-line criminal for a bank to make a mortgage loan to someone who needs a mortgage loan.  Not to mention higher mortgage rates, which zoomed up from 3.7 percent to over 4.5 percent just in the last thirty days.

Meanwhile the stock market moves higher.

Wednesday 26 June 2013

Unilateral Energy Disarmament

As the rest of the world gears up to massively increase their carbon footprint, Obama is moving to put the US out of the coal business.  That won't keep worldwide coal production from soaring.  It just takes the US out of the coal business.  Obama has made no effort at all to get global partners to sign on board.  Instead, the US is walking this plank all alone.

This is in keeping with the Obama strategy of strangling the US economy to gain accolades from the Harvard coffee houses.

Once again, American workers will bear the brunt of the Obama agenda.  It is not enough to have the worst economic recovery on historical record (at least since 1850).  Now, with Obamacare on the horizon, Obama provides one more nail to the coffin of American prosperity with his arbitrary EPA war on the American worker and energy user.

The route to third world status is paved with good intentions and truckloads of hubris.