The Pension Bubble: How The Defaults Will Occur – Peter Diekmeyer
By Peter Diekmeyer
SprottMoney.com
June 10, 2016
Experts worry about stock, bond and real estate market excesses. But a bubble is forming that dwarfs them all: in pension plans. Millions of Americans and Canadians who are counting on pension benefits to fund their retirements risk being severely disappointed.
The hard money community has, of course, been aware of this for some time. However in recent years, even the elites have been taking notice.
One such group, the International Forum of the America’s will be holding its fourth annual pension conference in Montreal next Monday.
There politicians, financiers and monetary policy officials, will discuss the declining rates of return in public and private sector pension plans.
The picture they will paint is increasingly grim.
Pension funds, which have been issuing over-optimistic revenue forecasts for years, aren’t going to earn nearly enough money to pay the benefits recipients expect.
Much of this relates to secular stagnation in the economy.
Bonds, which from a major part of most plans’ holdings earn next to nothing in interest.
Stocks, which are trading at record levels, despite falling corporate earnings, look to have more downside risk than upside potential.
Worse, if bond returns average 2%, balanced portfolios projecting 7% to 8% annual returns, have to earn 12% to 14% on equities investments to make up the difference. That’s unlikely to happen.
At least private sector plans have some money in them – public sector plans are in even in worse shape.
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