• 806 days Will The ECB Continue To Hike Rates?
  • 807 days Forbes: Aramco Remains Largest Company In The Middle East
  • 808 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,208 days Could Crypto Overtake Traditional Investment?
  • 1,213 days Americans Still Quitting Jobs At Record Pace
  • 1,215 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,218 days Is The Dollar Too Strong?
  • 1,218 days Big Tech Disappoints Investors on Earnings Calls
  • 1,219 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,221 days China Is Quietly Trying To Distance Itself From Russia
  • 1,221 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,225 days Crypto Investors Won Big In 2021
  • 1,225 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,226 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,228 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,229 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,232 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,233 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,233 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,235 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises

It is extremely refreshing to see a large, prominent, and historically accurate fund manager lay it on the line.

GMO does that quarter after quarter, with no-nonsense projections.

As of March 31, their 7-Year Asset Class Real Return Forecast is as follows.

GMO 7-Year Asset Class Real return Forecasts
Larger Image


Serious Question for Pension Plans

Given pension plan assumptions of 7-8% annualized returns how many of them can survive negative returns for seven years? It's important to not that GMO is talking about "real" inflation-adjusted returns with an assumption of mean-reversion inflation to 2.2% over 15 years.

Still, that leaves US equities at zero to -1% returns and bonds US bonds at negative 2.4% returns.

Even if GMO is wrong by say 3%, many pension plans will be in deep serious trouble at those returns.


Illinois Pension Plans

I keep harping about this issue, but it's an important one. In the state of Illinois, and in spite of an enormous rally in the stock market since 2009, Illinois pension plans are only 39% funded.

A "Special Pension Briefing" last November, shows the Illinois State Retirement Systems are in dismal shape.


Unfunded Liabilities

  • Teachers' Retirement System (TRS): $61.6 Billion
  • State Retirement Systems (SERS): $61.6 Billion
  • State Universities Retirement System (SURS): $21.6 Billion
  • Judicial Retirement System (JRS): $1.5 Billion
  • General Assembly Retirement System (GARS): $0.3 Billion

The above numbers show actuarial (smoothed) asset valuations.


Liability Trends - Not Smoothed

Illinois Unfunded Liability History

In spite of the massive stock market rally, Illinois liabilities increased every year since 2011.

For still more details, please see Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!.

Any notion that pension shortfalls can be balanced on the backs of Illinois taxpayers needs to vanish now.

How did Illinois plans became so underfunded?

In general, by promising far more than can possibly be delivered.


Summary of Liabilities and Unfunded Ratios

Illinois Summary of Financial Condition

Congratulations go to the Illinois General Assembly Retirement System (GARS) for having one of the worst, (if not the worst) pension plan in the entire nation. It is 16% funded.

No doubt, that increases the pressure of the General Assembly to put the burden of bailing out the system on the backs of Illinois taxpayers.


Fraudulent Promises

Pension promises were not made in good faith.

Rather, pension promises were the direct result of coercion by public unions on legislators, mayors, and other officials willing to accept bribes because they shared in the ill-gotten gains of backroom deals at taxpayer expense.

Illinois taxpayers cannot be held accountable for coercion of public officials by public unions. Fraudulent promises will be held "null and void" in any "non-stacked" court of law in the nation.

Given the 31% funding of the Illinois Judicial Pension Plan (JRS), the sorry state of Illinois pensions is likely headed to federal courts.

 

Back to homepage

Leave a comment

Leave a comment