• 2 hours Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 5 hours Expect A Pullback Before Gold's Next Major Rally
  • 7 hours Why Interest On Gold Matters
  • 23 hours Ten Extravagant Food Items For The Wealthy Only
  • 1 day Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 2 days $32 Million Crypto Heist Halts Tokyo Exchange
  • 2 days Is A Gold Selloff Looming?
  • 3 days Central Banks Are Stashing Gold And Dumping Treasuries
  • 3 days Three Cannabis Trends Flying Under Investors’ Radars
  • 4 days $1.3 Billion In Cocaine Found On JPMorgan Vessel
  • 4 days Amazon Teams Up With Lady Gaga To Win Over Generation Z
  • 4 days Dollar Falls As Powell Teases Rate Cuts
  • 4 days Will The World's First Trillion Dollar Company Ever Bounce Back?
  • 5 days Many Americans Will Never Stop Working
  • 5 days Mozilla vs DarkMatter: The Cyber Espionage End Game
  • 5 days Chile Cracks Down On Environmental Infractions
  • 5 days Warning Signs Emerge For Boeing
  • 6 days First Amendment Stands Strong In Trump vs. Twitter Showdown
  • 6 days Musk Bullish On Tesla Despite Executive Exodus
  • 6 days Virgin Galactic Announces Plans To Go Public
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

  1. Home
  2. Markets
  3. Other

Pension Bond 'Halloween' Madness: Alaska to Borrow Money from Asia at 4%, Hoping for 8% Returns

At or near the peak of every stock market, things get crazier and crazier.

Toggle bonds where interest is paid, not in cash but with more bonds, have been running rampant. Corporate share buybacks went crazy.

Now, despite massive stock market overvaluation, with median Price/Revenue ratios at an all-time high, Alaska governor Bill Walker wants to borrow money from Asia at 4% to buy stocks, hoping for 8% returns to shore up Alaska pension funds.

The Pension Proposal Received a Negative Reaction, but the governor is like to go ahead anyway.

Alaska lawmakers took a skeptical look Thursday at a plan by the administration of Gov. Bill Walker to nibble at Alaska's pension debt.

One week ago, the three-member Pension Obligation Bond Corporation Board voted to borrow up to $3.5 billion from bond markets from Asia. Proceeds from that bond sale would be invested in global markets, and any difference between the interest earnings and the interest paid on the bonds would go toward the state's unfunded pension debt.

The board is assuming 8 percent average earnings, deputy commissioner of revenue Jerry Burnett told the Senate Finance Committee on Thursday afternoon.

It expects to be able to borrow money from Asian pension funds at 4 percent interest.

"It's a gamble," Sen. Mike Dunleavy, R-Wasilla, declared.

"It's a gamble to have an unfunded pension system and assume we'll have enough" money when payments come due, Burnett responded.

The state faces a gap of approximately $6 billion, invested at about 8 percent interest per year, to meet expected demand. The proposal approved by the bond corporation board would carve less than a third off the gap.

If the new money earns 7 percent interest instead of 8 percent, it would close the gap by only $1.1 billion, according to state figures.

While lawmakers also appeared skeptical, their ability to stop the plan seems limited. The bond corporation board was empowered by a 2008 law and has the authority to issue up to $5 billion in bonds without approaching the Legislature again.

As planned, the bonds will be marketed through October and sold in the final week of the month, with deals closing on Halloween.


Median Price/Revenue Hits Record High

Median Price/Revenue Ratio of S&P500 Index Stocks

Chart from John Hussman's October 3, post Sizing Up the Bubble.


Toggle Bond Flashbacks


Trick or Treat

Borrowing money at these share price valuations is yet another high wire act, but this is precisely the attitude fostered by the Fed.

It's fitting this deal will close on Halloween. Trick or treat, but don't expect any treats.

 

Back to homepage

Leave a comment

Leave a comment