Monday, April 24, 2017

Marc Faber : Public Pension Recipients Start Saving. You Are on Your Own

I find the deteriorating funding levels of pension funds remarkable because post-March 2009 (S&P 500 at 666) stocks around the world rebounded strongly and many markets (including the US stock market) made new highs. Furthermore, government bonds were rallying strongly after 2006 as interest rates continued to decline sharply.

In fact, if I look at the total return of both equities and bonds (including interest for bonds and dividends for equities) over the last ten years (ending August 31, 2016), I note that the return levels exceeded the expected asset return of almost 8% a year.

My point is this: If, despite these truly mouth-watering returns of financial assets over the last ten years, the unfunded liabilities have increased, what will happen once these returns diminish or completely disappear? After all, it is almost certain that the returns of pension funds (as well as other financial institutions) will diminish. Consider pension funds that have increased their allocation to bonds, and now (in the case of S&P 500 companies) exceed the equity allocation.

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

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