• Tag Archives Liabilities
  • Pension Funds Have $4T Hole, Even a 5% Market Decline Could Be Catastrophic

    US pension funds do not have a pretty probability path going forward, a Moody’s report pointed out. The potential that certain pension liabilities increase at a time when reliance on pension funds avoiding major investment losses is a demographic and investment management issue. What about the situation right now? Moody’s starts out by stating: US public pension funds’ adjusted net pension liabilities (ANPLs) surpassed $4 trillion nationwide in 2016, reflecting poor investment results and declining discount rates.
    Moody’s: Just a 5% Loss in US Pension Funds Investment Returns Equates to 25% of Payroll
    Examining forward-looking modeling, Moody’s analysts Thomas Aaron and Timothy Blake see a probability path filled with potholes for pension funds, including investment performance.
    Pointing to a 5% loss in pension returns equating to ‘increases unfunded liabilities by an amount equal to 25% of payroll,’ the June 20 report points to a potential $103 billion shortfall. ‘Pension fund investment performance has never been more critical to government credit quality.’

    This post was published at FinancialSense on 06/23/2017.

  • Canary In The Coal Mine: Unfunded Liabilities Have Turned Illinois Into A ‘Banana Republic’ On The Brink Of Bankruptcy

    Illinois is the perfect example of what happens when your state is run by fiscally irresponsible dunces for decades. The state is buried debt, and hasn’t passed a budget in over 700 days. 100% of their monthly revenue is being consumed by court ordered payments, and the Illinois Department of Transportation has revealed that they may not be able to pay contractors (who are working on over 700 infrastructure projects) after July 1st if the state doesn’t pass a budget. To top it all off, the state’s credit rating is one step away from junk status, the lowest of any state. Because of these factors, Illinois may become the first state to declare bankruptcy since the Great Depression.
    Governor Bruce Rauner has gone so far as to call his state a ‘banana republic.’
    The state’s comptroller has admitted that ‘We are in massive crisis mode.’
    And a reporter for the Chicago Tribune thinks Illinois has gone so far past the point of no return, that the state should be broken up. He recently wrote what basically sounds like a suicide note for Illinois.
    Dissolve Illinois. Decommission the state, tear up the charter, whatever the legal mumbo-jumbo, just end the whole dang thing.
    We just disappear. With no pain. That’s right. You heard me.

    This post was published at shtfplan on June 22nd, 2017.

  • Moody’s: Modest Downside Could Spark $3 Trillion Surge In Pension Liabilities

    Some very simplistic math from Moody’s helps to shed some light on just how inevitable a public pension crisis is in the United States. Analyzing a basket of 56 public plans with net liabilities of $778 billion, Moody’s found that just a modest downside return scenario over the next three years (2017: +7.2%, 2018: -5.0%, 2019: 0%) would result in a 59% surge in new unfunded liabilities. Moreover, given that total unfunded public pension liabilities are roughly $5 trillion in aggregate, this implies that a simple 5% drop in assets in 2018 could trigger a devastating ~$3 trillion increase in net liabilities.

    Meanwhile, Moody’s found that even if the funds return 19% over the next three years then net liabilities would still increase by 15%. Per Pensions & Investments:
    In its report, Moody’s ran a sample of 56 plans with $778 billion in aggregate reported net pension liabilities through three different investment return scenarios. Due to reporting lags, most 2019 pension results appear in governments’ 2020 financial reporting, Moody’s noted. The plans had $1.977 trillion in trillion assets.
    Under the first scenario with a cumulative investment return of 25% for 2017-’19, aggregate net pension liabilities for the 56 plans fell by just 1%. Under the second scenario with a cumulative investment return of 19% for 2017-2019, net pension liabilities rose by 15%. Under the third scenario with a 7.2% return in 2017, -5% return in 2018 and zero return in 2019, net pension liabilities rose by 59%.
    In 2016, the 56 plans returned roughly 1% on average and would have needed collective returns of 10.7% to prevent reported net pension liabilities from growing.

    This post was published at Zero Hedge on Jun 22, 2017.

  • Trump Reports Income Of $594 Million, Net Worth Of At Least $1.1 Billion

    Late on Friday, the U. S. Office of Government Ethics released a 98-page financial disclosure form according to which President Trump reported income of at least $594 million for the period from 2016 and through April 2017 and assets worth at least $1.4 billion; he also had personal liabilities of at least $315.6 million to German, U. S. and other lenders as of mid-2017 implying a net worth of just over $1.1 billion. The disclosure form was Trump’s first since taking office.

    “President Trump welcomed the opportunity to voluntarily file his personal financial disclosure form,” the White House said in a statement, adding that the form was “certified by the Office of Government Ethics pursuant to its normal procedures.”
    On the income side, the largest component was $115.9 million listed as golf-resort related revenues from Trump National Doral in Miami, down from $132 million a year ago. Income from his other hotels and resorts largely held steady according to Reuters. Revenue from Trump Corporation, his real-estate management company, nearly tripled, to $18 million, and revenue from Mar-a-Lago grew by 25%, to $37.25 million helped perhaps by the doulbing of the club’s initiation fee to $200,000 after Trump’s election.

    This post was published at Zero Hedge on Jun 17, 2017.

  • ‘Madoff Whistleblower’ Harry Markopolos Has Uncovered A New Fraud

    Authored by Robert Huebscher via Advisor Perspectives,
    Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud. The unfunded status of the pension fund of the Boston Transit Authority (the ‘MBTA’) is $500 million bigger than previously thought, according to Markopolos. This will have a significant impact on the municipal bond market, especially if it turns out that the MBTA’s problems are endemic among similar pension funds.
    The unfunded status of a pension fund is the market value of the assets minus the present value of the liabilities, discounted at an actuarially determined interest rate. For most public pension plans, this number is negative; the liabilities exceed the assets and it is underfunded.
    Although the full details are not yet known, Markopolos said the $500 gap is due to bad investments, fraudulent accounting and unrealistic actuarial assumptions.

    This post was published at Zero Hedge on Jun 12, 2017.

  • Household Net Worth Hits A Record $95 Trillion… There Is Just One Catch

    In the Fed’s latest Flow of Funds report, today the Fed released the latest snapshot of the US “household” sector as of March 31, 2017. What it revealed is that with $110.0 trillion in assets and a modest $15.2 trillion in liabilities, the net worth of the average US household rose to a new all time high of $94.835 trillion, up $2.4 trillion as a result of an estimated $500 billion increase in real estate values, but mostly $1.78 trillion increase in various stock-market linked financial assets like corporate equities, mutual and pension funds, as the stock market continued to soar to all time highs .
    At the same time, household borrowing rose by only $36 billion from $15.1 trillion to $15.2 trillion, the bulk of which was $9.8 trillion in home mortgages.
    The breakdown of the total household balance sheet as of Q2 is shown below

    This post was published at Zero Hedge on Jun 8, 2017.

  • S&P Downgrades Qatar To AA-, Credit Risk Spikes To 2017 Highs

    Citing expectations of notable slowing in economic growth andconcerns about fiscal and current account deficits widening, S&P has downgraded Qatar from AA to AA- as credit risk premia hit 2017 highs.
    Qatar credit risk is at 2017 highs (but remains well below Jan 2016 recent highs…
    Full Statement from S&P…
    On June 5, 2017, a group of governments including Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Libya, and Yemen moved to cut diplomatic ties, as well as trade and transport links with Qatar. We believe this will exacerbate Qatar’s external vulnerabilities and could put pressure on economic growth and fiscal metrics. We are therefore lowering our long-term rating on Qatar to ‘AA-‘ from ‘AA’ and placing it on CreditWatch with negative implications. The negative CreditWatch encompasses numerous downside risks to the rating as a consequence of recent events, reflecting that we could lower the ratings if domestic political risks were to substantially increase or if government indebtedness increases materially quicker than we currently expect. We could also lower the ratings if our assessment of contingent liabilities from the banking system or the government’s related entities were to increase, or if Qatar’s external financing lines were withdrawn.

    This post was published at Zero Hedge on Jun 7, 2017.

  • What Europe’s First Official Bail-In Looks Like

    “If you think this has a happy ending, you haven’t been paying attention,” warns MINT Partners’ Head of Capital Markets Bill Blain, as he reflects on what just happened in Europe (that US equities seem happy to brush off as yet another fleshwound to global instability).
    There is a rule in Financial Institutions that any bank that calls itself ‘popular’ generally isn’t. This was proved last night. But, congratulations if you were a holder of Spain’s Banco Popular’s Senior Debt – they did a Zebedee ‘boing!’ on the basis last night’s last minute Santander rescue makes the bonds money good.
    Bad news for the Equity and COCO AT1 holders – who have the distinction of holding the first major bank capital bonds to be bailed-in/wiped out under EU regulations. Banco Popular senior debt is 12 points higher this morning.
    The AT1 perps are trading at 2.6%, down 50 points!!, and even that price looks optimistic. Ahah. We’ve not seen crashes like that since 2008.
    Popular has been desperately seeking a rescue for the last few weeks, but everyone looked the other way. So last night the ECB triggered the ‘Single Resolution Mechanism’ when it determined the Popular’s liquidity crisis was such its equity would be unable to cover debts or other liabilities.

    This post was published at Zero Hedge on Jun 7, 2017.

  • The Greatest Financial Bubble in History

    This is a syndicated repost courtesy of The Daily Reckoning. To view original, click here. Reposted with permission.
    China is in the greatest financial bubble in history. Yet, calling China a bubble does not do justice to the situation. This story has been touched on periodically over the last year.
    China has multiple bubbles, and they’re all getting ready to burst. If you make the right moves now, you could be well positioned even as Chinese credit and currency crash and burn.
    The first and most obvious bubble is credit. The combined Chinese government and corporate debt-to-equity ratio is over 300-to-1 after hidden liabilities, such as provincial guarantees and shadow banking system liabilities, are taken into account.
    Paying off that debt requires growth, but the growth itself is fueled by more debt. China is now at the point where enormous new debt is required to achieve only modest new growth. This is clearly non-sustainable.

    This post was published at Wall Street Examiner by James Rickards ‘ May 30, 2017.

  • Debt Is Piling Up: So What?

    Debt is piling up worldwide. But so what?
    We have described increasing levels of US debt as a ‘ticking debt bomb.’ American families have amassed more than $1 trillion in credit card debt alone. As of the end of 2016, the average credit card debt per American household stood at $8,377. That was up from $7,893 at the end of 2016.
    Of course, credit card debt makes up just one portion of US consumer indebtedness. You also have to factor auto loans and student loans into the mix. In February, total consumer credit stood at $3.79 trillion. The annual growth rate of total consumer debt is pushing 5%.
    Everyday Americans aren’t the only ones racking up debt. They are simply following the example of their Uncle Sam. The US national debt is pushing $20 trillion, with actual unfunded liabilities pushing far higher.
    America isn’t alone. Debt is a worldwide phenomenon. Just last week, Moody’s downgraded China’s credit rating. It estimates the Chinese government’s debt burden will rise to near 40% of GDP by 2018 and 45% by the end of the decade.

    This post was published at Schiffgold on MAY 31, 2017.

  • Six Terrifying Graphs That Summarize America’s Public Pension Crisis

    A new report from the Hoover Institution written by Senior Fellow Joshua Rauh and entitled “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State And Local Budgets,” does a masterful job illustrating the true severity of America’s public pension crisis, a topic to which we’ve dedicated a substantial amount of time over the past couple of years.
    As part of the study, Rauh reviewed, in detail, 649 state, county and local pension systems in the United States and ranked them based on funding status and impact on local budgets. What he found was a hidden taxpayer debt burden, in the form of underfunded pensions liabilities, totaling over $3.8 trillion. Of course, as we’ve pointed out multiple times as well (see “An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion“), Rauh argues that that $3.8 trillion taxpayer obligation is actually much larger if you apply some “common sense” math as opposed to “pension math.”
    As of fiscal year 2015, the latest year for which complete accounts are available for all cities and states, governments reported unfunded liabilities of $1.378 trillion under recently implemented governmental accounting standards. However, we calculate using market valuation techniques that the true unfunded liability owed to workers based on their current service and salaries is $3.846 trillion. These calculations reflect the fact that accrued pension promises are a form of government debt with strong rights. These unfunded liabilities represent an increase of $434 billion over 2014, as realized asset returns fell far short of their targets.

    This post was published at Zero Hedge on May 24, 2017.

  • Central bankers wanted gold suppressed to keep oil flowing — Ronan Manly

    Western central banks conspired about controlling the gold price in the early 1980s because they realized that gold was an indicator of inflation and its rise helped push commodity prices up, according to the second set of archival documents published today by gold researcher Ronan Manly.
    But, the documents show, the central bankers also sought to facilitate the flow of low-priced gold to oil-producing countries in exchange for their continuing to supply oil to the West at low prices.
    The latter objective, according to one central banker, was to “enable OPEC to acquire some modicum of the chief inflation-proof asset without an excessive rise in the price” and thereby “to prevent gold making its own particular contribution to inflation while the developed world was attempting to bring inflation down and so reduce gold’s own peculiar attraction.”
    Manly reports that the deputy governor of the Bank of England was skeptical of trying to duplicate the effort of the London Gold Pool of the 1960s and instead believed that the U.S. government should raise official convertibility of the dollar to $700 per ounce. Manly explains: “This was based on a calculation of U.S. overseas dollar liabilities tallied in a separate document. A similar calculation today would put the U.S. dollar gold price in the many thousands.”
    Manly also cites evidence, already called to your attention by GATA, that the Bank for International Settlements was actually running a second gold pool again by 1983 precisely for the purpose of appeasing OPEC — just what the famous “Another” postings at USAGold.com in 1997 and 1998 maintained…

    This post was published at GATA

  • US Pension Crisis Picking Up Full Speed

    The Pension Crisis is serious and is the catalyst that will bring everything down. Nearly 600 State & Local governments are now in the hole and has reached nearly $1.2 trillion of unfunded pension liabilities in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion. This staggering number is nearly 25% of the annual GDP and accounts for roughly 97% of all public pension funds in the United States. California is raising taxes to cover the short-fall for now, but this is going nowhere fast. Government pensions are what destroyed the Roman Empire and history is going to repeat.

    This post was published at Armstrong Economics on May 25, 2017.

  • Yuan Tumbles As Moody’s Downgrades China To A1, Warns On Worsening Debt Outlook

    Offshore Yuan tumbled as Moody’s cut China’s credit rating to A1 from Aa3, saying that the outlook for the country’s financial strength will worsen, with debt rising and economic growth slowing. This leaves the world’s hoped-for reflation engine rated below Estonia, Qatar, and South Korea and on par with Slovakia and Japan.
    ‘While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,’ the ratings company said in a statement Wednesday.
    And the most obvious reaction was Yuan selling.

    This post was published at Zero Hedge on May 24, 2017.

  • The Great Reset: How Should We Then Invest?

    The Great Reset
    What Happened to Deleveraging?
    Unfunded Liabilities
    The Unthinkable Recession
    How Should We Then Invest?
    Introducing Mauldin Solutions Smart Core
    Orlando and SIC
    ‘A speculator is one who runs risks of which he is aware, and an investor is one who runs risks of which he is unaware.’
    – John Maynard Keynes
    ‘The biggest mistake investors make is to believe that what happened in the recent past is likely to persist. They assume that something that was a good investment in the recent past is still a good investment. Typically, high past returns simply imply that an asset has become more expensive and is a poorer, not better, investment.’
    – Ray Dalio, founder, Bridgewater Associates, LP
    This letter and next week’s will be two of the most important I’ve ever written. They will set out my philosophy about how we have to invest in the coming days and years. They are the result of my years of actually working with clients and money managers and thinking about the economic and particularly the macroeconomic world. Because of some of the developments I will be discussing, I think the future is likely to be extremely challenging for traditional portfolio allocation models. The letters also discuss my thinking on new developments in markets that allow us to more quickly adapt to our ever-shifting environment, even when we don’t know in advance what that environment will be. I hope you find the letters helpful.
    Longtime readers know that this letter tends to talk more about our global economy’s problems than about its positive opportunities. That’s not to say that I ignore the opportunities. In fact, about half of my next book will focus on the tremendous potential I see developing over the next 20 years.
    I am extraordinarily optimistic about the ‘human experiment’ as we move deeper into this century. I foresee more of the world lifted out of poverty and afforded more of the necessities and even the luxuries of life, a much cleaner environment, steadily decreasing warfare, and healthcare radically altered in a positive manner. I truly believe most of us will live much longer than we currently imagine. In the not-too-distant future we will conquer many of the diseases that cut life so tragically short. Given this view, how is it possible to not be optimistic?

    This post was published at Mauldin Economics on MAY 22, 2017.

  • 22/5/17: U.S. Public Pensions System: Insolvent to the Core

    A truly worrying view of the U. S. public sector pensions deficits has been revealed in a new study by Joshua D. Raugh for Hoover Institution. Titled ‘Hidden Debt, Hidden Deficits’ (see the study opens up with a dire warning we all have been aware of for some years now (emphasis is mine): ‘Most state and local governments in the United States offer retirement benefits to their employees in the form of guaranteed pensions. To fund these promises, the governments contribute taxpayer money to public systems. Even under states’ own disclosures and optimistic assumptions about future investment returns, assets in the pension systems will be insufficient to pay for the pensions of current public employees and retirees. Taxpayer resources will eventually have to make up the difference.’
    Some details: ‘most public pension systems across the United States still calculate both their pension costs and liabilities under the assumption that their contributed assets will achieve returns of 7.5 – 8 percent per year. This practice obscures the true extent of public sector liabilities.’ In other words, public pension funds produce outright lies when it comes to the investment returns they promise to generate. This, in turn, generates delayed liabilities that are carried into the future, when realised returns come in at some 3-4 percent per annum, instead of promised 7.5-8 percent.

    This post was published at True Economics on Monday, May 22, 2017.

  • World Money: Five Hidden Signals From The IMF

    Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run – but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis.
    The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary. On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways.
    The discussion revealed what global central banks are planning for a future crisis and how the IMF is orchestrating policy for financial bubbles, currency shocks and institutional failures.
    Why the urgency from the financial elites?
    In theApril 2017 ‘Global Financial Stability Report,’ IMF researchers targeted the U. S corporate debt market and how extreme changes in its equity market has left the global economy at risk. While the report may have been missed by major financial news outlets, it was enough to give major concern to those paying attention. The IMF research report noted:
    ‘The [U. S.] corporate sector has tended to favor debt financing, with $7.8 trillion in debt and other liabilities added since 2010…’
    In another segment the IMF report said:
    ‘Corporate credit fundamentals have started to weaken, creating conditions that have historically preceded a credit cycle downturn. Asset quality – measured, for example, by the share of deals with weaker covenants – has deteriorated.’

    This post was published at Zero Hedge on May 18, 2017.

  • Clothing Retailer Rue21 Files For Bankruptcy, Many More On Deck

    This time Fitch was right. One month ago the rating agency listed 8 retail names that were most likely to file for bankruptcy next, just over a month later 1 out of the 8 was down, when teen clothing retailer Rue21 filed a prepackaged bankruptcy on Monday night in Pennsylvania bankruptcy court.
    In its bankruptcy petition, the company which retained Kirkland & Ellis as legal advisor, Rothschild as financial advisor, and Berkeley Research as its restructuring advisor, listed both assets and liabilities in the range of $1 to $10 billion.
    The restructuring process, during which the company will operate as normal, will lead to company’s “transformation into a more focused and highly performing retailer” the company announced in a press release, and added that as part of its restructuring process, it had “entered into a Restructuring Support Agreement (RSA) with certain of its stakeholders that confirms the support of the Debtors’ key constituents for the Debtors’ restructuring process and contemplates, among other things, an emergence from chapter 11 proceedings in the fall of 2017 with a significantly deleveraged balance sheet. In particular, lenders holding 96.8% of the Company’s secured term loan, bondholders representing 60.2% of the Company’s issued and outstanding unsecured notes, and the Company’s majority shareholder each executed the Restructuring Support Agreement.”

    This post was published at Zero Hedge on May 16, 2017.

  • Can Puerto Rico Escape Disaster?

    In early May, Puerto Rico filed for bankruptcy in federal court to stave off lawsuits, under a law Congress passed last year, to help the island cut its debt and escape financial disaster. The saga now heads to federal court, where the struggle between Puerto Rico and its creditors will be decided.

    The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) law set up a federal oversight board to handle the territory’s debt negotiations and the financial obligations it owes.
    Article III of PROMESA provides temporary protection from litigation, which expired last week. Puerto Rico has no way to pay the $123 billion in bonds and pension debt it owes, which includes more than $49 billion in pension liabilities.
    PROMESA requires good-faith negotiations toward an out-of-court deal before any filing, as well as to establish ‘procedures necessary to deliver’ audited financial statements for any entity entering bankruptcy.
    Some Puerto Rican agencies still have not published such statements, and creditors have complained for a while that the oversight board has not done enough to encourage compromises outside of court.
    Is Puerto Rico like Greece?
    Well no. Public lenders, such as the Eurozone and the International Monetary Fund (IMF), mostly hold Greece’s debt. Puerto Rico’s debt is in the hands of private investors, like hedge funds, mutual funds, and individuals.

    This post was published at FinancialSense on 05/15/2017.