Juggling Dynamite

If ever there was a real world measure of how destructive the obsession with reckless asset inflation has been the past 20 years, it is the fact that even as stock and corporate bond prices are back near record highs, most households have massive savings deficits, and ‘working people’ pensions are running out of money left and right.

The Dallas Police and Firefighter Pension is teetering on collapse after being underfunded, used and abused by ‘advisers’ and fraudsters over the past 20 years.  This week the fund settled for a minuscule $2 million payment from their former real estate advisers who helped them lose $320 million (yes you are reading that number correctly, not a typo).  The board accepted the pittance in hopes that “the men who ran the firm” can help them go “after others who profited while it lost hundreds of millions of dollars”.

And Dallas is far from alone here.  A tsunami of shortfalls and insolvencies are hitting, as banksters and self-serving financial salespeople have extracted huge fees and left IOU’s in the till of pensions and savers all around the world. See more on others here:  Local 707’s once booming pension fund runs out of money after 20-year decline from deregulation and bad timing.

Also on the brink of drying up are the pensions for two Teamster locals — 641 and 560 — in New Jersey, union officials said. Plus 35,000 Teamster members upstate who are part of the money-hemorrhaging New York State Teamsters Pension Fund.

Bigger than all of New York’s Teamster locals combined is the Central States Pension Fund — another looming financial disaster that could leave 407,000 retirees without pensions across the Midwest and South.  And there’s still more beyond that, in various industries, officials say.

“It’s a nightmare, it has just devastated all of our lives. I’ve gone from having $48,000 a year to less than half that,” said Chmil, one of five Local 707 retirees who agreed to share their stories with the Daily News last week.

“I don’t want other people to have to go through this. We need everyone to wake up and do something; that’s why we’re talking,” said Ray Narvaez.

Unfortunately, many more people are going to have this rude awakening in the months and years ahead, as funds admit they are bust and benefits are slashed.  This will all serve as yet another drag on taxpayers, as well as consumer spending, and the economy for years to come.  Very painful to watch this unfold as the bad guys, so far, keep making off with their proceeds of crime.

To all the bulls touting stocks at supremely optimistic, exuberant valuations: this red corporate profit line is mean reverting lower from record highs. History suggests that this is a secular trend with much further to go. Corporations cannot have it all their way forever, sorry.

Or maybe the bulls are right, maybe this time is a new permanently high plateau?

…S&P 500 Price to Earnings (that declining red line above) over 29x today.

And here’s price to sales (revenues without all the financial manipulation ‘engineering’ used on earnings) today near the record hit as the tech bubble popped.  All looking good?

Then again, participants have not been this universally bullish (over 63%) since 1987 (right before that crash), so um, go with the flow or no?

Those hoping for a magical return to 1980’s-2000 style 4% growth rates in North America, that will justify bubble-high asset valuations, are ignoring a huge part of reality: populations all over the west, China and Japan, who wield the lion share of global spending power, are rapidly aging.  As people move past 50, they increasingly spend less.

Today’s inverted population pyramid cannot be supported on the shoulders of a smaller, younger, less affluent population.  And population-driven-spending-deficits, will continue to be magnified by the fact that most young people are now saddled with auto, education, housing/ consumer loan payments and capital savings shortfalls, that will soak up cash flow for many years.

So far today, governments are still dominated by older generations and their near-term agenda in collecting pension and health care benefits which they themselves failed to fund sufficiently.  In the process, they vote to short-change longer-term investments in critical infrastructure and new technologies that will dramatically improve the health and sustainability of the world for future generations.  But there is no free lunch here.

Think driving home prices to ludicrous levels that can only be purchased with crippling debt was a bright idea? Think again.  The cost of this mis-allocation–in the weight of huge, lasting debt payments, and forgone cash flow for other spending and saving targets–will be holding back economic growth for years to come.  It will also make benefit cuts for the older generations that much more inevitable.  Sucking your support system dry, has never been a sustainable strategy. Elon Musk explains in this clip. Here is a direct video link.