Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: elmatador who wrote (28809)	2/17/2003 2:54:43 AM
From: EL KABONG!!!	Read Replies (1) of 74559

Hola, elmatador... This bet on equities has, however, always been risky. Actuaries are now coming to accept that pension fund liabilities are bond-like in character (the payment of regular income to pension beneficiaries) so a focus on equities represents a mismatch. When share prices fall and liabilities rise (thanks to increased longevity and lower bond yields) as they have in recent years, pension funds can slide into deficit. If these deficits are sufficiently large, they can threaten the solvency of the sponsoring company. At best, they will require finance directors to stump up more cash to plug the hole - cash that might otherwise have been used to invest in plant and equipment or pay dividends. Hence, one not so small reason why so many large companies, those with pension plan liabilities and especially those geographically located within the so-called "rust belts" of Europe and the eastern United States have little desire to increase CAPEX spending and invest scarce cash in their underlying businesses... But fortunes have been made in such unpromising circumstances. Unfortunately, Mr. Coggan only touches on half the story with this statement. More correctly, if I may, "But fortunes have been made or lost in such unpromising circumstances."... KJC

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