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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: yard_man who wrote (145937)1/24/2002 2:16:29 PM
From: reaper  Read Replies (2) of 436258
 
Tip RE: Pensions I think you might be surprised how SLOWLY these guys will allocate away from equities. Remember my citation in a previous post that they actually put $90 billion TOWARD equities in Q4:01 despite the worst bear market in 25 years and despite the fact that other sources of liquidity (corporate buybacks, mu-fu flows) were drying up.

Here's why. The pensions are stuck between a rock and a hard place, as they say. The pensions of MANY large US corporations assume annual returns of 9.5-10.0%. The ONLY way they can argue this return is achievable is through directing a significant % of their pension assets toward equities, especially in times like now when govie and corporate bond yields are so low. IF the pension consultant was to cut equity exposure to say 40% from 60%, THEN the pension actuary would in tandem be forced to cut the expected returns on assets from say 9.5% to 8.5%. BUT by cutting the expected return, the corporation would all of a sudden have an under-funded plan which would (i) force huge cash contributions; and (ii) really hurt earnings.

Pension plans are ALWAYS late. When they start selling stocks in significant volume its time to buy, IMHO.

btw, as I have noted in a prior post or two, I predict that pension accounting is going to be one of the great fiascoes of this year, likely receiving initial attention in 2H:02 and probably becoming the source of congressional hearings by mid-2003. I am eagerly awaiting the arrival of 10Ks for CY01 which will include a lot of delicious disclosures about the precarious state of the pension plans in big corporate America, and I think many excellent short opportunities will be revealed by reading these "arcane" footnotes. As always, I will report what I learn back to the sordid cast of characters at CFZ.

Cheers
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