Earlie, re pension situation, agree, it's an insane disaster waiting to happen. they are all too heavy in equities, and the equities are too low in dividends. this means the only way they will get cash out of them is to sell them. and naturally they will all be selling at the same time. so we could see a lot of downward price pressure in the coming decades due to the oversupply.
perversely, the corporate pensions maintain high equity allocations so that they can maintain high estimated future returns... which in turn allow them to lower their projected underfunding today... which thus increases current reported earnings due to enormous adjustments for "theoretical" but nonexistent gains. the gap between the reality of the pensions and the pretty pictures in the GAAP reports has never been this bad. an example of how nearsightedness among those currently holding the strings (pension managers and corporate officers) can exacerbate a long-term disaster.
i would be very curious to see what reported earnings on the SPX would look like if all companies were forced to use the same 6% forward return assumption used by Berkshire. i suspect this would put the trailing PE well north of 50.
under the theme of pension blowups, i think there are some excellent long-term short-and-holds out there where shareholder equity will go the way of the dodo bird.
speaking of nearsightedness with bad long-term consequences, the WSJ had an interesting article today on one Barry Anderson, recently departed from the CBO for the IMF.
online.wsj.com
Budget Nearsightedness
Will Accelerate Collision
So how does the U.S. fiscal picture compare to 1980, the year Mr. Anderson went to work as a junior bean counter at the White House?
"We're worse off," he says. "Not because of the level of current deficits, but because we're 20-plus years closer to the [demographic] time bomb. Not only haven't we improved things, but we've made things worse, and we are about to make things even worse." |
