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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (17576)	2/20/2004 8:31:53 PM
From: Wyätt Gwyön	Respond to of 306849

i think there will be a major meltdown of US pensions within the next decade. i expect this to coincide with the next stock market crash. when one considers that corporate pensions are assuming 9% returns on average, in an environment where realistic expectations should be no greater than 6% and probably MUCH less, imo there should be a huge drawdown of corporate cash flows to cover pension funding shortfalls. it is simple math in the long run. since dividend yields are paltry , and since equity allocations are high, cos can only generate the cash flows to pay their obligations by selling stocks. but they will be trying to sell at the same time as everybody else. so net sellers will result, imo, in drastically lower prices. in fact, within 15 or 20 years we could have a market that is as ridiculously underpriced as the market of the past five years has been ridiculously overpriced. since pensions are already underexposed to bonds (only owned by hedge funds and foreigners) and overexposed to stocks (owned by EVERYBODY), the drawdown of cash flows to cover pension funding shortfalls will reduce the earnings reportable by the very companies making up a significant percentage of fund assets. thus funding shortfalls beget earnings shortfalls, which beget stock price falls which beget more funding shortfalls. and so on. a vicious circle that could eventually result in stocks being reasonably priced again, for the first time in many a moon. the PBGC is funded nowhere near well enough to cover the kind of massive deficits i expect. what i think will happen is that PBGC premia will be forced to rise. this will incent the financially stronger cos to opt out of the coverage (by immediate full funding or spinoffs, if necessary), while the walking dead corporations that need the insurance will not be able to pay for it. if you think PBGC will cover ALL shortfalls, you should talk to the steelworkers who thought they had their retirements funded.