Achor's away!
Scape @ Tue Dec 27, 2005 3:46 am
Anchored around long term, secure pensions governments borrowing money affordably will be a thing of the past.
Transit strike reflects wider pension concerns
Nearly One in 10 Pension Plans Said Frozen
Fed raising interest 13 times in a row.
Canadian Pensions are Losing Ground(pdf)
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Pension plan sponsors' problems are growing when it comes to the size of their defined benefit deficits. According to a new report from the Certified General Accountants Association of Canada (CGA), the aggregate deficit of DB plans has grown significantly. It is estimated that funding to fully fund those deficit plans has grown from $160 billion at the end of 2003 to $190 billion at the end of 2004.
Delphi: Who's next?
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In the news last week an article stated many companies have scraped their pension plans, at an alarming rate. Then the PBC picks up the pensions but at a rate of so much per dollar. There is one big problem however, the PBC is so far in the red this can't go on much longer. It is a taxpayer financed corporation, even though manufacturing companies are also paying in. If Delphi's pension goes down who's is next and how many after that. Even though you may not be involved in any way with the auto industry, we all need to purchase American Cars. It isn't about saving money at purchase time, its about saving our pensions so we can purchase cars on down the road.
And here is why they are stretched so thin
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United Airlines and US Airways got the bankruptcy court's blessing to shift a collective $9.6 billion in pension liability to the Pension Benefit Guaranty Corp., helping push the deficit of the federal agency that insures 44 million pensions to $22.8 billion. Delta and Northwest Airlines, facing similar pension debt, followed into bankruptcy court, although the two haven't dumped their $16.3 billion pension liability on PBGC yet.
Cause: M-3 will start being hidden also happens to be the exact month that Iran will declare economic war against the U.S. Dollar by trading its oil in Petro-Euros on its new bourse.
And effect: U.S. currency had its steepest single-day fall against the yen since March 2002
Sales of new homes plunged in November by the largest amount in nearly 12 years
May you live in interesting times.
Wullu @ Tue Dec 27, 2005 6:35 am
Damn you Scape!! Here I was thinking you had a naval thread going.. 
Oh thanks for the link to the Dief site 
cdncutie @ Tue Dec 27, 2005 6:55 am
The issue of pensions is a sobering one. We have workers invested in underperforming and mismanaged defined benefit plans. So market forces and employer sentiment moves to the defined contribution plans, but so many participants do not fully realize the extent to which they must manage the performance of such plans themselves. Further, in many instances they do not have the financial savvy or inclination to do so. It will be interesting to see the pensions that those workers accumulate, and the issues that surface when more dc workers look to retire.
Scape @ Tue Dec 27, 2005 2:29 pm
The anchor was the common theme as that's how I see a pension in the free market, sorry about the confusion!
Indeed the issue of pensions are very concerning as they have done much to shape the market forces of today. It is one of the major reasons why outsourcing has become so rampant even more so than the retailing giant like Walmart. Pensions look for profit over a longer period but they look for secure investments so they can invest and not have to keep an eye on them. This acts like a magnet for investment. There is some risk but for the most part the pensions are an indicator of secure investments. When they go like they did in the case of United Airlines it does damage to the stability of the market. Unstable times create fear and that makes the prices spike. If we get more (and Delphi was very troublesome in this regard) then we could get a domino effect. In Canada our pensions are not keeping pace with benefit deficits leaving them vulnerable as well. Things could get very volatile very soon.
Toro @ Sun Jan 01, 2006 1:43 pm
On the pension front, people around the world should be more concerned about the coming crises in state-run pension plans (ie CPP) more so than corporate plans as the demographics work against such plans. Many plans aren't real pension plans but rather are transfers of wealth from one generation to the next. Since the population is aging, less workers will support more retired people. Thus, my advice to you is to max out your RRSP.
Nearly One in 10 Pension Plans Said Frozen
From this same article.
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The study, however, found that as of 2003 the frozen plans covered just 2.5 percent of all workers in insured plans. Most of the more than 2,700 plans hard-frozen in 2003 had fewer than 100 participants, it said.
It also references those pension plans gauarnteed by the PBGC. Defined contribution plans are not gauranteed by the PBGC - and pension plans are being moved away from defined benefit to defined contribution.
Fed raising interest 13 times in a row.
This should make those worried about a dislocation sleep a bit easier since the speculation fueled by cheap money has ended as evidenced by this article Scape posted.
Sales of new homes plunged in November by the largest amount in nearly 12 years
However, my bet is that there is a big blow-up in 2006. My guess is that it will be housing related, but not necessarily in the United States since the dodgiest tranches of MBS pools are being sliced off and sold to foreigners stretching for yield.
Canadian Pensions are Losing Ground(pdf)
One of the problems in corporate America (and possible Canada) is that the implied return on their pension plans for GAAP is 8-9%. This is almost certainly an overstatement since US stocks will return 7-8% over the next 10-15 years while bonds will probably do 3-4% IMO. Since pension plans in aggregate are roughly 40-50% bonds and 40% stocks (the rest is in other stuff), corporate America will not earn their GAAP actuarial assumptions.
Cause: M-3 will start being hidden also happens to be the exact month that Iran will declare economic war against the U.S. Dollar by trading its oil in Petro-Euros on its new bourse.
Nobody should take this argument seriously. Oil trading accounts for less than 1% of all currency trading. Also more than half of oil trading occurs by countries that do not use the dollar as a currency, and the dollar is used merely as a reference benchmark while the actual currencies traded are between the currencies of the national entities involved in the transaction. It makes perfect sense for Iran to develop its own oil futures exchange since the US has targetted it as an axis of evil and had its assets frozen after the Hostage Crisis. Its a fun argument, though, if you believe that Bush is trying to take over the world.
And effect: U.S. currency had its steepest single-day fall against the yen since March 2002
So? The dollar has been gaining all year. Here's a chart of the Yen and a chart of the Euro. Its characteristic of a bull market in just about anything to have sharp sell-offs amidst a rising price.
Scape @ Sun Jan 01, 2006 5:28 pm
Toro Toro:
On the pension front, people around the world should be more concerned about the coming crises in state-run pension plans (ie CPP) more so than corporate plans as the demographics work against such plans. Many plans aren't real pension plans but rather are transfers of wealth from one generation to the next. Since the population is aging, less workers will support more retired people. Thus, my advice to you is to max out your RRSP.
It isn't the CPP folding. It is the pensions of Delphi, American Airlines and General motors being swept away, NOW, not a generation down the road. CPP may well have problems in the future but the CPP hasn't completely vanished. Such a large shift of wealth will have effect on state run pension plans but if more private run pension plans collapse like that RRSP's will buy little comfort.
Toro Toro:
Oil trading accounts for less than 1% of all currency trading. Also more than half of oil trading occurs by countries that do not use the dollar as a currency, and the dollar is used merely as a reference benchmark while the actual currencies traded are between the currencies of the national entities involved in the transaction. It makes perfect sense for Iran to develop its own oil futures exchange since the US has targetted it as an axis of evil and had its assets frozen after the Hostage Crisis. Its a fun argument, though, if you believe that Bush is trying to take over the world.
JP US planning strike against Iran
The oil fiat Iran is creating with support of nations like China, Russia and the EU is a danger as it is the first fiat that can be internationaly traded in every market that the US dollar can and be tied to a measurement that will only go up vs the worth of the US dollar. This undermining is not Bush taking over the world but the world changing how the game of simple wealth creation is played. All the factors that have the US running currency markets now could suddenly be thrown in reverse.
Toro @ Sun Jan 01, 2006 6:09 pm
Scape Scape:
The oil fiat Iran is creating with support of nations like China, Russia and the EU is a danger as it is the first fiat that can be internationaly traded in every market that the US dollar can and be tied to a measurement that will only go up vs the worth of the US dollar. This undermining is not Bush taking over the world but the world changing how the game of simple wealth creation is played. All the factors that have the US running currency markets now could suddenly be thrown in reverse.
Its not a danger. Its just another market. Commodities, including oil, are already transacted in other currencies. When a Swiss trader buys oil from an Italian energy company, they are not swapping francs into dollars into lira. They are swapping from francs into lira. The fact that the price of the commodity is quoted in American dollars is irrelevent to the actual transaction apart from it being a reference point. Transacting in three currencies is more expensive than transacting in two, because you have to pay the spread, risk market impact and possibly hedge. The dollar is merely the reference point. The market has evolved to using one currency - the dollar - because using more than one can be confusing, and possibly cost hundreds of millions of dollars if someone gets it wrong.
I work in markets, and I talk to traders, executives and oil analysts, and - like a great number of unusual theories - I'd never heard of this until I read it on a forum on the Internet, and never have since. I would have thought that all the intelligent people whom I know who trade commodities, trade currencies, run energy companies, analyze the energy market, etc., etc., etc., one of them would have brought this up, either in conversation or in a report. They have not.
Scape @ Sun Jan 01, 2006 6:37 pm
Toro Toro:
The fact that the price of the commodity is quoted in American dollars is irrelevent to the actual transaction apart from it being a reference point.
The USD is not only a benchmark but also a vested interest. Iran fiat is the beat of a different drummer. The tempo of the market is still measured in terms of USD not simply because it is a universal reference point. The more it is traded the more it gains in strength.
US Dollars as the Common Denominator
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Paper currencies are non-interest bearing, negotiable notes drawn on the good faith and credit of the country of issuance. In concept, the money in your pocket differs little from interest bearing treasury bills and notes. When central banks buy US dollars, they don't buy circulated paper currency. They buy bonds and bills. All currencies not being equal, ratings agencies go through all sorts of permutations and eventually a currency gets assigned a "Sovereign Credit Rating."
Ratings criteria include such factors as purchasing power parity, per capita GDP, inflation, growth rates, perceptions regarding legal stability-corruption, political risk factors, years since last default, imports versus exports, debt levels, and the list goes on. Once value and risk have been defined, a yield needs to be set to provide holders of these instruments with the incentive to hold them.
Currency can be readily transferred as an exchange of value, it has functional utility for that reason, thus as creditors we don't require paper money instruments to provide yield.
The world would become so reliant on the debt of a single nation that sovereign credit ratings and the risk reward curve are now ignored. In 1995 the Federal Reserve Bank of New York must have seen 2005 and 2006 coming when they stated that "sovereign ratings are assessments of the relative likelihood a borrower will default on its obligations." .... " Sovereign lending has historically been a risky business. A burst in sovereign lending in the 1920s-the closest precedent for the recent spiral in sovereign bond issuance-ended with a wave of defaults during the Great Depression. Twenty-one out of fifty-eight nations defaulted on their international bonds between 1930 and 1935; another four had already defaulted by 1929 (Suter 1992)." ... "Moody's was one of many parties taken by surprise by the extent of the sovereign default wave: a majority of the defaulting countries had investment grade ratings from this agency in 1929 (Moody's 1981)."
Today world currencies are so interconnected they use dollar holdings as a major store of collateral value. Were the sovereign rating of the United States to be downgraded, to realistically reflect fundamental value, or were the yield increased to reflect growing risk, the world would experience a wave of global default.
Entities buying or holding US dollars are creditors. Large creditors know that were they to sell even a small amount of their holdings, they would trigger a default. Therefore, the knee jerk reaction of creditor nations has been to support the value of the dollar. The creditors could also upset the market by failing to buy additional debt, evidence exists this has just occurred.
With USD 1.9 trillion in currencies changing hands every day, preserving a currency devoid of value becomes a very difficult thing to do. It becomes even harder to save a currency that grows debt faster than it can grow its future earnings potential.
In such circumstances monetary inflation occurs, the effects of which are to cause necessity commodities like energy and food to become expensive. The broad stroke of inflation also causes leveraged and derivative assets to become overly attractive. Debt multiplies gains and losses and the herd gets suckered into chasing yield without considering the fact that on the down side, their losses could exceed their working capital.
When this type of inflation fails to weaken the purchasing power of a currency, then debt default forces the issue and a severe adjustment occurs. When debt cannot be negotiated downward, default usually follows.
Ratings criteria include such factors as purchasing power parity, per capita GDP, inflation, growth rates, perceptions regarding legal stability-corruption, political risk factors, years since last default, imports versus exports, debt levels, and the list goes on. Once value and risk have been defined, a yield needs to be set to provide holders of these instruments with the incentive to hold them.
Currency can be readily transferred as an exchange of value, it has functional utility for that reason, thus as creditors we don't require paper money instruments to provide yield.
The world would become so reliant on the debt of a single nation that sovereign credit ratings and the risk reward curve are now ignored. In 1995 the Federal Reserve Bank of New York must have seen 2005 and 2006 coming when they stated that "sovereign ratings are assessments of the relative likelihood a borrower will default on its obligations." .... " Sovereign lending has historically been a risky business. A burst in sovereign lending in the 1920s-the closest precedent for the recent spiral in sovereign bond issuance-ended with a wave of defaults during the Great Depression. Twenty-one out of fifty-eight nations defaulted on their international bonds between 1930 and 1935; another four had already defaulted by 1929 (Suter 1992)." ... "Moody's was one of many parties taken by surprise by the extent of the sovereign default wave: a majority of the defaulting countries had investment grade ratings from this agency in 1929 (Moody's 1981)."
Today world currencies are so interconnected they use dollar holdings as a major store of collateral value. Were the sovereign rating of the United States to be downgraded, to realistically reflect fundamental value, or were the yield increased to reflect growing risk, the world would experience a wave of global default.
Entities buying or holding US dollars are creditors. Large creditors know that were they to sell even a small amount of their holdings, they would trigger a default. Therefore, the knee jerk reaction of creditor nations has been to support the value of the dollar. The creditors could also upset the market by failing to buy additional debt, evidence exists this has just occurred.
With USD 1.9 trillion in currencies changing hands every day, preserving a currency devoid of value becomes a very difficult thing to do. It becomes even harder to save a currency that grows debt faster than it can grow its future earnings potential.
In such circumstances monetary inflation occurs, the effects of which are to cause necessity commodities like energy and food to become expensive. The broad stroke of inflation also causes leveraged and derivative assets to become overly attractive. Debt multiplies gains and losses and the herd gets suckered into chasing yield without considering the fact that on the down side, their losses could exceed their working capital.
When this type of inflation fails to weaken the purchasing power of a currency, then debt default forces the issue and a severe adjustment occurs. When debt cannot be negotiated downward, default usually follows.
US dollar hegemony has got to go
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A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effect of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.
Why the dollar is falling
Toro @ Sun Jan 01, 2006 7:15 pm
There's no question that the US benefits by the globe using the dollar as its main reserve currency. Because central banks buy US bonds (they rarely buy the actual currency), that buying drives the price of bonds up and the yield on the bonds down.
However, that's a long, long, long, long, long way to coming to the conclusion that the US is going to invade Iran to stop them using a euros-based futures exchange. If the US was as intent as implied in invading a blinking country to prevent a futures exchange, they wouldn't have run such huge deficits and lowered the Fed funds rate as much to threaten the hegemony of the dollar in the first place!
Oh, and the dollar has been rising, not falling. Guys like Buffet and Gates, whom you link as being bearish on the dollar in one of your links, have taken a bath betting against the dollar.
Scape @ Sun Jan 01, 2006 7:55 pm
March 08, 2005
What was the market doing at that point?
Video: Hint
Toro @ Sun Jan 01, 2006 9:42 pm
Sure, markets go up and down. They're supposed to do that. They're markets!
However, right now, interest rates on government bonds are 1+% above European bonds, and are 3-4% higher than Japanese bonds along the curve. That interest rate differential compensates investors for the risks of holding US debt, and that risk is, essentially, embedded in the markets because of the trade deficit, not the fiscal deficit IMHO, since the government debt of America is no worse than France, Germany or Japan. And the reason why the dollar ended the year higher against the euro and the yen is because investors believe that the compensation they are receiving for holding dollars is greater than the risk entailed in the US economy.
As for the video, old news. Shorting the US dollar was a crowded trade a year ago. Beware when everyone is on one side.
Scape @ Mon Jan 02, 2006 1:28 am
$1:
It's official: as of October 18th, the National Debt has risen to over eight trillion dollars. Incidentally, it was back in December 2003, less than two years ago, that the Debt surpassed a "mere" seven trillion dollars.
1989 a $3 Trillion debt did not matter. Today the growth is nearing a trillion a year. Seems markets go up and down but debts just get bigger. Shorting the dollar was based on wisdom that stems from the very ideals that belive it is better to produce than to consume and save over wanton spending.
By retiring longer term debt, while issuing more cheaper short-term bonds, the idea was to keep the cost of the debt repayments lower. What happens when you crank up the rates then?
It is becoming painful to see
The total's thus far are not looking good
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U.S. TRADE FLOWS UNDER THE WTO
(The World Trade Organization began to function January 1, 1995. Thus 1995 is the first year for international trade under the WTO rules.)
U.S. global goods exports, 1995-2004: +33.1%
U.S. global goods imports, 1995-2004: +97.4%
U.S. global goods trade deficit, 1995-2004: +279.4%
U.S. global goods exports, year-to-date 2005 versus year-to-date 2004: +10.3%
U.S. global goods imports, year-to-date 2005 versus year-to-date 2004: +13.7%
U.S. global goods trade deficit, year-to-date 2005 versus year-to-date 2004: +17.1%
Source: Calculated from Trade Dataweb, U.S. International Trade Commission, http://dataweb.usitc.gov
(The World Trade Organization began to function January 1, 1995. Thus 1995 is the first year for international trade under the WTO rules.)
U.S. global goods exports, 1995-2004: +33.1%
U.S. global goods imports, 1995-2004: +97.4%
U.S. global goods trade deficit, 1995-2004: +279.4%
U.S. global goods exports, year-to-date 2005 versus year-to-date 2004: +10.3%
U.S. global goods imports, year-to-date 2005 versus year-to-date 2004: +13.7%
U.S. global goods trade deficit, year-to-date 2005 versus year-to-date 2004: +17.1%
Source: Calculated from Trade Dataweb, U.S. International Trade Commission, http://dataweb.usitc.gov
And here...
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U.S. TRADE FLOWS
Why wait a year, when you can do it in a month?
U.S. global merchandise trade deficit, Sept., 2005: $71.32 billion
U.S. global merchandise trade deficit, Oct., 2005: $73.88 billion
U.S. global merchandise trade deficit, full year, 1991: $66.98 billion
Sources: Trade Dataweb, U.S. International Trade Commission, http://dataweb.usitc.gov; “Part A: Seasonally Adjusted, Exhibit 1. U.S. International Trade in Goods and Services,” U.S. Census Bureau, U.S. Department of Commerce, http://www.census.gov/foreign-trade/Pre ... e/exh1.pdf
Why wait a year, when you can do it in a month?
U.S. global merchandise trade deficit, Sept., 2005: $71.32 billion
U.S. global merchandise trade deficit, Oct., 2005: $73.88 billion
U.S. global merchandise trade deficit, full year, 1991: $66.98 billion
Sources: Trade Dataweb, U.S. International Trade Commission, http://dataweb.usitc.gov; “Part A: Seasonally Adjusted, Exhibit 1. U.S. International Trade in Goods and Services,” U.S. Census Bureau, U.S. Department of Commerce, http://www.census.gov/foreign-trade/Pre ... e/exh1.pdf