Pension Apocalypse Is Coming

“It’s unequivocal now: We are taking money from the new employees and using it to pay off this liability for the old employees,” said Turner, a Gov. John Hickenlooper appointee. “And some might call that a Ponzi scheme.”Denver Post, 6/27/17

The people in Denver who bother to read the news, especially the ones who are or will be dependent on the Colorado public employees pension fund (PERA), were greeted with a shock Tuesday. PERA is now admitting to be 42% underfunded, down from an alleged 38% underfunding last year. How on earth is it possible for the underfunding of a pension to increase during a period of time when the Dow, S&P 500, Nasdaq and fixed income markets are hitting or are near all-time highs?

And what about the valuations of these funds using realistic mark to market prices for the illiquid assets, like private equity, commercial real estate and OTC derivatives?  Harvard University is about to sell its private equity assets.  My bet is that the value received will be covered up as much as possible.  And we’ll never know where the fund was marked on its books.  But judging of the failure vs. expectations of the SNAP and Blue Apron IPOs, private equity investments are likely over-marked on the books by at least 15-20%. A market to market here would devastate the stated funding levels of every pension fund.

It’s not just Illinois, which is de facto bankrupt, and the Connecticut State pension fund, which is also de facto insolvent.  Nearly every State’s pension fund is severely underfunded, as well as most private funds.

That 42% underfunding for PERA, by the way, makes very generous actuarial assumptions about the assumed rate of return on assets vs. the assumed payouts. Those assumptions have been wrong for at least 20 years and will continue to be wrong. That’s why PERA’s – as well as most every other pension fund – has become more underfunded over the last year.

The quote at the top is from Lynn Turner, who was one of the few competent, if not respected, SEC commissioners in my lifetime. In my view, when politicians and public officials are willing to state the truth about a dire situation in public,  it implies that the situation is on the precipice and they want to be disassociated with it – i.e the rats are jumping ship.  Yesterday the Illinois State Senate minority leader resigned…

I would argue that the one of the primary reasons the Fed is working hard to keep the stock market propped up is because, if the Dow/SPX/Nasdaq were to fall 5-10% for an extended period of time – as in more than a month – the entire U.S. pension Ponzi scheme would blow up and decimate the financial system. It’s a literal black swan in full view.

This is explains the “V” rallies in the stock market when the market abruptly drops 1% on a given day – like Tuesday and Thursday this past week. The fact that the market reversed Wednesday’s overt Fed intervention on Thursday signals the possibility that the Fed is losing control.

Meanwhile, the paper price of gold has once again withstood a vicious overnight attack that began in London and continued when the Comex opened by holding up at the $1240 level and bouncing. This is the fourth time since the so-called Fed attack last week disguised by the fake news as the “fat finger” trade.

4 thoughts on “Pension Apocalypse Is Coming

  1. How on earth is it possible for the underfunding of a pension to increase during a period of time when the Dow, S&P 500, Nasdaq and fixed income markets are hitting or are near all-time highs?

    Fraud, or they have been robbing Peter to pay Paul, Jane, Larry and Suzy for quite a while… most likely both…

    Beep beep

  2. Well at least Colorado has legalized marijuana to help pay the bills. What will the backward states do?

    The gold manipulators should be in jail!!!

  3. Sometime in the not too distant future I fully expect a helicopter
    drop of debt notes to all pensions and underfunded states. The
    sanctuary cities will also receive their helicopter drop also.
    What the Fed fears is loss of confidence in the dollar, the repeated
    smash on gold. The world is wise to what is going on and that is why
    the Saudi’s in particular are aligning with China. The dollar will just
    buy less and less and those not aware of the boiling frog analogy
    will be the one suffering the most.

  4. At this point its obvious the U.S. is going third world and we’re going to see a lot of pain on the way down. Just a few of the many black swans roosting, such as the huge number of unemployed or under employed, unfunded pensions, non-payable consumer debt, educational debt, housing bubble, over extended military, precarious petro-Dollar, unfathomable corporate debt, Obama care fiasco, declining oil prices, failing retail corporations, commercial property bubble, etc..on and on flocks of black swans., so many I can’t see the sun. The only blessing I see is the manipulation of the gold and silver markets. Once TPTB lose control, that will probably be the last ounce of silver or gold I’ll ever be able to buy…at least in Dollars. The metals manipulation is a blessing. I see our current circumstance in the U.S. as more dire then the one that broke up the U.S.S.R. For those that are old and lamenting the locked up wealth within their stack, be glad you won’t have to face the precipitous fall of the U.S. into the abyss. It will be violent.

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