Category Archives: Retirement

Alas, No DUSY

After the last bubble ate their 401(k)s, it seems that quite a few people deserted the stock market and started speculating in old cars. I say old cars instead of classic cars, because in the process of creating yet another bubble the definition of classic became, shall we say, broader. Pretty much any piece of junk that had wheels, or had wheels at some point in the past, became classic. But the buyers loved them – shiny, you know – and felt they understood the values much better than those of the pieces of companies whose names they barely knew.

In addition to the consequent elasticity of supply, old cars earn no income and their value is only what someone will pay for them. A pure speculation, like gold, of course, with the only real utility being conspicuous display. There are funds that speculate in cars, but so far I have not seen any ETFs.

Alas, this bubble is now popping. Entirely predictable, of course. I am a little disappointed that now the time has passed and the DUSY ETF may never appear. I confess I like old cars as much as the next guy, although I don’t own any nor plan to I do follow an auction site “Bring A Trailer.” It is amazing that the conviction remains that it is essential to buy cars “before the price moves out of sight,” even though the same cars frequently re-appear on the site at prices lower than their previous sales.

Pension Tsunami Sighted

NY Teamsters Pension Fund becomes first to run out of money.

Oh, and after the close the API announced that crude and product inventories continue to set new records. Not to worry, speculative buying continues. GLWT.


DROP kills

The Dallas Police and Fire Pension System is mired in political conflict and facing insolvency, due to a combination of poor investment decisions and generous DROP plans. Just like the ones in California that have not yet hit the wall.

Calpers Whiffs

Calpers, the largest US pension fund, just reported its results for last fiscal year, ended June 30. Its investment return for the year was 0.6%, down from the previous year’s 2.4%. And this with a bull market in both stocks and bonds, to say nothing of California real estate.

This is a disaster that isn’t waiting to happen – it is well underway, right in front of our eyes. I’ve beaten the drum of its under-funding in the past, so I’m not going to bother again. In addition to its history of corruption, it is well known for being an obnoxious and left-wing activist shareholder, but this isn’t helping the 1.7 million employees and beneficiaries. The labor unions who choose Calpers’ directors assume that they can take what they want from the public wallet, so they choose activism over savvy, but at some point they’re going to be regretting that choice.

Heart’s Desire

Well markets got what they wanted today when both the BoE and the ECB indicated that they would be doing “more” – in the case, QE – over the summer.

The Fed did its bit after the close yesterday by authorizing the big banks (except Deutsche Bank, which is probably doomed anyway) to buy back their shares. Of course, they all promptly announced massive buybacks, which they will fund by borrowing from one another thus piling on more debt.

So the debt bubble gets bigger, the banks get worse, the pension funds struggle, the economy slowly dies and it goes on and on. It is becoming farcical.

It is the last day of June, the second quarter and the first half. So much window dressing and manipulation to manage reporting is going on. Notably the (record) Treasury shorts just slammed the bonds as they appeared to be running away to the upside and that wouldn’t look good.

One Big Worldwide Bubble

This interview with Milton Berg encapsulates pretty much everything you need to know.

Must watch. Then watch again, take notes. Very well done, although nothing new in terms of what I think. Treasuries will be a safe haven, although there will be a bear market in corporate, state and municipal bonds due to credit impairment.

Chicago and Illinois

Union-supported Democrats have ruled the roost in the city and state, Obama’s base, for many years. The cost of that union support is now coming due. Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to its annual report. The fund, one of Chicago’s four pensions, serves some 70,000 workers and retirees. The increase will add to what had been an unfunded liability estimated at $20 billion. These estimates are vastly optimistic because they continue to assume a level of portfolio return that simply isn’t going to happen, see John Hussman’s work. Obviously, there is no way the city can make up this shortfall, so unions are working to pass a bailout from Illinois state taxpayers through the legislature.

Illinois state workers are the highest paid in the nation, even ahead of California when adjusted for cost of living. Yet, despite the fact that Illinois is for all practical purposes insolvent, the AFSCME* union demands four-year raises ranging from 11.5 to 29 percent, overtime after 37.5 hours of work per week, five weeks of vacation and enhanced health care coverage.

AFSCME workers already get platinum healthcare benefits that would make nearly everyone in the country green with envy. Median AFSCME worker salaries increased more than 40 percent from 2005 to 2014, reaching more than $62,800. During that same period, median private-sector earnings in Illinois remained virtually flat. But they are still not satisfied. Now the union is working overtime to remove Gov. Bruce Rauner – who actually represents taxpayers’ interests – from labor contract negotiations. The union supports House Bill 580, which would strip the governor of his ability to negotiate. AFSCME wants the current contract dealings turned over to unelected arbitrators who are likelier to decide in the union’s favor.

See any problem here?

* AFSCME is the American Federation of State, County and Municipal Employees

Game On

The Teamsters’ Central States Pension Fund has requested Treasury approval for an average 23% reduction in benefits to pensioners. At current benefit levels, the plan projects that it will become insolvent by 2025.

Now the politics begin. Leading off is Bernie Sanders, who thinks that taxpayers should make up the shortfall. Naturally.

Perhaps I can send in my losing trades in my IRA for reimbursement?


Stanley Druckenmiller says: “This Is The Most Unsustainable Situation I Have Seen In My Career”

The disaster that Druckenmiller sees coming for the United States is all about changing demographics and entitlement spending. They don’t add up to a sustainable situation.

In 1940, entitlement payments, which include everything from disability payments to Social Security to Medicare, amounted to just over 20% of annual government spending in the United States.

Today, entitlement spending has swelled to nearly 70% of the annual federal budget.

Things are about to get a whole lot more complicated. The 20-year baby boom that took place after World War II is now beginning to result in a retiree boom.

For context, Druckenmiller points out that in 2030, the average age of an American citizen will be older than the average age of a resident of Florida today.

This demographic trend is going to create an entitlement spending catastrophe.

The way the system works, the current workforce provides the tax revenue to support the current senior population. A huge rise in the retiree population relative to the number of people working results in a funding dilemma.

Since 1980, the number of working-age people the country has had has outnumbered those age 65 and over by a count of 5-to 1.

The country has had enough workers generating tax revenue to support the number of retirees.

By 2030, that ratio is going to drop to 2.5-to-1.

By 2029, there will be 11,000 new seniors arriving every day and only 2,000 new adults being added to the workforce to pay for them.

There is just no way that the workforce at that time is going to be able to fund the entitlements of these seniors.

Of course, the demographic situation is much worse in Japan and Europe.

Japan is counting on robots to supplement humans. Europe is counting on Muslims. I don’t think the US government can count.

I’ll take the robots, please. Doesn’t help the problem of the unemployable, though.

Signs And Portents

Bloomberg mentioned that Jerry Seinfeld has decided to sell off his Porsche collection, while claiming:

“I’ve never bought a car as an investment, I don’t really even think of myself as a collector. I just love cars. And I still love these cars. But it’s time to send some of them back into the world for someone else to enjoy.”

Remember, he is a comedian. A rich comedian.

One of the TV channels I watch (I think it was Discovery) is announcing six days of continuous coverage of a car auction. The TV lineup is overflowing with shows about car flippers. There are mutual funds which allow punters to “invest” in portfolios of cars. Mercifully, no ETFs or high-speed traders yet, but can they be far behind?

We periodically stored our TR6 in a “Classic Car Storage” facility. The operator said that, other than the part rented out to the local Ferrari dealer, very few of the cars ever left the building except to be trailered to auctions. That says to me that these are trading herrings, not eating herrings.

Prices have ramped higher and higher – for example, Hagerty’s “Blue Chip” index is up 80% since May 2013. Naturally, supply has expanded as from my limited view it seems that almost any car that survives to be more than maybe ten years old is now “collectible.”

It looks to me that this is another bubble. I have a sneaking suspicion that a lot of older folks who were burned in one or another of the Fed’s stock market fiascoes simply abandoned that asset class and turned to trading something more tangible, comfortable and familiar – cars. So far, they have not been betrayed. However, Hagerty’s “Market Rating” for January says, inter alia:

The Hagerty Market Rating is down for the second month in a row, and has been down for seven of the last eight months. The 0.37 drop from December is the second largest month over month drop in the last year….

Auction activity experienced the biggest drop of any section, as the number of cars sold is at the lowest point of the last 20 months….

Private sales activity also decreased, and has done so for the fourth straight month. The average private sales price is also the lowest it’s been in the past year.

In speculative markets like this, volume collapses before price as owners simply withhold their cars from the market to avoid “giving it away” and await prices more to their liking. In market terms, liquidity is disappearing, market internals are poor while sentiment remains euphoric, supported by the media. Sound familiar?