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Pension World Reeling

Most US pension plans assume returns of six to seven percent. They have shied away from government bonds because yields have been too low.

Bloomberg reports Pension World Reels From 'Financial Vandalism' of Falling Yields

A once-unthinkable collapse in global bond yields is forcing pension funds to buy bonds that offer negative returns -- putting the financial security of future retirees in jeopardy.

U.S. institutions managing trillions of dollars in retirement savings -- including the California Public Employees’ Retirement System -- have been ratcheting down return expectations. Japan’s Government Pension Investment Fund, the world’s largest, has warned that money managers risk losses across asset classes. In Europe, pension funds may be forced to cut benefits in part thanks to the decline in rates.

The true madness is pension funds being forced to invest in assets which will be guaranteed to lose, such as in the case of long dated inflation-linked gilts at real yields of -3%,” said Mark Dowding, chief investment officer at BlueBay Asset Management, which has pension-fund mandates. “It is financial vandalism and the government and central banks need to wake up to this.”

Vandalism or Fraud?

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I commented on this previously.

Pick the term that suits you.

Five Choice Terms

  1. Fraud
  2. Theft
  3. Counterfeiting
  4. Robbery
  5. Vandalism

The first four are the most accurate but it is good to see someone else thinking about the situation along the right lines.

I discussed this setup in detail in Negative Yield Curves to Infinity and a Reader Question Regarding Fraud

Please read the above link if you don't understand why negative yields constitute fraud, theft, or counterfeiting, and why negative yields can never occur in the absence of manipulation.

Mike "Mish" Shedlock