Author: admin

Back when oil was at $100 and above, the Saudi economy was firing on all cylinders, and nobody even dreamed that the crown jewel of Saudi Arabia – Aramaco – would be on the IPO block in just a few years. However, with oil stuck firmly in the $50 range, things for the Saudi economy are going from bad to worse, and today Riyadh – when it wasn’t busy preventing Yemeni ballistic missiles from hitting the royal palace – said its economy contracted for the first time in eight years as a result of austerity measures and the stagnant price of oil, as the Kingdom announced record spending to stimulate growth.

OPEC’s biggest oil producer said 2017 GDP shrank 0.5% due to a drop in crude production, as part of the 2016 Vienna production cut agreement, but mostly due to lower oil prices. The last time the Saudi economy contracted was in 2009, when GDP fell 2.1% after the global financial crisis sent oil prices crashing. Riyadh also posted a higher-than-expected budget deficit in 2017 and forecast another shortfall next year for the fifth year in a row due to the drop in oil revenues: the finance ministry said it estimates a budget deficit of $52 billion for 2018.

More surprising was the Saudis announcement of a radically expansionary budget for 2018, projecting the highest spending ever despite low oil prices in a bid to stimulate the sluggish economic, saying it expects the GDP to grow by 2.7%. While we wish Riyadh good luck with that, we now know why confiscating the wealth of ultra wealthy Saudi royals was a key component of the country’s economic plan…

Specifically, spending is at 978 billion riyals ($260.8 billion), up 10% on 2017 estimates, the Saudi finance ministry said: “The 2018 expansionary budget includes a number of new development projects,” Crown Prince Mohammed bin Salman, who oversees the economic affairs, said in a statement quoted by the official Saudi Press Agency. It was unclear if the projects include the prince purchasing another ultra expensive French chateau or just a few more Leonardo paintings purchased by proxy.

“About 50 percent of the new budget will be financed from non-oil sources,” said the powerful Crown prince, who clearly envisions even more royal arrests and asset “confiscations.”

The Saudi economic contraction comes as the world’s top oil exporter tries to cope with persistent budget deficits that began in 2014 when oil prices plummeted. In the past four years, Riyadh posted a total of $258 billion of budget deficits, withdrew $240 billion from its reserves and borrowed around $100 billion from domestic and international markets.

So far it has not been enough to restore economic growth.

The new budget was announced during a cabinet meeting chaired by King Salman who said the country would “continue to decrease its dependence on oil to reach just 50 percent” of total revenues.

The finance ministry also said the budget deficit for 2017 came in at $61.3 billion, or 9.2 percent of GDP, and higher than the expected $53 billion. It could be worse: the shortfall is still 25% lower than the $82 billion posted in the previous year.

King Salman told the cabinet that Saudi Arabia expects to continue posting a deficit through to 2023.

Some more details from the released budget courtesy of Bloomberg:

• Revenues in 2018 were estimated to be 783 billion riyals ($208.8 billion), up 13% on the previous year’s projections.
• Actual revenues for the current fiscal year rose by a healthy 34 percent compared with 2016 to $185.6 billion due a sharp increase in both oil and non-oil revenues.
• Actual non-oil revenues collected in 2017 reached 256 billion riyals ($68.3 billion), a 38 percent rise on the previous year, reflecting the impact of hiking prices and imposing fees.
• Total spending includes 83 billion riyals from the sovereign wealth fund and 50 billion riyals from national development funds, in addition to the 978 billion riyals allocated in the 2018 budget
• Capital spending will increase by more than 13 percent
• The economy is expected to grow 2.7 percent next year after contracting 0.5 percent in 2017
• Inflation is expected to reach 5.7 percent from a negative rate at the end of 2017
• The government expects to spend 32 billion riyals in 2018 on a cash-transfer program designed to protect middle- and lower-income Saudi families from the planned increase in fuel and electricity prices
• Non-oil revenue in 2018 is expected to rise to 291 billion riyals versus 256 billion riyals this year
• Achieving the fiscal balance goal was delayed to 2023 from an initial target of 2019

In recent years, Riyadh had resorted to a string of austerity measures to contain spending and imposed a variety of subsidy cuts and rises in prices of services, which however failed to boost consumption and if anything, led to further contraction.

In this context, Prince Mohammed, the architect of the Vision 2030 program of reforms for a post-oil era, has announced a host of mega projects, including a futuristic megacity with robots and driverless cars, which require about $500 billion in investments. It is unclear where he will get the money from unless oil somehow miraculous recovers to $100.

Actually a war with Iran that drag in some other Gulf states may be precisely what the Crown Prince ordered to send Brent back into the triple digits and restore the Saudi economic shine.

Until the war, however, the cornerstone of the kingdom’s economic reforms is the IPO of 5% of national oil giant Aramco, planned for next year.

As AFP reminds us, Prince Mohammed last year unveiled his “Vision 2030” program of economic and social reforms for a post-oil era with the aim to reduce the country’s dependence on oil. The heir to the Saudi throne has been behind stunning decisions to allow women to drive and to lift a 35-year-old ban on cinemas.

Last month, he launched a wide-ranging crackdown on dozens of elites, ostensibly to tackle corruption but in reality to beef up government funds. Paradoxically, since 2015, the ultra-conservative and oil-rich Gulf state has also introduced a series of price hikes on fuel and electricity. It has also imposed fees on expats and is preparing to introduce value-added tax in the new year.

via http://ift.tt/2kMhYXd Tyler Durden

Via The Daily Bell

From politically correct lies to government enforced silencing, and even insane public opinion, free speech is under attack.

But sometimes, there is some good news coming out of the courts. Taking a case to the American court system is a bit like flipping a coin. Still, it is encouraging to see pro-free-speech rulings being handed down.

The Right to Free Tweets

Do Trump’s tweets make you feel sad? Are you a public figure who has felt the wrath of Trump’s twitter account? Has the President’s use of 140 characters negatively impacted your career or personal life?

Cry me a river. An appeals court ruled that Trump cannot be sued for the nasty things he says on Twitter.

The defamation suit by public-relations specialist Cheryl Jacobus was dismissed in January by New York state court Judge Barbara Jaffe, who said Trump’s “intemperate tweets” were protected opinion, even if they were intended to “belittle and demean.”

A five-judge appeals court panel in Manhattan on Tuesday upheld the ruling. It found that Trump’s statements about Jacobus were “too vague, subjective and lacking precise meaning” to be defamatory, and that a reasonable person would find them to be opinion and not fact.

There you have it. No matter how far you go in life, know that you can always call people dummys and losers on Twitter. It is your right as an American.

But seriously people need to calm down with litigation over what people say about them. Are they really so weak that words hurt them? Sad!

You Can’t Own a Word.

Should companies really be able to own a word, and prevent others from using it? For example, Microsoft is a made up company name, and it makes sense for them to own it. But windows already existed prior to the operating system. Facebook has even sued websites for using “book” in their name, like teachbook.

A Court of Appeals has ruled that the rap record label Empire Distribution cannot sue Fox for naming its show about the rap music industry Empire.

This seems to deviate from previous rulings which hold that if a company is in the same industry, or has a similar product, then this type of name would be infringement.

But in this case, the show was set in New York City, within the Empire State. The courts said because of this, the trademark was relevant, and did not seek to intentionally mislead customers.

Things would start to get pretty dicey if using every word in the English language carried the risk of intellectual property infringement.

It is understandable to ensure that potential customers don’t get confused, and are not misled by other companies with the same or similar names. But fraud and similarity are totally different. And there are ways to differentiate yourself without using the courts.

Offensive Trademarks Are Okay

 

An appeals court ruled that offensive and immoral trademarks are protected free speech.

This ruling was based on a decision earlier this year which allowed The Slants, an Asian American band, to trademark their name.

This case centered around a clothing company called Fuct that was originally denied a trademark because of its scandalous name.

But if the government is going to issue trademarks, they should not have the arbitrary authority to decide if something is too inappropriate to be given a trademark. That is what happened when the Redskins were stripped of their intellectual property protection. The logo and name could then be used freely by companies not affiliated with the football team.

Again, there are probably better ways to protect your business’s uniqueness than relying on the courts. But while trademark law protects some companies, it should protect them all. Otherwise, those arbitrarily denied trademarks are left at a disadvantage.

But putting the trademark debate aside, this is a good thing for free speech. Taken along with the freedom to tweet, the courts affirm that just because speech is distasteful or offensive does not mean it can be limited.

We still need to keep an eye on the “hate speech” and “fake news” efforts of the mainstream media. They want to convince you that it is more important to stop hurtful words from being uttered than to protect freedom of speech.

via http://ift.tt/2B04ldO TDB

Considering the lengths to which the G-20 goes to "not discuss" Japan's burgeoning debt-to-GDP and monetization scheme, you know the elites are starting to panic when Germany backs France's call for a full discussion on the regulation of Bitcoin at their next G-20 meeting.

As Coindesk reports, France's finance minister is planning to push for a discussion on bitcoin regulation at a G-20 summit in 2018.

Citing French news network LCI, Reuters reported yesterday that Finance Minister Bruno Le Maire said in an interview that he will ask Argentina, which is set to take control of the G20 presidency, to put bitcoin on the agenda during an upcoming gathering in April.

Le Maire was quoted as saying:

“I am going to propose to the next G20 president, Argentina, that at the G20 summit in April we have a discussion all together on the question of bitcoin. There is evidently a risk of speculation. We need to consider and examine this and see how … with all the other G20 members we can regulate bitcoin."

How that conversation will play out remains to be seen. Representatives from G-20 nations have previously discussed the topic through the Financial Stability Board (FSB), which has been studying the tech since 2016.

Indeed, that Le Maire would want to push in this direction is perhaps surprising, given France's proactive stance on regulation around the tech. For example, earlier this month the French government gave its approval to new rules that will allow unregistered securities to be traded on a blockchain.

Financial regulators in France also launched an initial coin offering (ICO) initiative, dubbed Project UNICORN, that effectively lays the groundwork for token sales to take place under the auspices of the Autorité des marchés financiers (AMF).

Additoinally, as Bloomberg reports, Germany joined European governments pushing for global bitcoin regulation amid mounting alarm that the world’s most popular digital currency is being used by money-launderers, drug traffickers and terrorists.

Germany’s Finance Ministry said it welcomed a proposal by French Finance Minister Bruno Le Maire to ask his counterparts in the Group of 20 to consider joint regulation of bitcoin. The concerns are shared by the Italian government, which is also open to discussing regulation, while the European Union is bringing in rules backed by the U.K. that would apply to bitcoin.

 

“It makes sense to discuss the speculative risks of virtual currencies and their impact on the financial system at international level,” the Finance Ministry in Berlin said in an emailed response to questions. The next meeting of G-20 finance ministers and central bank governors would be “a good opportunity to do so.”

But is there a hidden agenda here?

image courtesy of CoinTelegraph

While hiding behind the pretense of cracking down on money laundering and tax evasion, one wonders if this is not more about protecting European banks…(via CoinTelegraph)

Last Friday, Reuters reported that EU states had agreed to implement stricter rules on the use of cryptocurrencies. With an eye on cracking down on money laundering and tax evasion, the efforts are calling for more transparency from exchange operators. European Commissioner for Justice, Consumers and Gender Equality V?ra Jourová said:

“Today’s agreement will bring more transparency to improve the prevention of money laundering and to cut off terrorist financing.”

In an interview with RT, former MI5 intelligence officer Annie Machon insists that the European Union decision to tighten up regulations on cryptocurrency exchanges is mainly being done to protect the interests of big banks.

Analyzing the situation, Machon said it’s like any other knee-jerk reaction, as old ways and new collide:

“I think we have a situation where any new form of technology on the internet, we’ve seen this for the last 30 years, that challenges the business models of established businesses is going to be cracked down on by governments, by international organizations to try and protect the old business models.”

“And we have seen it again in the attack on the old business model of the old media where piracy became the new threat and they tried to use laws to stamp that out. I think that is inevitable, if we have something that decentralizes the money supply and threatens the business model of the banks, of course, there’s going to be pushback against it.”

Machon conceded that criminals would inevitably use Bitcoin and other cryptocurrencies – but that doesn’t stop them from using banks either. Using that is an easy excuse to infringe on people's privacy, according to the former MI5 official:

“Any crackdown on our rights of privacy on the internet always has an excuse that it is trying to stop money laundering or trying to stop terrorism or pedophiles or whatever. I think, probably the vast majority of users of Bitcoin are doing it legitimately, they just have a legitimate concern to uphold their right to privacy as well.”

It is commonplace for Bitcoin and other cryptocurrencies to get a bad wrap from past associations to dark web marketplaces. But as Machon reminds us, some banks hands are dirty as well:

“Yes, sure, criminals are going to use this, but criminals already use banks. So many banks have been caught out money laundering on vast scales and have received vast fines for laundering gray and black money from particularly the drug trade. Perhaps, we should say that the EU should close down our banks, too.”

What is perhaps most notable is the lack of pushback against cryptocurrencies from Japanese officials who have gone out of their way to 'ignore' or 'study' Bitcoin before making any damning prognostications.

Could it be that this is Japan's secret reflation scheme… remember Japan makes up the bulk of Bitcoin trading currently world wide.

via http://ift.tt/2kkVXPE Tyler Durden

Authored by Thomas Lifson via AmericanThinker.com,

 

via http://ift.tt/2yYgAWn Tyler Durden

Once upon a time Jefferies was the country’s biggest junk bond trading shop, with a small investment banking group on the side. Now, it’s the other way around.

in its latest quarter and fiscal year ended November 30, Jefferies – which is the last public company to announce results in the old bank convention with a Nov 30 fiscal year end – reported a record $529 million investment banking advisory revenue for the quarter, up 27% Y/Y, and $1.76BN for the 12 months ended Nov. 30. This was the fourth year in a row that the firm has brought in more revenue from investment banking than from trading.

“Our fourth quarter performance was driven by $529 million in Investment Banking net revenues. These quarterly record Investment Banking results reflect solid contributions from equity and debt capital markets, strong performance in our merger and acquisition advisory business, and broad participation across our industry groups and regional efforts… Our strategy of prioritizing expansion of our investment banking effort continues to succeed and should yield further growth over the next several years” CEO Rich Handler said in the statement.

That was the good news; The bad news is that fixed income trading crashed by a whopping 37%, and far more than the 10-15% comps previewed by Jefferies’ bigger banking peers.

Commenting on the sharp drop in fixed income revenues, which dropped to the lowest since the first quarter of 2016 when global capital markets were turmoiling, Dick Handler sayd that “our Fixed Income net revenues of $95 million are reflective of a period of lighter volumes, particularly in November, and narrower bid – offer spreads”  Equity trading in Q4 rose modestly by 10% to $194, the smallest increase this year.

While hinted at by JPM, Citi and BofA, the severity of Jefferies’ 37%  fixed income revenue plunge took many by surprise. As such, the bank, which is seen as a harbinger of upcoming results by the big banks, is suggesting that the final trading revenues may be well worse than corporate CFOs have warned in recent weeks.

Bigger banks have already telegraphed that the fourth quarter’s rising volatility won’t provide any redemption. Executives at JPMorgan Chase & Co. and Bank of America Corp. earlier this month forecast that trading revenues will be down at least 15 percent compared with the same period a year ago. Most of the large banks report fourth-quarter results next month.

Meanwhile, as Bloomberg notes, investment bankers across Wall Street are outperforming traders in growth of both revenue generated and the size of their bonuses. And courtesy of central banks, there is no end in sight to this shift: weak volatility and sluggish volumes across markets are expected to crimp incentive pay for traders, according to executives and recruiters.

Indeed, the i-banking heavy Jefferies – which is owned by Leucadia National Corp – has benefited from this, and compensation to Jefferies staff rose to $1.83 billion, a 17% gain from a year ago and the highest since at least 2009. The firm employed 3,450 as of Nov. 30, compared with 3,438 people three months earlier.

via http://ift.tt/2yZ0jRd Tyler Durden

Authored by Lance Roberts via RealInvestmentAdvice.com,

In last week’s Technical Update, I discussed the potential for the S&P 500 to hit 2700 by Christmas. To wit:

“The current momentum behind the market advance is clearly bullish, and with the ‘smell of tax reform’ in the air, there is little to derail the bulls before year-end.

 

However, in the meantime, there seems to be nothing stopping the market from going higher. As stated in the title, the current push higher puts 2700 in sight by the time Santa fills the ‘stockings hung by the chimney with care.'”

With the markets within striking distance of that target, the run to Nasdaq 7000, Dow 25000 and S&P 2700 are all but guaranteed at this juncture. More interestingly, all three will be ticking off milestone gains at some of the fastest paces in market history. In fact, the Dow has posted three all-time records just this year:

• 70 new highs,
• A 5000-point advance in a single year, and;
• 12-straight months of gains.

Just as a reminder of previous market bubbles, here is what they looked like.

As I discussed with Danielle Dimartino-Booth this morning. Not only is the current rally reminiscent of 1999, but to 2007 as well. In fact, the current bubble, as she states, is a combination of both.

As Danielle and I discussed, it seems eerily familiar.

In 1999:

• Fed was hiking rates as worries about inflationary pressures were present.
• Economic growth was improving 
• Interest and inflation rates were rising
• Earnings were rising through the use of “new metrics,” share buybacks and an M&A spree. (Who can forget the market greats of Enron, Worldcom & Global Crossing)
• Margin-debt / leverage was at the highest level on record. 
• Stock market was beginning to go parabolic as exuberance exploded in a “can’t lose market.”
• Speculative asset of choice: Dot.com stocks

In 2007:

• Fed was hiking rates as worries about inflationary pressures were present.
• Economic growth was improving 
• Interest and inflation rates were rising
• Debt and leverage provided a massive “buying” binge in real estate creating a “wealth effect” for consumers and high-valuations were justified because of the “Goldilocks economy.” 
• Margin-debt / leverage was at the highest level on record. 
• Stock market was beginning to go parabolic as exuberance exploded in a “can’t lose market.”
• Speculative asset of choice: Real Estate

In 2017:

• Fed was hiking rates as worries about inflationary pressures were present.
• Economic growth is improving because of 3-hurricanes and 2-wild fires.
• Interest and inflation rates are expected to rise
• Earnings were rising through the use of “new metrics,” share buybacks and an M&A spree. 
• Margin-debt / leverage is at the highest level on record. 
• Stock market was beginning to go parabolic as exuberance exploded in a “can’t lose market.”
• Speculative asset of choice: Bitcoin

Of course, those are just some of the similarities.

Valuations in all three cases exceeded the long-term market peaks of 23x reported earnings. Investor confidence was pushing extremes and deviations from long-term means in prices, relative-strength and moving-averages were all present.

The chart below shows the S&P 500 from 1993-present. As shown, the 100-period RSI, 3-standard deviations above the 200-dma and the 50/200 day moving average MACD line are all at historical extremes. While such readings do NOT suggest a downturn is imminent, it does suggest that risk is elevated and potential upside from current levels is likely limited.

I have combined the three periods below, scaled to 100, so you can see just how far we have currently gone.

Sure. This time could be different. It just probably isn’t.

Our Job As Investors

Again, none of this suggests the market is going to crash tomorrow. But a massive mean reversion process is coming, it is inevitable, the only question is of the timing.

As I noted last week in “The Exit Problem,” it is time to start considering sitting a little closer to the “exit.” To wit:

“Am I sounding an ‘alarm bell’ and calling for the end of the known world? Should you be buying ammo and food? Of course, not.

 

However, I am suggesting that remaining fully invested in the financial markets without a thorough understanding of your ‘risk exposure’ will likely not have the desired end result you have been promised.

 

As I stated often, my job is to participate in the markets while keeping a measured approach to capital preservation. Since it is considered ‘bearish’ to point out the potential ‘risks’ that could lead to rapid capital destruction; then I guess you can call me a ‘bear.’

 

Just make sure you understand I am still in ‘theater,’ I am just moving much closer to the ‘exit.’”

What does that mean?

I have now been in the financial markets in some capacity since prior to the crash of 1987.

Yes, I am that old.

During that time I have watched investors repeat the same mistakes over and over again. From exuberance to fear, buying high to selling low, chasing returns, and always believing this time is different, only to once again be reminded it’s not. 

As the old saying goes:

“The more things change, the more they remain the same.”

If you have been around the markets for any length of time, you can quickly spot the “pigeons at the poker table.” These are the ones that continually rationalize why prices can only go higher, why this time is different than the last, and only focus on the bullish supports. Trying to “draw to an inside straight” is not impossible, it just leads to losses more often than not. 

But therein lies an important point.

As investors, our job is NOT making the case for why markets will go up.

Read that again.

Making the case for why markets will rise is a pointless endeavor because we are already invested.

If the markets rise, terrific. We all made money, and we are the better for it. However, that is not our job.

Our job, is to analyze, understand, measure, and prepare for what will reduce the value of our invested capital. 

Period.

If we are to accumulate capital over the time-span that we have available, from today until we reach retirement, the most important thing we can do to ensure our success is not suffering a large loss of capital. 

Therefore, our job as investors is actually quite simple:

• Capital preservation
• A rate of return sufficient to keep pace with the rate of inflation.
• Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4%)
• Higher rates of return require an exponential increase in the underlying risk profile.  This tends to not work out well.
• You can replace lost capital – but you can’t replace lost time.  Time is a precious commodity that you cannot afford to waste.
• Portfolios are time-frame specific. If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

With forward returns likely to be lower and more volatile than what was witnessed in the 80-90’s, the need for a more conservative approach is rising. Controlling risk, reducing emotional investment mistakes and limiting the destruction of investment capital will likely be the real formula for investment success in the decade ahead.

This brings up some very important investment guidelines that I have learned over the last 30 years.

• Investing is not a competition. There are no prizes for winning but there are severe penalties for losing.
• Emotions have no place in investing.You are generally better off doing the opposite of what you “feel” you should be doing.
• The ONLY investments that you can “buy and hold” are those that provide an income stream with a return of principal function.
• Market valuations (except at extremes) are very poor market timing devices.
• Fundamentals and Economics drive long-term investment decisions – “Greed and Fear” drive short-term trading. Knowing what type of investor you are determines the basis of your strategy.
• “Market timing” is impossible– managing exposure to risk is both logical and possible.
• Investment is about discipline and patience. Lacking either one can be destructive to your investment goals.
• There is no value in daily media commentary– turn off the television and save yourself the mental capital.
• Investing is no different than gambling– both are “guesses” about future outcomes based on probabilities.  The winner is the one who knows when to “fold” and when to go “all in”.
• No investment strategy works all the time. The trick is knowing the difference between a bad investment strategy and one that is temporarily out of favor.

As an investment manager, I am neither bullish or bearish. I simply view the world through the lens of statistics and probabilities. My job is to manage the inherent risk to investment capital. If I protect the investment capital in the short term – the long-term capital appreciation will take of itself.

via http://ift.tt/2B0dYJy Tyler Durden

Starting July 1, 2018 stock markets around the world are going to get yet another artificial boost courtesy of a decision by the $350 billion California Public Employees’ Retirement System (CalPERS) to allocate another $15 billion in capital to already bubbly equities.  Of course, if this decision doesn’t make sense to you that’s because it’s not really meant to make sense. 

As Pensions & Investments notes, CalPERS’ decision to hike their equity allocation had absolutely nothing to do with their opinion of relative value between assets classes and nothing to do with traditional valuation metrics that a rational investor might like to see before buying a stake in a business but rather had everything to do with gaming pension accounting rules to make their insolvent fund look a bit better.  You see, making the rational decision to lower their exposure to the massive equity bubble could have resulted in CalPERS having to also lower their discount rate for future liabilities…a move which would require more contributions from cities, towns, school districts, etc. and could bring the whole ponzi crashing down. 

The new allocation, which goes into effect July 1, 2018, supports CalPERS’ 7% annualized assumed rate of return. The investment committee was considering four options, including one that lowered the rate of return to 6.5% by slashing equity exposure and another that increased it to 7.25% by increasing the exposure to almost 60% of the portfolio.

 

The lower the rate of rate means more contributions from cities, towns and school districts to CalPERS. Those governmental units are already facing large contribution increases — and have complained loudly at CalPERS meetings — because a decision by the $345.1 billion pension fund’s board in December 2016 to lower the rate of return over three years to 7% from 7.5% by July, 1, 2019.

Meanwhile, there was only one dissenting vote on the decision to hike the fund’s equity exposure.  Ironically, the dissent did not come from a rational investor looking to preserve the fund’s assets, but rather from a board member named J.J. Jelincic who wanted to go all-in on the pension accounting scam and hike the fund’s equity allocations to 60% so that discount rates could be raised even higher than the current 7%.

Of course, this is hardly a new topic for us. As we pointed out a year ago in a post entitled “CalPERS Board Votes To Maintain Ponzi Scheme With Only 50bps Reduction Of Discount Rate,” each year CalPERS has to weigh mathematical realities against the risk of disrupting the ponzi scheme and forcing several California cities to the brink of bankruptcy with lower discount rates…‘mathematical realities’ rarely win that fight.

But a CalPERS return reduction would just move the burden to other government units. Groups representing municipal governments in California warn that some cities could be forced to make layoffs and major cuts in city services as well as face the risk of bankruptcy if they have to absorb the decline through higher contributions to CalPERS.

 

“This is big for us,” Dane Hutchings, a lobbyist with the League of California Cities, said in an interview. “We’ve got cities out there with half their general fund obligated to pension liabilities. How do you run a city with half a budget?”

 

CalPERS documents show that some governmental units could see their contributions more than double if the rate of return was lowered to 6%. Mr. Hutchings said bankruptcies might occur if cities had a major hike without it being phased in over a period of years. CalPERS’ annual report in September on funding levels and risks also warned of potential bankruptcies by governmental units if the rate of return was decreased.

Under the plan adopted Monday, in addition to their 50% equity allocation, CalPERS will have a 28% weighting to fixed income, up from 20%.  Real assets, which includes real estate, will keep its 13% allocation, while private equity will remain at 8% and CalPERS’ liquid portfolio, made up of cash and other short-term instruments, will fall to 1% from 4%.

via http://ift.tt/2oIvxvY Tyler Durden