Author: admin

Via AdventuresInCapitalism.com,

The history of industry leading consumer tech products has not been kind to investors who overstay their welcome. You need look no further than all the hundreds of notable recent failures, to realize that these companies almost always flame out. The list below (in no particular order) is a nice trip down memory lane of former favorites, that are now either bankrupt or shells of their former selves—often consumed by some other entity that fortunately put them out of their misery. Of course, the list below, is just from the past decade or two;

Palm, Gateway, Research In Motion, GoPro, FitBit, Heelys, Handspring, Compaq, BlueRay, Garmin, Delorean, Casio, Sega, Tamaguchi, TiVo, Betamax, AOL, Walkman (Sony), Set Top Boxes (Scientific American), Kodak, Atari, Napster, Netscape, Polaroid, etc.

Let’s just say, it’s hard at the top. You must guess each change in technology, each generation of improvement and design it for fickle consumers, while constantly outlaying capital for research and development that may never go anywhere. All the time, others are constantly trying to overtake you.

If you look at the lifecycles of these companies, they often follow a similar trajectory from ingenious creation with huge margins, to a few generations of new products with smaller margins, to massive competition as deep pocketed competitors and venture capitalists try and emulate your product, to missing a product cycle, to becoming obsolete. These consumer product companies rarely last more than a decade; often just a few years. In the end, consumer focused tech is vicious and Darwinian, with very few long-term competitive advantages.

Of course, Tesla (TSLA – USA) is something of an anomaly here. While the companies in the above list, all produced prodigious cash while they were industry leaders, Tesla seems to incinerate cash while in the lead—using repeated equity and now debt offerings to plug the hole. While other companies had a huge stash of cash to fall back on when others overtook them, Tesla’s cash balance leaves it only a few quarters from insolvency. Add in a host of questionable related party transactions, convoluted financial statements (what the hell is pro-forma revenue?), the inability to ever hit company guidance, deceptive disclosures and a business that seems to lose more money with each vehicle it produces, is it any wonder that Tesla is one of the most shorted large-cap stocks today? If I had to choose the most obvious pending bankruptcy of a large-cap stock, it is clearly Tesla.

At the same time, I have to give Elon Musk credit. He has created a company that is a rather successful cult, even if it is still a failing auto company. Every time that skeptics ask real questions, he deflects them with futuristic sci-fi pronouncements. What other automobile CEO is obsessed with Mars while his assembly line fumbles along? What other CEO talks of hyperloops, while his main product on auto-pilot will kill you if used as currently designed. This “visionary “status has deferred timelines and made all logical financial metrics meaningless to investors—which may be the point of all his hubristic talk in the first place. Extend, pretend, blatantly mislead investors, raise more capital. It’s the junior mining model—applied to auto production—on a scale that would make anyone in Vancouver blush.

Automobile production is a decidedly unsexy industry, with massive capital outlays, high fixed costs, huge cyclicality and low returns on invested capital throughout the cycle—the technical definition of an awful business. The leading players produce millions of vehicles a year, yet trade at mid-single digit cash flow multiples, due to how awful the industry is. Why is Tesla valued like a high-tech growth stock, where investors ignore accelerating operating losses; if the best-case outcome is that it becomes a cyclical auto manufacturer with depressing returns on capital? A new technology like electronic vehicles (EV) sounds cutting edge, but so was automatic transmission, air conditioning, power steering, fuel injection, etc. All the other auto makers copied these technologies and caught up within a few years—much like what is now happening in EV. So, how has Tesla become such an epic bubble, if it is competing (poorly) in an industry that is notorious for destroying capital? It is clearly the promotional genius of Elon Musk. Naturally, he won’t be the first or last “visionary” to have a comeuppance.

So, going back to my question, which is the genesis of this article; when will the Tesla stock promote finally implode?

Long-time readers of this site know that I no longer short companies. This was a hard-learned lesson from when I was short Research in Motion, about two years too soon and watched as it went up 3-fold on me—before ultimately collapsing as I had predicted. Unfortunately, I was not short much by the time of the collapse as a small position had mushroomed into something pretty large and I was forced to keep covering at accelerating losses—lest I be forced to sell good longs to fund the repeated margin requirements of the short. While my thesis had been right, my timing was wrong. As long as investors believed in Blackberry, it didn’t matter that Apple and Samsung were building competing products that were likely to be better. It didn’t matter that Chinese players were producing low-end models that were likely to be almost as good, but at a fraction of the cost. It didn’t matter that competition from cash rich competitors grabbing for market share would crush margins. No one on Wall Street cared—until the iPhone finally showed up and people realized it was better. Then the Research in Motion collapse began.

For the past year, Tesla was a bet on pending mass production of affordable EV cars. Earlier this summer, we saw the first of the Tesla Model 3s to be produced. Even the normally ebullient journalists struggled to hide their disappointment with the product. This is understandable, dozens of competing EV models are coming, starting as soon as 2018. Will they be better than the Model 3? Based on what we know thus far, they’re unlikely to be worse. As they continue to advance EV technology, auto companies with far greater resources than Tesla, will eventually surpass it—much like with Blackberry. Then again, Research in Motion was coining money while at the top of its game—Tesla consumes money, while racking up debt. This won’t be a game of margins and profits—all the incumbents need to do is show that they can break even producing a comparable vehicle. At that point, the funding for Tesla will subside and its debt will bury it.

I was too early with RIMM and I don’t want to be too early with TSLA. So, I’ve been patient. I’ve been waiting for the competitors to show up. They’re now coming. The Tesla Model 3 is a dud—competing products will begin showing up in 2018 and they look much better. However, I’m not going to short TSLA. I’m going to use long-dated puts—much like I’ve played all subsequent dead-man-walking companies with an uncertain mortality date.

The problem with puts, is that long-dated puts are expensive. Fortunately, there’s a way to offset this cost, the bear put spread. This is the purchase of a put and the sale of a put at a lower price. By doing this, your gains are capped by the price of the put you’ve sold, but since your cost is much lower, you get to play with many more of them. Besides, you don’t need Tesla at zero to win with these, you just need Tesla’s share price to drop materially from here. If my timing is wrong, my losses are small and I can reload when they expire. Besides, I don’t expect TSLA to be a zero immediately. It is much more likely to limp towards zero, as opposed to imploding towards zero—making the bear put spread even more attractive than straight puts. Let’s just say that for the past few months, I’ve been adding to this position. The net cost of the spread is cheap and the timing now seems increasingly pregnant.

When will Tesla’s stock promote finally implode? When people realize that it’s a cash incinerating vanity project for Elon Musk, at a time when new, better products are coming to the market. That point is coming soon. Very soon.

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It's been less than two hours since police identified the suspect in today's Halloween terror attack in NYC as 29-year-old Uzbek national Sayfullo Habibullaevic Saipov, and already the New York Post has published an interview with a friend of the suspected terrorist who reportedly expressed complete shock when told his friend had killed 8 people and injured more than a dozen others in what some sources described as the deadliest terror attack in NYC since 9/11.

Kobiljon Matkarov, 37, and a fellow Uzbek native, described Saipov as a "very friendly" man who worked for Uber. Matkarov met Saipov in Florida about five years ago shortly after he came over from Uzbekistan. The two connected over their mutual heritage, with Matkarov adding that Saipov had no terrorist connections.

“He is very good guy, he is very friendly… he is like little brother… he look at me like big brother,” Matkarov said by phone Tuesday from his home in Miamisburg, Ohio.

Saipov was identified as a resident of Tampa, Florida, by police but according to Matkarov had been living in New Jersey where he drove for Uber as recently as this summer. Matkarov said he last saw Saipov in June when he asked him to a ride to JFK, where the family was catching a flight to Uzbekistan.

“He dropped me to the airport with my family… I called him and said I needed a ride."

Matkarov said Saipov got along well with Matkarov's five kids, who enjoyed playing with Saipov.

“My kids like him too, he is always playing with them. He is playing all the time,” Matkarov remembered.

But when Matkarov’s son asked for a picture with Saipov, he refused.

“He no like that. He said no,” Matkarov said.

New York Gov. Andrew Cuomo said Saipov acted alone when he carried out today's attack and that there were no signs of an international plot. However, the New York Times has reported that allegiance notes to ISIS written in Arabic were found at the scene.

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In our comprehensive review of the GOP tax bill which was scheduled to be unveiled tomorrow, we noted the following key caveat  “There are a lot of unknowns in this process, the biggest of which – of course – is whether the bill will be delayed from its scheduled Wednesday appearance.” In retrospect, and in light of the conflicting reports about what may be contained in the final draft of the bill, this has proved prophetic because moments ago, Axios reported that week’s 2nd biggest events – after Trump’s announcement of Jay Powell as the next Fed chair – the release of the Republican tax bill is being postponed by at least one day, from Wednesday to Thursday.

The delay of the scheduled release, by the House Ways and Means Committee, reveals the difficulties the team has had in resolving how to raise enough money to pay for the massive corporate tax cuts. Political hot button issues — like the treatment of 401k savings — are still in flux. The delay shouldn’t affect the timing for the mark-up, which is expected to happen Monday.

Separately, the Hill adds that the GOP now says the bill will be released on Thursday as lawmakers scramble to reach a consensus on how to restructure the nation’s tax laws.

Fights over possible changes to the tax status of 401(k) retirement plans and the state and local taxes deduction are at the center of the delay. Lobbyists chattered throughout the day over whether Wednesday’s big unveiling of the GOP tax package would have to be delayed as it became clear that lawmakers were differing over various reductions.

 

Hours before the decision was made to punt the release for a day, Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters that he intended to release text of a bill Wednesday — but that it would not be a chairman’s mark. This would allow Brady to make changes to the text through the weekend ahead of a planned markup on Monday in the Ways and Means Committee.

 

President Trump had sought to quash any changes to 401(k) plans last week, but it has become clear that Republicans have not stopped talking about shifting the tax status of the plans as they seek to ensure their bill does not add to the deficit after its first 10 years. Republicans have discussed lowering the amount people can put into their retirement plans before taxes, which could increase the amount of revenue initially hit by taxes. 

 

Brady appears to be moving toward a compromise that would allow a deduction for local property taxes — a concession that could win at least some support from the blue-state Republicans. “I think we’re moving in the right direction,” Rep. Leonard Lance (R-N.J.) said on CNN Tuesday.

 

The bill’s unveiling would launch the GOP’s blitzkrieg effort to try to pass legislation by Thanksgiving and trigger a lobbying bonanza from both supporters and opponents. Any delay in the bill’s introduction is not helpful giving the time pressures, though the delay of one day would not affect the planned Monday markup.

The delay itself is not surprising as the final bill is expected to somehow reconcile numerous other, often conflicting items among which:

• Are middle-class cuts from the budget framework (like doubling the standard deduction and expanded child tax credits) included?

• Is the SALT deduction included (or capped in some way)?
• What level is the corporate tax rate (over/under Trump’s 20% target)
• Is there a fourth tax bracket (rumblings suggest incomes above 1mm USD would be affected)
• Is the tax cut retroactive to Jan. 1, 2017?
• Is there a repatriation deal for money kept overseas?
• Does it add to the deficit?  If so, how much?
• Will extraneous issues be slipped into the draft to entice specific voters?
  • Minimum wage hike
  • Border wall funding
  • Debt ceiling compromise
  • Planned parenthood funding

And much more. In light of this, the biggest surprise would be if the GOP actually manages to have a just one day delay.

This means that for markets Thursday is now shaping up as an especially painful day, with announcements due on not only the next Fed chair, but also the layout of the tax bill. The good news is that no matter what the “news” actually is, the market will hit new all time highs.

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Having made no friends this week with his McCarthyite 'blacklist' of potential Russia-sympathizers, and facing bans and probes throughout eastern Europe (for his 'Open Society' actions), bilionaire investor George Soros has a new enemy – Isarel!

As Haaretz' Jonathan Lis reports, MK Miki Zohar (Likud) announced on Monday that he planned to submit a bill that would make it harder for leftist organizations to receive funding from organizations considered hostile to Israel.

He said the bill, named for mogul George Soros, won the approval of Prime Minister Benjamin Netanyahu (but, associates of Netanyahu couldn’t say on Monday whether the prime minister would support the proposed law in the Knesset).

 

Its exact wording has yet to be disclosed.

 

Zohar said the bill would prevent “donors who are anti-Semites, inciters or hostile to Israel” from donating to Israeli organizations.

 

Zohar said he was aiming at donors like Soros who donate to organizations like Adalah – the Legal Center for Arab Minority Rights in Israel, B’tselem, Breaking the Silence, Ir Amim, Machsom Watch, Yesh Din and the New Israel Fund, which he said were all anti-Zionist.

 

He said such donors should be considered anti-Semitic, inflammatory and hostile, and donations from them to non-profits or Israeli corporations should be forbidden.

 

According to the bill, the Strategic Affairs Ministry will compile and periodically update a list of bodies and organizations that are hostile to Israel or are defined as anti-Semitic.

The actions of Hungarian Prime Minister Orban and now the Israeli government appear to be escalating since Soros donated $18 billion his 'Open Society' Foundation.

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Authored by Cabot Philips via CampusReform.org,

This year at Campus Reform, we’ve reported extensively how college students around the country have increasingly taken offense to Halloween celebrations, often accusing various costumes of being offensive and declaring students who wear them guilty of “cultural appropriation.”

At campuses around America, students have been discouraged from wearing sombreros, ninja outfits, Native American headdresses, or any other costume which assumes a culture one does not represent.

One prominent example of this trend came last year at Yale University, where students famously protested a professor who simply advised students to wear whatever Halloween costume they deemed appropriate.

Students at Yale and elsewhere have made it clear: they want their schools to take preemptive measures to prevent the wearing of Halloween costumes which could offend.

But would they be willing to support a more extreme measure in the hopes of limiting hurt feelings this Halloween season?

Campus Reform visited Yale with a petition to outlaw Halloween on the New Haven, Connecticut campus.

Posing as a member of the fictitious “Yale Students for An Inclusive Fall Season,” I attempted to garner support for my cause.

I had no idea how easy it would be.

After explaining that my goal was to create a more inclusive campus and limit the number of students made uncomfortable by costumes each year, I received signature after signature.

What was their rationale for signing the outrageous petition? Watch the full video to find out.

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Earlier today, Milliman released their 2017 Public Pension Funding Study which explores the funded status of the 100 largest U.S. public pension plans.  Not surprisingly, this study only served to confirm many of the rather alarming trends surrounding public pension ponzi’s that we discuss on a regular basis.

Starting with a high-level status update, Milliman figures the largest 100 public pensions were roughly just as underfunded on June 30, 2017 as they were on June 30, 2016…not an encouraging development given that the S&P 500 surged 15% over that same period.

This 2017 report is based on information that was reported by the plan sponsors at their last fiscal year ends—June 30, 2016 is the measurement date for most of the plans in our 2017 study. At that time, plan assets were still feeling the effects of market downturns in 2014-2015 and 2015-2016. Total plan assets as of the last fiscal year ends stood at $3.19 trillion, down from $3.24 trillion as of the prior fiscal year ends (generally June 30, 2015). However, market performance since the last fiscal year ends has been strong, and we estimate that aggregate plan assets have jumped to $3.44 trillion as of June 30, 2017. We estimate that the plans experienced a median annualized return on assets of 11.49% in the period between their fiscal year ends and June 30, 2017.

 

The Total Pension Liability reported at the last fiscal year ends totaled $4.72 trillion, up from $4.43 trillion as of the prior fiscal year ends. We estimate that the Total Pension Liability has increased to $4.87 trillion as of June 30, 2017. The aggregate underfunding as of the last fiscal year ends stood at $1.53 trillion, but we estimate that the underfunding has narrowed to $1.43 trillion as of June 30, 2017.

Meanwhile, 32% of the top 100 plans were less than 60% funded.

Of course, the discussion gets far more interesting when Milliman analyzes the prevailing discount rates used by public pensions compared to independent analyses of where those discount rates should be set. 

As our readers are well aware, we’ve long argued that public pension funds essentially hide their true funding status by simply choosing artificially high discount rates for future liabilities thus making their present values appear lower than they actually are.  It’s a clever scam but one that can only persist until the ponzi runs out of cash.

As Milliman notes, the median expected return of the 100 largest public pension funds in the U.S. is somewhere around 5.9% based on the asset allocations of those funds.

That said, you can imagine our shock to learn that 83 of the top 100 funds used discount rates in excess of 7%.

So, what does that mean?  Well, Milliman figures that overstating a fund’s discount rate by just 1% artificially reduces it’s benefit liability by up to 15%.  Therefore, given that the aggregate liabilities of the top 100 funds are roughly $5 trillion, each 1% adds about $750 billion in liabilities.

A relatively small change in the discount rate can have a significant impact on the Total Pension Liability. How big that impact is depends on the makeup of the plan’s membership: a less “mature” plan with more active members than retirees typically has a higher sensitivity to interest rate changes than a more mature plan with a bigger retiree population. Other factors, such as automatic cost of living features, also come into play in determining a plan’s sensitivity. Using a discount rate that is loo basis points higher or lower than the independently determined investment return assumption moves the aggregate recalibrated Total Pension Liability by anywhere from 8% to 15% (see Figure 13).

Adding insult to injury, Milliman notes that the ratio of retired pensioners (those taking money out of the system) to active pensioners (those still funding the ponzi) has surged 16% over the past couple of years. 

Of course, this ratio is only going to get worse over the coming decade as a wave of Baby Boomers retire…unfortunately, that wave of retirements will result in many of them finally realizing they’ve been sold a retirement fantasy for their entire life.

Here is the full study from Milliman:

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Earlier, we reported on Under Armour’s epic stock collapse down over -75% from its September 2015 highs. This is one stock Central Bankers forgot to buy. Today’s stock crash -15% is being felt across Baltimore once again, city streets are eerily calm, as the latest round of millennials who ‘bought the dip’ called in sick this morning. Something tells us, the avocado and toast breakfast will be sadly missed by many….

Bloomberg sums up today’s terrible earnings report blamed on ‘shortfall on operational disruptions from a recent technology systems transition’, and also provides a dismal macro outlook for the company.

In terms of trades, Kevin Plank (CEO) appears to be a genius – selling stock at highs. Form 4s concludes, he’s sold over $145 million worth of paper even during the stock collapse.

Immediately, Kevin Plank – through his full-service real estate firm called Sagamore Development Company – embarked on the construction of his whiskey distillery nestled in Baltimore’s inner harbor.

At the point of construction in 2H15, the stock crashed -20% to -30%. Fast forward to April 2017, Plank in a need of a drink opened his whiskey distillery, as the stock crashed another -50%.

Plank, a smart guy, knew the only way to comfort shareholders was to offer them a bottle of good American whiskey to soothe the pain of Under Armour’s stock crash.

This is by far, a much better class act of distractions when compared to Elon Musk’s circus act

Simultaneously, Plank built an elitist only hotel in Baltimore’s Fells Point district called Sagamore Pendry.

The two year, $60 million dollar project was also constructed around the time of the whiskey distillery.

According to Kayak.com, the 128-room property sits on the historic recreation pier in Fells Point with rooms starting at +$335. Interesting to note, a majority of Americans don’t even have $500.00 in savings, so a one night stay at Plank’s hotel does not welcome middle America.

JPM’s Wealth Inequality desk outlines that nearly 1/3 of households of color have a net worth of zero in Baltimore. Considering total population is around 620k, that means over 100k African Americans in the city are flat broke. This gives you a perspective of Baltimore’s economic disparities as Plank builds fancy things.

Nevertheless, Plank’s Sagamore Farm, valued $18-$20 million just 25 minutes north of the city is another example of the lavish lifestyle Kevin Plank is manufacturing at the expense of Under Armour shareholders.

And one more thing, Plank’s $5.5 billion dollar ‘city with-in a city’ for elites was in danger of failing this year. Goldman Sachs came in with a hockey stick save for $233 million back in September to rescue the project when the stock was 20% higher. With the latest tumble in the stock along with re-imaging plans for the company through layoffs and cost cuts. The idea of such a project is farfetched.

Bottomline:

Kevin Plank’s actions over the past few years will certainly go down in the record books of what not to do in a stock market bubble. It’s only a matter of time when the overwhelmingly poor citizens of Baltimore wake up to the wide wealth inequalities produced by easy money policies of the Federal Reserve.

Nevertheless, the city is currently spiraling out of control with a homicide rate doubled of Chicago’s, along with an opioid crisis that is straining resources of the tax payers and city hall.

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Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. A bolivar is worthless, and with its collapse, Venezuela is witnessing the world’s worst inflation. 

As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. So, the last official inflation data reported by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure Venezuela’s inflation in 2013. 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate, which last peaked at 3473% (yr/yr) in late October 2017. At present, Venezuela’s annual inflation rate is 2875%, the highest in the world (see the chart below).

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In the latest sign that America’s looming pension crisis is inching closer to an all-our collapse that will inevitably end in a series of bailouts – or worse, the failure to pay out retiree’s coveted benefits – a handful of California cities are lashing out at CALPers after being forced to hike pension contributions to offset expectations for long-term returns that have been revised lower by the state pension system.

Ten of the largest local governments in the capital region can expect to pay a total of $216 million to CalPERS in fiscal 2018-19, an increase of $27 million over this year, according to the Sacramento Bee. And nearly half of that increase will be borne by one local government – the city of Sacramento.

The Sacramento region’s largest local governments will see pension costs go up by an estimated 14 percent next fiscal year, starting a series of annual increases that many city officials say are “unsustainable” and will force service cuts or tax hikes.

 

The increases come after CalPERS in December reduced the expected rate of return from investments, forcing local governments and other participants in the state’s retirement plan to pay more to cover the cost of pensions.

As one might expect, city officials are less than pleased. According to Leyne Milstein, the city of Sacramento’s finance director, said the city’s pension costs will double in seven years, and while city revenues have also increased in recent years, thanks in part to a strong real-estate market, the rise won’t be nearly enough to offset the increased cost.

“It’s not sustainable,” Milstein said. “These costs are going to make things incredibly challenging.”

In a report this month, Joe Nation, a researcher at the Stanford Institute for Economic Policy Research, wrote that “employer pension contributions are projected to roughly double between 2017 and 2030, resulting in the further crowd out of traditional government services.”

Nation said he supports tax increases to pay for pension obligations, although he adds that it would be extremely difficult to muster political support for such a tax.

In a futile exercise that resembles banging one’s head against a wall, local government officials from across the state, including West Sacramento, complained to CALPers board members, warning that they would need to cut services and raise taxes to put more money toward pensions.

“We don’t know how we’re going to operate,” said Oroville’s finance director, Ruth Wright, who suggested that a doubling of pension costs in five years could force the city into the nuclear option. “We’ve been saying the bankruptcy word.”

Of course, there’s little CALPers can do. If it doesn’t mandate the increases, it knows that will increase its culpability when the music stops and every asset has been liquidated.

To wit, Steve Maviglio of the labor-backed Californians for Retirement Security said officials have the means to address the increased costs. “If city officials are truly interested in meeting their obligations, they always have that opportunity at the bargaining table or providing more revenue thru measures on the ballot,” he said.

Of course, this exercise in cya isn’t nearly enough to stave off the inevitable collapse. Nation questions whether the new CalPERS return rate is too optimistic. In his report, he provides estimates for how much local governments can expect to pay if the fund’s investments don’t meet projections. In 12 years, the city of Sacramento would see pension costs go up $94 million a year under his alternative projection.

To afford these higher costs absent higher revenues, Sacramento would have to cut 25% of police and fire services after cutting other less essential services.

Milstein said she won’t estimate when or if the city will have to start cutting employees if the current financial forecast proves correct. In the city’s current budget, officials said, “Given the current revenue forecast, the city alone cannot absorb the increased costs of providing retirement benefits.”

Some groups, including the League of California Cities are lobbying CalPERS to consider funding options besides raising employer rates, including possibly suspending cost-of-living adjustments for pensioners and looking at working current workers into less generous plans.

As we’ve noted many times, defined benefit pension plans are, in many cases, a Ponzi scheme…

Current assets are used to pay current claims in full despite insufficient funding to pay future liabilities…but unlike Wall Street Ponzi schemers like Bernie Madoff, nobody goes to jail because everybody is complicit.

While California’s problem is certainly dire, pension costs directly triggered budget battles in state capitols across the US this year. Connecticut is still struggling to pass a budget that meaningfully reduces an expected $3.5 billion two-year deficit.

Indeed, as the chart below illustrates, underfunded pensions are an endemic problem.

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