QUESTION: Martin – Given your compelling elucidation of the business cycle (which remains ineluctable even with central bank and regulatory distortion of money and markets), the avg annual return targets set by pension and retirement plans seems absurd. CalPERS had an annual bogey of 8% to meet via its active management. Even in a rapidly-growing economy whose markets were free from distortions, it seems that any fixed number could only rationally be set as a target if the investment horizon spanned several business cycles. This would allow at least some averaging over bull and bear phases to enable a fixed average return target like this to have any meaning.
This is not exotic – it seems commons sense. Do professional asset managers (or central bankers for that matter) make up nice-sounding goals that they know they cannot meet, or do they just not know what they are doing?

ANSWER: The fund managers are not really very professional. The majority of pension funds based their returns upon the standard 8% yield of long-term 30 year bonds. They have never actually adjusted their return expectations and thus the majority remain under-funded.

Do not apply this to all pension funds. We have helped many make the transition to the real world. When you have CALPERS where the decisions come often from the board, which is not professional, but political, therein lies the problem. The Social Security system is likewise a disaster. I tried to convert it into a wealth fund almost 20 years ago. The Democrats blocked it for anything to do with the free markets to them was risky. Thus, they stuff it with their own debt and then lowered interest rates. The fund is broke and you will see demands to raise taxes to cover the losses the politicians have created, yet they will of course blame someone other than themselves.

Someone who has simply managed a pension fund for the government is typically not qualified to be a private fund manager. If they were hired from the private sector to then clean up a public pension fund, then we have a different type of person. It will depend at that point on the board of directors and if they will allow the fund manager to make market decisions or will they still be overridden by politics.

Keep in mind that I often appear to be the lone analyst on many issues. This is ONLY because those with experience must sign confidentiality agreements to work for a fund or bank. They are not allowed to make comments for whatever they say would be attributed to their employer. I get tons of emails cheering often what I say because they are silenced. You really have to peek behind the curtain to comprehend what goes on because it really does defeat COMMON SENSE! It is like everything else. Nobody would have sat down and designed a financial or political system as we have today. This whole mess is just total insanity. It does not take a conspiracy, it takes stupidity. These people attribute such knowledge to people that is not justified. Some of these decisions do not make even the basic common sense tes

While CNN and ABC news have turned really vicious against Trump, they are failing to report the real impact of world events that can undo everything. As we head into April/May, we are looking at a real crisis emerging that is beyond contemplation. The prospect of the breakup of the European Union because Brussels refuses to consider that their dream of ruling all of Europe is coming to an end. Yes, Juncker has said he will stand down while Draghi tries to threaten member states, saying they have to pay up in order to leave.

Last September, the International Monetary Fund (IMF) has warned at the G20 summit in Hangzhou, China, that in the face of crises, the refusal to reform how things are functioning will lead to economic weakness in the global economy. “The latest data shows subdued activity, less growth in trade, and a very low inflation, suggesting an even weaker global economic growth this year,” the IMF told G20 leaders.

The real crisis behind the curtain remains not TRADE, but BANKING. The EU hired over 20,000 people to regulate the European banking system. They have been installing bail-ins after that worked in Cyprus. They have been moving toward instant banking transfers by September 2017 with the design of eliminating cash. All of this becomes a major risk and the European Central Bank holds 40% of all government debt in the Eurozone. The cracks in the foundation of the EU are tremendous and the ramifications will ripple through the entire global economy. The seriousness of this crisis is being ignored by mainstream media because they are too busy trying to undermine Trump because their own ratings have collapsed. Newspapers are for the 50+ generation. The youth go to the internet and really do not watch the news of mainstream media. They are rapidly becoming sidelined and they hate Trump’s tweets because he is going directly to the people much as FDR did with his fireside chats.