Submitted by Taps Coogan on the 12th of April 2018 to The Sounding Line.
Wolf Richter, creator of the website Wolfstreet.com, recently gave a wide ranging interview with Peak Prosperity’s Chris Martenson and issued the following warning for pension funds:
“Central banks like to think there is such a thing as a free lunch. If they can just print up all this money and get some… asset price inflation all is going to be good, but of course the opposite side, the cost for this lunch was pension funds were just getting obliterated without having any yield that they could get on safe, so-called safe, assets on the bond side… 60% of their assets (US pensions) are invested in equities. So an equity correction here would be just absolutely devastating…”
“… These pension funds, clearly this was perfect timing. You know plowing into… stocks… after they had already been rising for years. So yeah like you said, they’re heavily involved in stocks and they’re facing a correction on those, a big one. They’re also still involved with bonds and they are now having a dual problem. So the stock prices, you know they’re at risk and they’re likely to decline and that’s going to hurt pension funds but the bond market it also at risk and the bond prices are declining and, while the yields are going up, the yields that the bonds in the portfolios generate are very low. So the pension funds that have these bonds, and they carry them to maturity, these bonds are generating the yields that were in the market a year or two or five ago and these are very low yields… They have 10-year treasuries in them that,,, yield their portfolio 2% or less than that… They may have Euro-bonds in it that yields a negative rate. And so when yields go up these days, those yields don’t change. They’re locked in their portfolios and unless they sell those bonds at a loss and replace them with high yielding instruments, those yields are locked in… So now they’re having the losses on the stocks. They’re having extremely low yields for the next many years on their bond portfolio and they’ve taken on more risk by going into alternative investments such as private equity and so forth. So they have loaded up on risk to deal with the situation. And that’s clearly what the central banks wanted, what the Fed wanted. They wanted every investor to go way out on the risk branch and pension funds have done that and now the price, as your said, is right here in front of us…”
There is a great deal more to the interview, so enjoy it below:
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